Letter of Intent for
Business Acquisition
Your LOI sets the terms for your entire deal. Every clause you miss becomes a concession in purchase agreement negotiations. Here's what an M&A attorney needs you to know before you sign anything.
Alex Lubyansky on every deal • Nationwide practice
Using a template? Get it reviewed first.
Templates are a starting point, not a finished product. An attorney review ensures your LOI protects your position. LOI review vs due diligence: what's the difference?
What Is a Letter of Intent in a Business Acquisition?
A Letter of Intent (LOI) is a document that outlines the key terms of a proposed business acquisition before the parties commit to a binding purchase agreement. In M&A transactions, the LOI establishes the purchase price, deal structure, due diligence timeline, exclusivity period, and conditions to closing. Most LOI provisions are non-binding, but critical sections like exclusivity and confidentiality are binding upon signature. The LOI is not a formality - it's the strategic foundation that shapes every subsequent negotiation.
Why You Shouldn't Submit an LOI Without Attorney Review
A template gets you 60% of the way. The other 40% - the deal-specific provisions, the risk allocation, the binding commitments - is where transactions are won or lost.
Lost by a buyer last month due to a missing working capital adjustment clause in their LOI. The seller had no obligation to negotiate it later.
Of LOIs we review from other sources are missing at least one critical protection that would cost the buyer $50K+ in the final deal.
Average exclusivity period. Once signed, you're locked into the deal framework. Weak LOI terms become weak purchase agreement terms.
The 11 Essential Clauses in Every Business Acquisition LOI
Whether you're buying a $1M local business or a $50M company, every acquisition LOI must address these 11 areas. Missing any one creates risk in your purchase agreement negotiation.
1. Purchase Price and Payment Structure
The total consideration and how it's allocated: cash at closing, seller financing, earnout, escrow holdback, and working capital adjustments.
Attorney Insight: Never state a single lump-sum price without specifying payment structure. How you pay matters as much as what you pay. A $5M deal with $3M cash, $1M seller note, and $1M earnout is a fundamentally different transaction than $5M cash at closing - different risk, different tax treatment, different leverage.
2. Transaction Structure (Asset vs. Stock)
Whether you're buying specific business assets or the entity's ownership shares. This single decision impacts taxes, liability exposure, and contract transferability. See our complete asset vs. stock purchase guide.
Attorney Insight: Most buyers want an asset purchase (choose what you take, leave liabilities behind). Most sellers want a stock sale (cleaner exit, capital gains treatment). Your LOI must specify the structure clearly - changing it later can blow up the deal.
3. Assets Included and Excluded
For asset purchases: the specific assets being acquired (tangible property, inventory, IP, customer lists, contracts, permits, goodwill) and what the seller retains (typically cash, receivables, corporate records).
Attorney Insight: The excluded assets list is where deals get contentious. If you don't specify that pre-closing receivables stay with the seller, you'll fight about it during purchase agreement drafting. Be explicit now.
4. Assumed Liabilities
Which obligations the buyer takes on. In an asset purchase, the buyer typically only assumes liabilities under assigned contracts arising after closing - nothing else unless specifically agreed.
Attorney Insight: This is the clause that protects you from inheriting the seller's problems. Vague language here - like "buyer assumes normal business liabilities" - is a blank check. List exactly what you're assuming. Everything else stays with the seller.
5. Due Diligence Period and Scope
The timeframe (typically 45-90 days) and the information the seller must provide: financial records, tax returns, contracts, employee records, facility access, and management interviews. See our due diligence checklist.
Attorney Insight: The due diligence clause should specify what the seller must provide, not just that they'll cooperate. A seller who promises "reasonable access" can delay your review for weeks. Spell out the categories of documents and a timeline for delivery.
6. Conditions to Closing
The requirements that must be satisfied before the transaction closes: satisfactory due diligence, third-party consents, no material adverse change, financing contingency, key employee retention, and regulatory approvals.
Attorney Insight: Your conditions to closing are your exit ramps. If due diligence reveals a problem, you need a clear legal basis to walk away. Don't rely on informal agreements - codify every condition in the LOI.
7. Exclusivity (No-Shop Provision)
Prevents the seller from soliciting or entertaining other offers during the agreed period (typically 60-90 days). This is one of the binding provisions in an LOI.
