Letter of Intent (LOI)
Document that formalizes a buyer's serious interest and the broad outlines of an offer — price, structure, conditions, and timeline — before due diligence.
Definition
The letter of intent (LOI) is a document signed by a prospective buyer that expresses their formal interest in acquiring the business and sets out the key parameters of the proposed transaction.
In French-language Quebec documentation, you’ll see lettre d’intention (LOI), sometimes called a term sheet, used for the same concept.
The LOI is generally not legally binding on price and conditions — but it usually is binding on confidentiality and exclusivity.
Why the LOI is a pivotal moment
The LOI marks the shift from exploration to serious negotiation. Before the LOI, several buyers may be in play. After the LOI, the seller typically grants an exclusivity period to a single buyer to run due diligence.
What a typical LOI contains
- Purchase price proposed (or a range)
- Structure: share sale or asset sale
- Conditions: financing, due diligence, approvals
- Timeline: due diligence duration, target closing date
- Exclusivity: period during which the seller doesn’t negotiate with others
- Confidentiality: obligations on both parties
- Vendor take-back (VTB): portion of the price paid over time, if applicable
What every seller should know
- Receiving an LOI is a strong signal — but it isn’t a closed sale. Due diligence can still change everything.
- Negotiate the terms of the LOI carefully — price isn’t the only thing that matters. Structure (shares vs. assets), timing, and the vendor take-back have a major impact on what you actually keep.
- A broker negotiates the LOI on your behalf and can secure better terms than a direct negotiation.