Insights / Guide
Signing an LOI? Here's what you need to know
In short
A letter of intent (LOI), called heads of terms in the UK, is a buyer's non-binding offer to acquire your business. It sets out the key terms and a timeline, and usually gives the buyer a period of exclusivity for due diligence. Once you sign, you can't talk to other buyers until closing or until exclusivity expires, but the buyer can still walk away at any point.
If you're thinking about selling your business, or know founders who have, you've likely come across the term LOI. You may even receive an unsolicited LOI from a buyer keen to get you to engage, making it feel like a deal is within immediate reach. So does signing an LOI mean the deal is basically done?
Not quite. Signing an LOI is a milestone, not the finish line.
From LOI to closing
25–30%
of signed LOIs lead to a closed deal
Signed LOIs
3 of 10 closed
Some deals fail for reasons outside anyone's control, like market shifts or unexpected issues. Most fail because of poorly negotiated LOI terms.
Founders often tell us they've received several LOIs. But an LOI that hasn't been properly negotiated is worth very little, and it can even be dangerous. Some buyers dangle an attractive LOI to lock a seller into exclusivity, get access to their data, and then renegotiate from a position of strength.
Below, we take a practical, legal look at what to expect, and what to lock down, before you sign.
Scope of the transaction
The LOI should clearly say what's being sold: the entire company (shares) or specific assets. This distinction matters, and will affect everything from tax treatment to legal complexity.
If you're only selling part of the business, make sure the carve-out is clearly defined. What's included? What's excluded? Are you transferring liabilities or keeping them? Misalignment here is one of the most common sources of friction later in the process, so make the scope crystal clear upfront.
It also determines the type of sale agreement you'll need for your deal. Read more in Asset sale or share sale?
Payment terms
Unsurprisingly, this is one of the most critical sections of the LOI. It should set out the proposed price, how it's calculated, how it will be paid, and when.
Deals can be all cash, paid in instalments, include stock, or tie part of the value to future performance through an earn-out. If there's an earn-out, make sure the calculation is clearly defined in the LOI, not left for the final contract, and that you're confident in the targets being set. Don't accept vague terms: misalignment here often leads to broken deals. To compare offers that are structured differently, read Deal structure: what your offer is really worth.
Tip
There are ways to de-risk an earn-out, like catch-up clauses or bonuses for over-performance. They need to be discussed before you sign, not after.
Conditions to meet before closing
Most LOIs include closing conditions, typically covering due diligence, financing, and final agreement on the transaction documents. These vary with the buyer's profile, so be clear on what's required and by when.
For example, if financing is a condition, it can add serious delays and risk: ask for guarantees before signing the LOI. Buyers may also expect key team members to stay after the deal, which can come with unexpected asks around retention or incentives.
Don't rely on what's written in the LOI alone. Many buyers won't spell out every expectation upfront. Uncover implicit conditions early, to avoid surprises that could derail the deal later on. An M&A advisor can help you identify the key points to go over in your specific situation.
Due diligence
During due diligence, buyers typically ask for access to a wide range of information: financials, customer data, contracts, operations, and sometimes interviews with key team members.
Transparency is important, but so is protecting your time and your team. Set clear boundaries and agree in advance on what will be shared, how, and when, so the process doesn't disrupt the day-to-day.
It's worth flagging: this phase is intense. Responding to requests, preparing documents and managing buyer access takes real time, especially if you're handling it on your own. For a deeper look at what to expect, see SaaS due diligence: 10 things buyers check.
Exclusivity period
Most LOIs include an exclusivity clause: for a set period, you can't engage with other buyers. It is one of the few legally binding clauses in an LOI, and not one to take lightly.
You
Locked in
No other buyersThe buyer
Free to walk away
At any pointExclusivity gives the buyer room to run due diligence without worrying about competing offers, but it also shifts the leverage. Once you've signed, your ability to negotiate, or to walk away, shrinks, while the buyer keeps all its options. That's why the length of the exclusivity period matters, and why you shouldn't enter it blindly.