Attorney Insight: Exclusivity protects the buyer's investment of time and money in due diligence. Without it, a seller can use your offer as leverage to get better terms from another buyer. This clause is binding - make sure the duration matches your due diligence timeline and includes remedies for breach.
8. Confidentiality
Mutual obligations to keep the existence and terms of the deal confidential. Covers all exchanged information, proprietary business data, and the fact that negotiations are occurring. Also a binding provision.
Attorney Insight: A separate NDA is often signed before the LOI, but the LOI confidentiality clause should be comprehensive on its own. If the deal falls apart, both parties need protection for the sensitive information they shared.
9. Representations and Warranties Framework
The categories of representations the seller will make in the purchase agreement: organizational authority, financial statement accuracy, no undisclosed liabilities, tax compliance, litigation status, IP ownership, and material contracts.
Attorney Insight: Don't wait for the purchase agreement to negotiate reps and warranties. Establishing the framework in your LOI prevents surprises later. A seller who won't commit to standard representations in the LOI is signaling potential problems.
10. Indemnification Structure
How losses are allocated after closing: survival periods (12-24 months), basket thresholds, caps (typically 25-50% of purchase price), escrow amounts and duration, and specific indemnities for known risks.
Attorney Insight: The indemnification framework is where experienced M&A attorneys earn their fee. Setting these terms in the LOI - especially escrow amounts and cap percentages - gives you leverage in the purchase agreement negotiation. If the seller agrees to 20% escrow in the LOI, they can't argue for 5% in the purchase agreement.
11. Binding vs. Non-Binding Provisions
Clear identification of which sections create legal obligations (typically: exclusivity, confidentiality, expenses, and governing law) and which are non-binding expressions of intent (everything else).
Attorney Insight: Every LOI must explicitly state which provisions are binding. Ambiguity here creates litigation risk. Courts have enforced entire LOIs as binding contracts when the binding/non-binding distinction wasn't clear. This is the most common - and most dangerous - mistake in DIY letters of intent.
Need Your LOI Reviewed by an M&A Attorney?
Alex Lubyansky reviews LOI terms personally. Get experienced counsel before you sign.
Request Engagement AssessmentOr call directly: (248) 266-2790
Asset Purchase LOI vs. Stock Purchase LOI
The structure of your acquisition determines what your LOI must cover. Here's how the two most common structures differ - and which is right for your deal.
| Factor | Asset Purchase LOI | Stock Purchase LOI |
|---|---|---|
| What's acquired | Specific assets you choose | Entire entity (all assets + liabilities) |
| Liability exposure | Only what you agree to assume | All existing liabilities transfer |
| Contract transfer | Requires third-party consent | Contracts stay with entity (usually) |
| Tax treatment | Buyer gets stepped-up basis | Seller gets capital gains treatment |
| Complexity | More complex (asset schedules, allocation) | Simpler transfer, but more risk |
| LOI must include | Asset/liability schedules, Section 1060 allocation | Rep & warranty framework, indemnification caps |
| Best for | Most small-to-mid-market deals ($1M-$25M) | Deals where contracts/licenses can't transfer |
Not sure which structure is right for your deal? Talk to Alex or read our complete asset vs. stock purchase guide.
LOI Red Flags: When to Call an Attorney Immediately
If You're the Buyer
- ! Seller wants exclusivity over 90 days without matching due diligence access
- ! No working capital adjustment mechanism
- ! Seller resists standard rep & warranty framework
- ! Indemnification caps below 10% of purchase price
- ! No escrow holdback provision
- ! Vague "assumed liabilities" language
If You're the Seller
- ! Buyer wants extended exclusivity but won't commit to financing timeline
- ! No break-up fee for buyer walking away after extended due diligence
- ! Earnout tied to metrics you can't control post-sale
- ! Escrow above 20% of purchase price
- ! Unlimited indemnification exposure
- ! Buyer's conditions to closing are too broad or subjective
Drafting or reviewing an LOI? Get M&A counsel who negotiates these monthly. Request a consultation →
LOI Template Reference: What a Properly Drafted LOI Looks Like
Below are attorney-drafted LOI templates for asset and stock purchase transactions. These are the same structures used in our active deals. Use them as reference - then have our team customize for your specific transaction.
