By: Jordan Gerheim CEO – Outside Chief Legal LLC
When buying or selling a business, most negotiations start with a Letter of Intent (LOI). This short document sets out the key terms before lawyers draft the full purchase agreement.
Yet the LOI stage is where many deals go sideways because business owners treat it as a formality instead of a powerful tool for shaping leverage, timing, and expectations.
A carefully drafted LOI balances flexibility with protection. It helps both sides confirm they are aligned – Aligned on price, structure, and process – without locking themselves into terms they may later regret.
What is a Letter of Intent?
A Letter of Intent outlines the essential terms of a proposed transaction: purchase price, structure (asset or equity deal), timing, and key contingencies. It is not a full contract but serves as the roadmap for drafting the definitive agreement.
Typical LOI objectives include:
- Ensuring both parties agree on economic terms before spending heavily on diligence.
- Setting expectations for due diligence timing and confidentiality.
- Controlling negotiations through exclusivity periods or “no‑shop” clauses.
- Avoiding misunderstanding and documenting good‑faith intent to proceed.
Binding vs. Non‑Binding Provisions
Most Letters of Intent are “non‑binding.” They outline intent rather than create obligations.
However, certain provisions often are binding, and business owners must know which is which.
Common Non‑Binding Terms
- Proposed purchase price and payment structure.
- Key deal terms such as retained employees, financing expectations, or transition support.
Common Binding Terms
- Confidentiality or non‑disclosure obligations.
- Exclusivity or “no‑shop” clauses limiting negotiations with others.
- Expenses or break‑up fee provisions.
- Governing law and dispute procedures during the negotiation period.
Mistaking a binding clause for a non‑binding one, or vice versa, can change your leverage. Courts have enforced LOIs when language such as “the seller agrees” or “the parties shall” appeared too definitive.
Exclusivity and “No‑Shop” Clauses
Exclusivity provisions give the buyer a period of security to conduct due diligence and negotiate the definitive agreement without competition. Sellers generally grant exclusivity for 30–90 days. This time is usually long enough to complete due diligence and move forward but short enough to avoid losing other potential buyers.
Red Flags for Sellers
- Open‑ended exclusivity with no termination or expiration date.
- Automatically extending exclusivity if the buyer requests more time.
Best Practices
- Tie exclusivity to measurable milestones: e.g. “Exclusivity ends 30 days after delivery of due diligence materials.”
- Require the buyer to proceed in good faith and deliver draft agreements during the period.
Negotiation Strategy: Leverage the LOI Phase
The LOI phase sets the tone, so approach it strategically.
- Use the LOI to flush out major issues early. Disagreements on price adjustments, earn‑outs, or retained liabilities are easier to fix before drafting begins.
- Avoid over‑negotiating details that belong in the final agreement. The LOI should be clear but concise—three to five pages at most.
- Protect information flow. Secure a confidentiality clause that survives even if the deal falls apart.
- Preserve leverage. Limit exclusivity length and avoid binding yourself to “best efforts” language until you’re ready to proceed.
- Plan transition timing. Build a realistic closing timeline based on due diligence, financing, and regulatory review.
How Outside Chief Legal Helps Business Owners
The strongest deals start with thoughtful Letters of Intent. Outside Chief Legal helps clients:
- Draft or review LOIs that balance flexibility with protection.
- Clarify which terms should (and should not) be binding.
- Align the LOI with tax, financing, and operational goals before negotiating the definitive purchase agreement.
Our attorneys act as your legal and strategic partner from first draft to closing, ensuring that your Letter of Intent is a launch‑pad, not a liability.
Our Corporate/Business Counsel Services
Outside Chief Legal LLC is a modern, forward-thinking law firm serving as fractional chief legal officers and outside general counsel for businesses and their owners. With over 200 years of combined litigation, in-house, general counsel and administrative legal experience, the firm delivers approachable, comprehensive counsel that blends legal expertise with practical business insight to help clients navigate ownership complexities with confidence. OCL is a trusted partner for founders, business owners, and leadership teams nationwide. Learn more about our firm, meet our team, or schedule a Risk-Free Strategy Session to talk with an attorney about how we can help your company.
