Letter of Intent (LOI) for Business Acquisition

Letter of Intent (LOI) for Business Acquisition: a practical guide

A Letter of Intent (LOI) for a business acquisition records the main terms that a buyer and seller are considering for a proposed purchase. It gives them a shared starting point for further discussion and preparation of transaction documents.

What it's for

People use an LOI after discussing a possible acquisition and before spending more time and money on reviews, negotiations, or other preparation. It can identify the business or entity involved, the proposed ownership or investment terms, and what each side expects to discuss next. Clear wording helps both sides spot different assumptions early.

An LOI is generally an early-stage document, so it may leave important details open. It does not replace the fuller transaction documents that describe the sale, payment, transfer, and other arrangements. If the parties have settled the details and are ready to document the transaction, fuller purchase or transfer documents may fit better.

Who uses it

• A business owner considering a sale to another person or company.
• A buyer and seller who want to record proposed acquisition terms before further review.
• Co-founders discussing a purchase of another business together.
• Several people or companies on either side of a proposed acquisition.
• Parties who want to record preliminary ownership, contribution, or voting proposals.

Terms to decide on

The parties and target

Identify each buyer and seller clearly, including the correct names of people or companies, and name the business or entity under discussion. If a party is acting for a company, make clear which company is the party.

What may be acquired

Describe whether the proposal concerns the business, its assets, an entity, or an ownership share. State what is included or excluded at this stage, and mark open questions as unresolved.

Price and payment approach

State any proposed price or explain how the parties expect to determine it, and describe the payment approach if agreed. Make clear whether a figure is a proposal, an estimate, or still under discussion.

Contribution and ownership

If the proposal involves a capital contribution or shared ownership, state who would contribute what and the percentage each party is considering. Check that the percentages and contributions describe the same proposed arrangement.

Review and information sharing

Describe any reviews the parties expect to conduct and what information they need to exchange. Set practical expectations for handling sensitive business information, and specify any limits or safeguards they have agreed to.

Timing and next steps

Record the next actions each side expects to take, such as exchanging information or preparing fuller documents. If dates are included, label them as target dates unless both sides intend them to have a different effect.

Intent and unresolved points

Identify which points are proposals, which remain open, and any specific commitments the parties want to address at this stage. Do not assume a heading or label alone determines a term's effect; rules differ by place and by how the document is completed and signed.

Common mistakes

• Calling the LOI a final sale agreement when important details, such as what is being transferred or how payment will work, remain unsettled.
• Using a company name casually or inaccurately, so it is unclear which person or entity is buying or selling.
• Writing a proposed price or ownership share without saying whether it is fixed, estimated, or still open for discussion.
• Leaving contributions, ownership percentages, and voting expectations inconsistent with one another.
• Treating a target date as a firm deadline without agreeing what happens if the transaction is not ready by then.
• Assuming every part of an LOI has the same effect, or that signing alone settles the effect of a particular term. The result can depend on local rules, wording, and circumstances.

Before you sign

• Confirm that each party and the target business are named accurately.
• Read the description of what may be acquired and flag anything left out or undecided.
• Check that proposed price, payment, contribution, and ownership details are consistent.
• Mark proposals and target dates clearly, and identify open questions.
• Review any information-sharing or other commitments with care.
• Check local requirements for signing, witnesses, notarization, registration, notice periods, or required wording where relevant.
• Ask a qualified lawyer to review the document if the transaction is substantial or a term is unclear.