The letter of intent is the document that turns a round of conversations into something that looks like a real deal. It is usually short, often just a handful of pages, and it can feel almost casual compared to the purchase agreement that comes later. That impression is misleading. Most of the leverage in a business sale gets set in the LOI, not in the final contract, because by the time lawyers draft the purchase agreement, everyone is negotiating inside the frame the LOI already built.
Owners selling a business for the first time sometimes treat the LOI as a formality to get past quickly so due diligence can start. Treating it that way is a mistake. This is a walkthrough of what an LOI typically contains and the topics worth reviewing with your advisors before you sign one, not a substitute for legal or tax advice on your specific document.
What an LOI Actually Is (and Isn't)
A letter of intent is a preliminary agreement between a buyer and seller that lays out the expected terms of a transaction: purchase price, structure, timeline, and the major conditions both sides expect to satisfy before closing. Most of an LOI is explicitly non-binding. The business terms are a statement of intent, not an enforceable promise to complete the deal on those terms.
Certain sections are typically binding even in an otherwise non-binding document: confidentiality, exclusivity, and sometimes governing law and dispute resolution. Reading the LOI section by section with your advisors, rather than treating it as one uniform document, is the first topic worth putting on the table.
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Binding vs Non-Binding Provisions
Because an LOI mixes binding and non-binding language in the same document, it is worth asking your advisors to mark up exactly which paragraphs create real obligations and which ones are aspirational. A price range stated as "intent" is different from a price range stated as a firm commitment, even though both can appear in similar language on the page.
This distinction matters most when a deal falls apart after the LOI but before closing. Whether you can walk away cleanly, or whether you are still bound by exclusivity or confidentiality terms, depends entirely on how those specific provisions were drafted.
Some LOIs also include a short list of "specific performance" items, obligations either side can enforce in court even though the broader deal terms remain non-binding. A break-up fee is less common in smaller business sales than in larger corporate transactions, but it occasionally shows up, and it is worth knowing in advance whether one applies to your deal and under what circumstances it would be triggered.
How an LOI Differs From a Term Sheet
The terms "letter of intent" and "term sheet" sometimes get used interchangeably, but they are not always the same document. A term sheet tends to be shorter and more bullet-pointed, focused narrowly on price and structure. An LOI is usually more complete, covering process terms like exclusivity, diligence access, and confidentiality alongside the business terms.
Neither format is inherently better protection for a seller. What matters is reading the actual provisions in front of you rather than assuming a document labeled one way or the other follows a standard template. Two LOIs from two different buyers can look very different from each other even when they are describing a similar deal.
Exclusivity and No-Shop Clauses
Almost every LOI includes an exclusivity period, often called a no-shop clause, during which the seller agrees not to negotiate with other buyers. This protects the buyer's investment in due diligence, but it also takes you off the market for the length of the exclusivity window, typically 30 to 90 days.
Topics worth reviewing before you agree to an exclusivity period: how long it runs, what happens if it needs to be extended, and whether there are any carve-outs for unsolicited offers. A short exclusivity window with clear extension terms gives you more flexibility if the buyer's diligence drags on.
Purchase Price and Structure Language
The headline number in an LOI is rarely the whole story. Structure terms, how much is cash at close, how much is an earnout, a seller note, or rollover equity, change what that number actually means to you. The LOI should spell out the general structure even if exact mechanics are left for the purchase agreement.
This is also where working capital adjustments and any assumed liabilities typically get a first mention. If the LOI is vague on structure, that vagueness tends to resurface as a disagreement during purchase agreement drafting, later and more expensive to resolve than catching it now. A business sale advisor can help translate structure language into what it means for your actual proceeds.
If an earnout is part of the proposed structure, the LOI should at least sketch out the performance metric involved, whether that is revenue, a profit measure, or a customer retention target, and the general length of the earnout period. Earnout mechanics get finalized in the purchase agreement, but if the LOI's description of the metric is vague or difficult to measure objectively, that is worth flagging before you invest more time in the deal.
Due Diligence Timelines and Access
The LOI usually sets expectations for the due diligence period: how long the buyer has, what categories of information you will provide, and whether diligence happens in phases. Financial, legal, operational, and customer diligence often run on overlapping but distinct timelines.