Template #1
Asset Purchase LOI Template
For acquiring specific business assets while controlling liability exposure
Template #2
Stock Purchase LOI Template
For acquiring the entire entity including all contracts, licenses, and relationships
Important: These templates are starting points. Every business acquisition has unique considerations - industry regulations, multi-state operations, intellectual property, key employee retention, environmental issues, and more. Request an engagement assessment to get your LOI customized for your specific deal.
Industry-Specific LOI Considerations
Different industries require additional LOI provisions. If you're acquiring a business in these sectors, your LOI needs specialized clauses:
Healthcare / Veterinary
- Regulatory compliance conditions
- Provider contract assignments
- HIPAA provisions
- License transferability
Dental Practices
- DSO consolidation terms
- Non-compete radius
- Patient record transfer
- Associate retention
Medical / PE Platform
- Stark/Anti-Kickback compliance
- Medicare/Medicaid participation
- Management service agreements
- Physician employment terms
Frequently Asked Questions About M&A Letters of Intent
Do I need an attorney for a letter of intent?
Yes. While LOIs are mostly non-binding, the exclusivity, confidentiality, and expense provisions ARE binding. Errors in these sections create legal obligations you can't undo. More importantly, the terms you agree to in your LOI set the framework for the entire purchase agreement negotiation. Weak LOI terms lead to weak deal terms. An experienced M&A attorney ensures you're not giving away leverage before the real negotiation begins.
Is a letter of intent legally binding?
Partially. Most LOI provisions (purchase price, deal structure, conditions) are non-binding expressions of intent. However, sections covering exclusivity, confidentiality, expenses, and governing law are typically binding upon signature. This hybrid structure is why attorney review is critical - you need to know exactly which commitments you're making.
What is the difference between an asset purchase LOI and a stock purchase LOI?
An asset purchase LOI covers the acquisition of specific business assets (equipment, inventory, IP, customer lists) while excluding unwanted liabilities. A stock purchase LOI covers the purchase of ownership shares, which transfers the entire entity - including all assets, contracts, AND liabilities. Asset purchases are more common in small-to-mid-market deals because they give buyers more control over what they acquire. Read our complete asset vs. stock purchase guide.
How long should the due diligence period be in an LOI?
Standard due diligence periods run 45-60 days for small businesses ($1-5M) and 60-90 days for mid-market transactions ($5-50M). Complex industries like healthcare, manufacturing, or businesses with significant regulatory requirements may need 90-120 days. Your LOI should also specify what happens if due diligence reveals material issues. See our due diligence checklist.
What happens after a letter of intent is signed?
After signing, the buyer enters the due diligence phase - reviewing financials, contracts, employee records, legal compliance, and physical assets. Simultaneously, attorneys begin drafting the definitive purchase agreement based on LOI terms. The buyer secures financing, and both parties work toward closing. The LOI timeline typically leads to closing in 90-180 days. Read more: Purchase Agreement Negotiation Guide or LOI vs. Purchase Agreement.
Can you back out of a letter of intent?
You can back out of the non-binding provisions (purchase price, structure, conditions) at any time before signing the definitive purchase agreement. However, you cannot back out of binding provisions like exclusivity and confidentiality without potential legal consequences. Some LOIs include break-up fees (typically 1-3% of purchase price) that apply if a party walks away without cause.
How much does it cost to have an M&A attorney draft or review an LOI?
Attorney fees for LOI review typically range from $2,000-$10,000 depending on deal complexity. At Acquisition Stars, we provide experienced LOI review with transparent pricing upfront. Given that a single missing clause can cost $100K+ in a purchase agreement negotiation, attorney review is one of the highest-ROI investments in any deal. See our complete M&A attorney fee guide or get your engagement assessment.
Don't Submit Your LOI Without Attorney Review
Managing partner Alex Lubyansky personally reviews every LOI. 15+ years M&A experience at competitive rates. Submit your transaction details for review.
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Learn More →Due Diligence Checklist
What to review after your LOI is signed. The complete buyer's checklist.
Read Guide →LOI vs. Purchase Agreement
How your LOI terms shape the definitive agreement.
Read Article →Asset vs. Stock Purchase
Which deal structure is right? Tax, liability, and complexity compared.
Read Guide →