Letter of intent (LOI)

A letter of intent, sometimes called a term sheet, is the document that turns an early conversation into a serious process. In the sale of a business, it sets out the essential terms the buyer and seller intend to agree: the proposed price, how it would be structured, and the important conditions attached, along with matters such as exclusivity and confidentiality. Most of an LOI is not legally binding, since the detailed contract comes later, but it aligns both sides on the shape of a deal before either spends heavily on diligence and legal work.

Signing an LOI usually marks the start of due diligence, where the buyer examines the business in depth. For an owner, the LOI is a useful milestone: it shows a buyer is genuine without yet committing to sell, and it frames the negotiation that follows. A clear, fair letter of intent from a credible buyer is often the first real sign that a confidential conversation is becoming a transaction.