Author: Acquisition Stars · Last updated September 22, 2026
LOI vs. Term Sheet: Which Document Fits Your Acquisition?
An LOI and a term sheet can both record proposed acquisition terms. An LOI often uses a letter format; a term sheet often uses an outline or table. Neither label establishes which promises bind the parties, how detailed the proposal must be or which preliminary agreement comes first.
Compare the task and intended result
Choose a format that the buyer, seller and advisers can review consistently. Concise writing can address important obligations, while a longer draft may leave them uncertain. Start with the decisions the parties need to make and the effect they intend their agreement to have.
| Question | Letter of intent | Term sheet |
|---|---|---|
| How can terms be presented? | A letter with sections and attachments. | An outline, table or summary with attachments. |
| What can it address? | Price, structure, diligence, financing and intended obligations. | The same subjects, organized to suit the discussion. |
| Is it binding? | Review the text, related agreements, conduct and applicable law. | Apply the same review; a brief format is not a liability exemption. |
| Must another preliminary document follow? | No universal document sequence applies. | The parties may proceed to definitive documents or use another preliminary document. |
| What will the lender accept? | Confirm the actual lender’s requirements. | Confirm those requirements before relying on the format. |
Identify the intended obligations before signature
Ask counsel to identify the provisions intended to bind and explain how they interact with the existing NDA and other agreements. Exclusivity, confidentiality, expenses, dispute terms and negotiation commitments warrant attention. Do not assume that everything outside a short list is automatically non-binding or that a fixed percentage is unenforceable.
In SIGA Technologies v. PharmAthene (Delaware Supreme Court, 2013), the court addressed an enforceable contractual commitment to negotiate in good faith in accordance with a term sheet. The holding depended on the agreements and facts; it is not a rule that every negotiation produces the same result. It illustrates why a non-binding label should not replace a review of the full arrangement.
Does the term sheet or LOI come first?
There is no mandatory sequence requiring an IOI, then a term sheet, then an LOI. An auction may specify particular submissions; a direct negotiation may use one written proposal. An indication of interest should also be reviewed on its terms rather than assumed to carry no obligations because of its name.
If both documents exist, mark which version is current, what was accepted, which attachments form part of it and what remains open. Avoid circulating a revised draft that silently contradicts an accepted version. The term-sheet preparation workplan helps collect those decisions.
When a letter format helps
A letter can put the proposal in context and explain dependencies in connected prose. It may suit a seller or intermediary that requests an LOI. That preference does not establish a universal transaction-size threshold or justify leaving material financing or consent questions unresolved.
When an outline helps
A table or outline can help multiple reviewers compare versions and record open economic choices. Use it when that organization helps the parties work through the proposal. Complexity, professional status and transaction size do not determine legal effect by themselves.
Questions to resolve before sending a proposal
- Are the correct buyer, seller and target entities identified?
- Does the proposed price distinguish cash, deferred consideration and adjustments?
- Which funding, diligence and approval assumptions remain unconfirmed?
- Who would be bound by exclusivity or other obligations, and when would they end?
- Does the proposal conflict with an NDA, broker form, prior proposal or lender condition?
- Who has authority to approve and sign this version?
Do not infer a fee or completion timetable from the chosen format. Scope depends on the draft, issues, negotiations and deadline. Buyers with an identified target can discuss LOI drafting or review before a draft exists.
Frequently asked questions
Do I need both an LOI and a term sheet?
Not automatically. Decide what needs to be recorded and check any process requirements. If both exist, reconcile their terms and intended effects.
Can either document contain exclusivity?
Either can address exclusivity. The scope, parties, duration, exceptions and consequences depend on the actual provision and applicable law.
Can I change the proposed price after signing?
Review the commitments before proposing a change. Diligence may produce new information, but that does not erase binding obligations or establish a universal right to renegotiate.
Can I use a term sheet for a small acquisition?
The format can be adapted to the transaction. What matters is that the parties understand the proposal and obtain the appropriate review before relying on or signing it.
What if the seller receives another offer?
Review any exclusivity, notice and other relevant obligations before responding. Neither the document’s title nor the existence of another offer decides the permitted next step.