Make sure the timeline is reasonable, tied to clear next steps, and gives the buyer enough time to move forward, without letting things drag or exposing you to unnecessary risk.
Watch out
There's no shortage of cautionary tales where processes dragged on for months because someone was slow to move: the buyer, the lawyers on either side, or shareholders. The longer a deal drags, the more room there is for terms to be renegotiated and for circumstances to change, leaving sellers with nothing but lost time, a distracted team and a weaker business. During exclusivity, every delay costs you more than it costs the buyer.
Intellectual property
In businesses where intellectual property (IP) is central to value, the LOI should clearly set out what IP is being transferred, and on what terms.
Make sure ownership is properly documented and transferable. Any grey areas or unresolved disputes should be dealt with before you sign the LOI, as buyers will scrutinise this closely during due diligence.
If your business relies on third-party licences or partnerships, check whether those agreements can be assigned to the buyer, or whether they'll need to be renegotiated. Getting IP clear early helps avoid delays and protects the deal value.
Indemnification
Indemnification clauses make you liable for certain risks that may arise after the deal closes, like tax issues, legal disputes or contractual problems that pre-date the sale.
The specifics are usually negotiated later, in the final agreement, but some buyers reference indemnification terms in the LOI to set expectations. Pay attention: these clauses can carry serious financial consequences. Make sure you understand what's being asked, and be ready to push for clear limits on both amount and duration in the final negotiations.
Confidentiality
Unlike most of the LOI, confidentiality is binding. If you've already signed an NDA, the LOI should reference it. If not, make sure confidentiality terms are clearly included.
You'll be sharing sensitive information, from financials and customer data to proprietary technology, so protections need to be in place before you open the books. That way, if the deal falls through, you're still covered.
Preparing for the LOI stage
The LOI sets the tone for the rest of the transaction. Most of its terms may be non-binding, but that doesn't mean they can be vague. Getting full alignment on the key commercial points before signing is critical if you want the deal to have a real shot at closing.
Before you sign the LOI
Even when both parties are genuinely motivated to get a deal done, things can still fall apart if expectations aren't clearly set at this stage: vague terms lead to misunderstandings that derail the process. If a buyer pushes you to sign quickly, don't let the pressure get to you: only sign once you're confident in the terms.
Watch out
If an LOI feels too simple, or too good to be true, it probably is.
An experienced M&A advisor will help you avoid these pitfalls, by making sure the right terms are covered early, and by guiding you on when to bring in legal counsel with the right M&A expertise for your type of deal.
Questions founders ask
What is an LOI in business?
A letter of intent is a buyer's written, mostly non-binding offer to acquire a business. It sets out the price, how it will be paid, the conditions to meet before closing, a timeline, and usually a period of exclusivity during which the seller can't talk to other buyers. What actually binds both sides comes later: the final purchase agreement (a share purchase agreement, or SPA, for a share sale; an asset purchase agreement, or APA, for an asset sale), negotiated and signed after due diligence.
Is a letter of intent legally binding?
Mostly not. The price and terms are a statement of intent, but the exclusivity and confidentiality clauses are binding.
Can a buyer walk away after signing an LOI?
Yes. The buyer can walk away at any point before closing, while exclusivity stops you from talking to other buyers. That's why the terms and the length of exclusivity matter.
How long does exclusivity last?
Typically 60 to 90 days: long enough for the buyer to complete due diligence and agree the final contract. In practice, it's very common for things to drag out unless the process is run with real intent. Be careful here: tie exclusivity to clear milestones, and agree what happens if they're missed, so a buyer can't use it to stretch the process out.
Thinking about an exit?
Let's talk about your business.
Ready to sell or still years away, the earlier we talk, the better.
Last updated September 2025 · Written by Aïda Aït-Ahmed, Co-Founder, NextoriaWritten in collaboration with Barlow & Williams, M&A law firm for the Digital Age.