Free Letter of Intent (LOI) Template
A letter of intent to buy a business, outlining price, structure, due diligence, conditions and timeline, with binding confidentiality and exclusivity.
A letter of intent (LOI) summarises the main terms of a proposed deal, such as buying a business, before the final agreement. Most terms are non-binding, but confidentiality and exclusivity (no-shop) provisions are usually binding, so read them carefully.
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LETTER OF INTENT
[DATE]
[SELLER NAME / OWNERS]
[ADDRESS]
Re: Proposed acquisition of [TARGET BUSINESS NAME]
Dear [NAME],
This letter sets out the principal terms on which [BUYER NAME] ("Buyer") proposes to acquire [the assets of / all equity interests in] [TARGET BUSINESS NAME] ("Company") from [SELLER NAME] ("Seller"). Except for Sections 9 to 13, this letter is not binding, and no party is obliged to complete the transaction unless and until a definitive agreement is signed.
1. STRUCTURE. [Asset purchase of substantially all assets used in the business, excluding cash and [OTHER], with Buyer assuming only liabilities under assigned contracts after closing / Purchase of 100% of the equity].
2. PURCHASE PRICE. $[AMOUNT], based on the Company delivering normal levels of working capital [of $[AMOUNT]] and inventory at closing, payable: $[AMOUNT] cash at closing; $[AMOUNT] seller note over [NUMBER] years at [RATE]% interest [subordinated to Buyer's lender]; and up to $[AMOUNT] earnout based on [METRIC] for [PERIOD], calculated [DESCRIBE].
3. HOLDBACK. $[AMOUNT] held in escrow for [12–18] months to secure Seller's indemnification obligations.
4. DUE DILIGENCE. Buyer will conduct due diligence on financial, tax, legal, operational, customer, employee and IP matters over [45–60] days after signing. Seller will provide reasonable access to records, personnel and advisers.
5. CONDITIONS. Closing is conditional on: satisfactory due diligence; a definitive agreement with customary representations, warranties, covenants and indemnities; [financing on acceptable terms, including SBA financing]; required third-party and landlord consents; [key employee agreements]; and no material adverse change.
6. EMPLOYEES AND TRANSITION. Buyer intends to offer employment to [substantially all / key] employees. Seller's owner will provide transition assistance for [NUMBER] months [on consulting terms to be agreed].
7. SELLER RESTRICTIONS. Seller and its owners will agree to a non-compete and non-solicit for [3–5] years within [AREA], as permitted by law.
8. TARGET TIMELINE. Definitive agreement signed by [DATE]; closing by [DATE].
9. EXCLUSIVITY (BINDING). For [60] days after signing ("Exclusivity Period"), Seller will not solicit, negotiate or accept offers from others for the sale of the Company or its material assets, and will promptly tell Buyer of any unsolicited approach. The Exclusivity Period ends early if Buyer notifies Seller that it is no longer pursuing the transaction.
10. CONFIDENTIALITY (BINDING). The parties will keep this letter and all information exchanged confidential under the confidentiality agreement dated [DATE], or, if none, will use it only to evaluate the transaction and not disclose it except to advisers and financing sources.
11. CONDUCT OF BUSINESS (BINDING). Until closing or termination, Seller will operate the business in the ordinary course and not make unusual distributions, commitments or changes.
12. COSTS (BINDING). Each party pays its own costs, including advisers' fees.
13. TERMINATION AND GOVERNING LAW (BINDING). This letter terminates on the earlier of signing a definitive agreement, written termination by either party, or [DATE]. Sections 10 and 12 survive termination. This letter is governed by the laws of [STATE].
If these terms are acceptable, please sign and return by [DATE].
BUYER: ________________________ Name/Title: ______________ Date: __________
SELLER: _______________________ Name/Title: ______________ Date: __________
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This free template is provided by ClauseAudit for general informational purposes and is not legal advice. Have it reviewed before use. Replace all [BRACKETED] placeholders.When to use this template
- Making an offer to buy a small business after initial discussions.
- A seller receiving an LOI and checking which parts bind them.
- Setting terms before paying for due diligence and legal drafting.
How to fill it in
- Choose asset or equity structure and describe excluded assets and liabilities.
- Set price, payment mix, earnout and holdback.
- Set the diligence period and closing conditions, including financing.
- Keep exclusivity limited in time.
- Mark which sections are binding and which are not.
Key clauses to check
- Binding vs non-binding
- Make it explicit, or courts may treat more of the LOI as binding.
- Exclusivity (no-shop)
- Takes the seller off the market; keep it short.
- Earnout
- A common source of later disputes; define the metric clearly.
- Working capital
- Price adjustments at closing can change what the seller receives.
- Holdback
- Money kept back to cover indemnity claims.
Frequently asked questions
Is a letter of intent legally binding?
Usually not for the deal terms, but provisions like confidentiality and exclusivity are often binding if the LOI says so.
What is exclusivity in an LOI?
A promise by the seller not to negotiate with other buyers for a set period.
What happens after an LOI is signed?
The buyer carries out due diligence and the parties negotiate the definitive purchase agreement.
What should a letter of intent include?
An LOI typically sets out the deal structure, price and payment terms, key conditions, due diligence period, expected timeline, and who pays costs. It should state clearly which sections are non-binding and which are binding, such as confidentiality, exclusivity and governing law. Unclear wording about binding effect is a common source of disputes, so spell it out.
Can you back out of a letter of intent?
Usually yes for the non-binding business terms, which is the main point of an LOI. However, binding sections like exclusivity, confidentiality and expense provisions still apply. Some courts have found a duty to negotiate in good faith or even a binding deal where the LOI was detailed and lacked clear non-binding language. Read the binding effect clause carefully.
What is a letter of intent to purchase a business?
A letter of intent to purchase a business sets out the main deal terms before the full agreement is drafted: price, structure, payment terms, due diligence period, key conditions and closing timeline. Most terms are non-binding, but exclusivity and confidentiality usually are. This page offers a free, editable LOI template to adapt for your deal.
Want to check if a contract is fair before you sign?
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Read before you sign
- Is a Letter of Intent Binding When Buying a Business?Is a letter of intent binding when buying a business? Most LOI terms are not, but exclusivity, confidentiality and good-faith clauses often are.
- Asset Purchase vs Stock Purchase: Which Is Better When Buying a Small Business?Asset purchase vs stock purchase: how each deal structure shifts liabilities, taxes, contracts and licenses when you buy or sell a small business.
- Asset Purchase Agreement Checklist for Small Business BuyersAn asset purchase agreement checklist for small business buyers: assets, liabilities, price, allocation, consents, reps, indemnity and closing steps.
- Purchase Price Allocation and IRS Form 8594 for Small Business BuyersYour asset purchase agreement and Form 8594: how the purchase price is allocated across seven IRS classes, why it matters for tax and how to agree it.
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This free template is general information, not legal advice, and is no substitute for a qualified attorney. Laws vary by state; have it reviewed by a lawyer before you use or sign it.