A letter of intent — commonly called an LOI — is typically the first written document exchanged between a buyer and seller in a business transaction. It outlines the key terms of the proposed deal: the purchase price, the structure of the transaction, what is being acquired, the proposed timeline, and the conditions that need to be met before closing. The LOI is often described as non-binding, and in many respects it is. But that description is incomplete — and relying on it without understanding the nuances can create real problems.

Most LOIs contain a mix of non-binding deal terms and binding provisions. The binding portions typically include exclusivity or no-shop clauses — which prevent the seller from negotiating with other buyers during a defined period — confidentiality obligations, and sometimes terms governing who pays for deal costs if the transaction does not close. These provisions are enforceable even if the rest of the LOI is not. A seller who signs an LOI with a broad exclusivity clause and then receives a better offer is in a legally complicated position, regardless of what they understood the LOI to mean.

Beyond the binding versus non-binding distinction, the LOI matters because it frames the entire negotiation that follows. Deal terms that are left vague or unaddressed in the LOI tend to be harder to negotiate once the parties are deep into due diligence and legal drafting. Buyers and sellers who have clearly agreed on the structure, price adjustments, earnout terms, and transition expectations at the LOI stage generally have smoother paths to closing. Having a transactional attorney review or draft an LOI before it is signed is not overcautious — it is the point in the process where thoughtful legal input costs the least and prevents the most.