Letter of Intent_Acquisition of Business Template

In plain language: Identifies the prospective buyer and the seller by full legal name, states the date of the letter, and establishes the subject matter — the intended acquisition of the named business.

Common mistake: Using a trade name instead of the buyer's registered legal entity. If the deal closes, the contracting party in the LOI should match the entity that signs the definitive agreement.

In plain language: States the total consideration offered, whether paid as cash at closing, seller financing, an earnout, or a combination, and identifies whether it is an asset or share purchase.

Common mistake: Quoting a purchase price without specifying whether it is on a cash-free, debt-free basis. Sellers and buyers often interpret this differently, creating a significant gap when drafting the definitive agreement.

In plain language: Describes specifically what is being acquired — key assets, intellectual property, customer contracts, and employees — and calls out anything explicitly excluded from the transaction.

Common mistake: Omitting exclusions entirely. If the seller plans to retain a key asset — real estate, a vehicle, or a personal contract — and it is not listed, the buyer can reasonably expect it is included.

In plain language: Lists the conditions that must be satisfied before either party is obligated to proceed — completion of due diligence, financing approval, third-party consents, and regulatory clearances.

Common mistake: Using vague conditions like 'satisfactory financing' without defining what satisfactory means. Sellers should insist on specificity — or at least a financing deadline — to prevent indefinite delay.

In plain language: Establishes the period during which the seller agrees not to solicit, entertain, or negotiate other offers, giving the buyer a clear runway to complete due diligence.

Common mistake: Setting an exclusivity period that is too short for realistic due diligence. Forty-five to sixty days is typical for small business acquisitions; complex deals may require ninety days.

In plain language: Commits both parties to keeping the existence of negotiations and any shared information confidential, typically whether or not a deal closes.

Common mistake: Relying solely on confidentiality language in the LOI without executing a standalone NDA. The LOI's confidentiality clause does not cover information shared before the LOI was signed.

In plain language: States the buyer's general intention regarding retention of employees and any specific requirements around the seller's continued involvement post-closing.

Common mistake: Making specific employment promises in the LOI before due diligence confirms headcount, compensation structure, and any outstanding employment claims.

In plain language: Sets out the expected schedule for due diligence, definitive agreement drafting, and closing, giving both parties a shared reference point.

Common mistake: Omitting a timeline entirely. Without milestone dates, either party can stall indefinitely without technically breaching the LOI.

In plain language: Clarifies that the LOI is not a binding commitment to complete the transaction, while explicitly identifying which provisions — exclusivity, confidentiality, and governing law — are legally binding.

Common mistake: Failing to enumerate specifically which clauses are binding. Courts have found entire LOIs to be binding contracts when binding and non-binding provisions were not clearly separated.

A letter of intent (LOI) for a business acquisition is a formal document from a prospective buyer to a seller that outlines the key proposed terms of a purchase — price, structure, exclusivity, and timeline — before a binding contract is drafted. It is typically non-binding except for specific provisions like confidentiality and exclusivity, and it signals serious intent while giving both sides a framework for due diligence and definitive agreement negotiations.

Most LOIs are intentionally non-binding on the core deal terms, meaning neither party is obligated to complete the transaction. However, specific provisions — typically exclusivity, confidentiality, and governing law — are drafted to be binding. Courts have enforced entire LOIs as binding contracts when binding and non-binding sections were not clearly separated, so the distinction must be explicit in the document.

An LOI is a preliminary, typically non-binding document that establishes the framework for a deal and enables due diligence to begin. A purchase agreement — whether a Share Purchase Agreement or Asset Purchase Agreement — is the final, fully binding contract that governs the actual transaction. The LOI is replaced by and superseded by the definitive agreement at signing.

An exclusivity period is a defined window — typically 30 to 90 days — during which the seller agrees not to solicit or negotiate with other potential buyers. It gives the buyer time to conduct due diligence and negotiate the definitive agreement without competition. Exclusivity is one of the few binding provisions in a standard LOI and is critical protection for a buyer investing significant time and money in the process.

Best practice is to state a specific proposed purchase price rather than a range. A range signals that the buyer has not committed to a number and can be interpreted as an invitation to negotiate upward. State the price as a specific figure, specify the basis (cash-free, debt-free), and describe any variable components such as earnouts or seller financing separately.

In an asset purchase, the buyer acquires specific assets and assumes only the liabilities it agrees to take on — leaving the legal entity and its remaining liabilities with the seller. In a share purchase, the buyer acquires the legal entity itself, inheriting all assets and liabilities. The LOI should specify which structure is proposed, as it affects tax treatment, third-party consent requirements, and the scope of due diligence.

For straightforward small business acquisitions, a high-quality template is typically sufficient to produce a credible, professional LOI. Engaging a lawyer is worthwhile when the deal involves significant earnout mechanisms, complex excluded liabilities, regulatory approvals, or a purchase price above $1 million where the binding/non-binding distinction carries material financial risk.

From submitting an LOI to receiving a countersigned acceptance typically takes three to ten business days for straightforward deals. Due diligence under the exclusivity period then runs 30 to 90 days depending on the complexity of the business. Most small business acquisitions proceed from a signed LOI to a definitive agreement within 60 to 90 days.