Reviewing the proposed access list before you sign helps you prepare. Some sellers are caught off guard by how much internal documentation a buyer expects to see, including customer contracts, key employee agreements, and historical financials going back several years.
It is worth asking who on your side will manage this process day to day. Pulling together years of contracts and financials while still running the business is a real time commitment, and some owners underestimate how much it pulls them away from operations during exactly the period when the business needs to keep performing well.
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Conditions to Closing
Beyond due diligence, an LOI typically lists other conditions that must be satisfied before closing: financing commitments from the buyer's side, any required third-party consents, landlord approvals if a lease needs to be assigned, and sometimes regulatory clearances depending on the industry.
Each condition is a point where the deal could stall or fall apart. Reviewing this list with your team helps you understand which conditions are largely within the buyer's control, which depend on you, and which depend on outside parties neither side controls directly.
What Happens If You Walk Away
Not every signed LOI leads to a closed sale. Financing can fall through on the buyer's side, diligence can surface something that changes the buyer's view of the business, or either party can simply decide the terms no longer work. Understanding what happens in that scenario, before it happens, is part of reviewing the document properly.
Topics worth clarifying in advance: whether you are free to resume talking to other buyers immediately once exclusivity ends, whether any expenses get reimbursed, and whether confidentiality obligations continue even after the deal is off. A deal falling apart is not unusual, and having already thought through what that looks like tends to make the moment far less disorienting if it happens.
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Confidentiality Carryover
Most deals start with a standalone non-disclosure agreement before the LOI is even drafted, but the LOI usually restates or extends confidentiality obligations, sometimes with new terms. It is worth checking whether the LOI's confidentiality language matches the earlier NDA or changes it, and how long those obligations survive if the deal does not close.
This matters more than it might seem. If a deal falls through, you want clarity on what the prospective buyer can and cannot do with the financial and operational information you shared during diligence.
Working With Your Advisory Team on an LOI
An LOI touches legal, tax, and financial questions simultaneously, which is part of why reviewing it alone is difficult even for experienced operators. A transaction attorney reviews the binding provisions and deal mechanics. A tax advisor looks at how the proposed structure affects your after-tax proceeds. A financial advisor can help you think through what the resulting number actually means for your broader plan once the sale closes.
Coordinating those three perspectives before you sign, rather than after, is one of the more consistent patterns among sellers who come out of a deal feeling like the terms matched their expectations. Capivise's advisor matching service connects business owners with vetted advisors who work specifically with sale transactions like this one.
Questions to Ask Before You Sign
A short list worth bringing to your advisory team meeting: Which provisions in this LOI are binding? What happens to the exclusivity period if diligence takes longer than expected? How does the proposed structure affect the actual cash I receive versus the headline number? What closing conditions depend on parties outside my control? If you want a broader starting list, Capivise's questions to ask an advisor page covers the general advisor-selection questions that pair well with deal-specific ones like these.
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Next Steps After the LOI
Signing the LOI starts the clock on exclusivity and due diligence, not the clock on closing. Many deals take several more months between a signed LOI and a signed purchase agreement, and some do not close at all. Treating the LOI as the near-finish line it can feel like, rather than the starting gate it actually is, is a common source of frustration for first-time sellers.
Before signing, it is also worth confirming how you will verify the buyer's own credentials and financing capacity, not just the deal terms. Capivise's advisor verification page outlines the kind of due diligence that applies to choosing who helps you through this process in the first place.
Where to Learn More
The U.S. Small Business Administration publishes general guidance on selling a business, including the stages that typically follow a signed LOI. SCORE, a nonprofit partner of the SBA, offers free mentoring from volunteers who have been through business sales themselves. For the legal mechanics of deal documents, the American Bar Association maintains resources through its business law section. If the transaction involves any regulatory review, the Federal Trade Commission outlines when a sale may trigger a premerger notification. And for general investor education once proceeds are in hand, Investor.gov is a useful starting point maintained by the SEC.
An LOI is not the place to go it alone, and it is not the place to rush. Reading it carefully, understanding which parts bind you today, and bringing the right advisors into the conversation before you sign puts you in a far stronger position for everything that follows.
