Letter of Intent (LOI)

Definition of Letter of Intent

A Letter of Intent (LOI) is a preliminary document that outlines the key terms and intent of two or more parties to enter into a formal agreement in the future. It’s not a binding contract in most cases, but it signals serious commitment to move forward with negotiations.

An LOI typically includes major deal terms such as purchase price, timelines, confidentiality obligations, and exclusivity periods. In corporate or commercial transactions, it serves as a roadmap for drafting the final agreement.

Why Letters of Intent Matter

An LOI bridges the gap between informal discussions and binding contracts. It provides clarity on each party’s expectations, prevents misunderstandings, and builds mutual trust before formal drafting begins.

In mergers, acquisitions, or large vendor negotiations, an LOI helps to:

• Establish key commercial and legal parameters early.
• Save time by aligning on deal structure before full legal drafting.
• Set timelines and exclusivity to keep negotiations focused.
• Protect both sides through limited binding provisions (like confidentiality).

Best Practices for Letters of Intent

1. Specify which provisions are binding (confidentiality, exclusivity) and which are non-binding (deal terms).
2. Clearly outline the scope, purpose, and next steps.
3. Avoid overly detailed legal terms that make it appear as a final contract.
4. Include expiration or termination conditions for the LOI itself.
5. Review by legal counsel before signing—even if non-binding.

Example of Letter of Intent in Practice

A company signs a Letter of Intent with a potential distributor outlining pricing, territory, and exclusivity, pending final contract approval. The LOI binds both parties to confidentiality and good-faith negotiation but leaves the commercial terms non-binding until execution.