A Letter of Intent (LOI) is often the first major document exchanged when buying or selling a business. While it usually is not the final purchase agreement, it establishes the framework for the transaction and can significantly influence the negotiations that follow.
Because a Letter of Intent an LOI may contain legally enforceable provisions, it should never be viewed as “just a formality.” Before signing, buyers and sellers should understand exactly what obligations they may be accepting and what issues still need to
be negotiated.
At Blair Hysni Law, we help Michigan business owners review, negotiate, and draft Letters of Intent that protect their interests while keeping transactions moving toward a successful closing.
What Is a Letter of Intent?
A Letter of Intent outlines the basic terms under which a buyer intends to purchase a business. Although many of the provisions in a Letter of Intent are typically non-binding, regarding the actual purchase, it serves as a roadmap for negotiating the definitive purchase agreement.
A Letter of Intent commonly identifies:
- The proposed purchase price
- Whether the transaction will be an asset purchase or stock purchase
- Expected closing timeline
- Financing arrangements
- Due diligence period
- Confidentiality obligations
- Exclusivity provisions
- Conditions that must be satisfied before closing
Once both parties have signed the Letter of Intent, their attorneys and accountants usually begin preparing the detailed purchase documents.
Is a Letter of Intent Legally Binding?
This is one of the most common misconceptions.
Most Letters of Intent specifically state that neither party is obligated to complete the sale until a formal purchase agreement is signed. However, many Letters of Intent include individual provisions that are intended to be legally enforceable.
For that reason, every Letter of Intent deserves careful legal review before it is signed.
Exclusivity Clauses
Many Letters of Intent contain an exclusivity, or “no-shop,” provision.
This clause generally requires the seller to stop negotiating with other potential buyers for a specified period of time while the buyer completes a due diligence investigation of the seller and the business to be purchased.
For sellers, this can be a significant commitment. If the buyer later walks away from the transaction, valuable time may have been lost and other interested purchasers may no longer be available.
The length of an exclusivity period should be reasonable and tied to meaningful progress in the transaction.
Confidentiality Provisions
Business sales require both parties to exchange sensitive financial and operational information.
A Letter of Intent may include confidentiality provisions requiring the buyer to protect information it receives from and about the seller and its business such as:
- Financial statements
- Customer lists
- Pricing information
- Trade secrets
- Employee information
- Vendor contracts
Even when a separate Non-Disclosure Agreement (NDA) has already been signed, the Letter of Intent may reinforce or expand those confidentiality obligations.
The Purchase Price Is Only One Part of the Deal
While the proposed purchase price often receives the most attention, many other terms can significantly affect the value of the transaction.
A Letter of Intent may address:
- Cash at closing
- Seller financing
- Earn-out provisions
- Working capital adjustments
- Assumption of debt
- Inventory valuation
- Allocation of purchase price for tax purposes
Two offers with the same purchase price can produce very different financial outcomes depending on how these terms are structured.
The Due Diligence Period
Most Letters of Intent establish a period during which the buyer investigates the seller’s business before deciding whether to proceed with the acquisition.
During due diligence, buyers often review the following information about the seller:
- Financial records
- Tax returns
- Corporate documents
- Customer contracts
- Vendor agreements
- Employment records
- Pending litigation
- Intellectual property
- Licenses and permits
If significant problems are discovered, the buyer may request changes to the purchase price, seek additional protections, or terminate negotiations if permitted under the Letter of Intent.
Common Issues That Arise After Signing
Although a Letter of Intent helps organize negotiations, many issues still remain unresolved.
Examples include:
- Unexpected liabilities
- Tax concerns
- Financing delays
- Disagreements over inventory values
- Customer contract assignments
- Lease approvals
- Employee retention
- Regulatory approvals
The purchase agreement—not the Letter of Intent —typically allocates responsibility for these issues.
Why You Should Have an Attorney Review a Letter of Intent
Business owners sometimes believe legal representation is only necessary when preparing the final purchase agreement.
In reality, many important negotiations occur before that document is ever drafted. Having an experienced business attorney review the Letter of Intent can help:
- Identify unfavorable provisions
- Negotiate better deal terms
- Clarify ambiguous language
- Protect confidential information
- Limit unnecessary obligations
- Avoid costly surprises later in the transaction
Addressing these issues early often reduces disputes and allows the parties to move toward closing with greater confidence.
Experienced Guidance for Michigan Business Transactions
Whether you are buying an existing company or preparing to sell your business, the Letter of Intent establishes the framework for everything that follows.
Blair Hysni Law represents Michigan business owners throughout the purchase and sale process, from negotiating Letters of Intent through due diligence, preparing the purchase documents agreements, and handling the closing.
If you are considering a business acquisition or sale, contact Blair Hysni Law to discuss your transaction before signing important documents.
Usually yes, if the Letter of Intent states that the purchase itself is non-binding. However, binding provisions such as confidentiality or exclusivity may still remain enforceable.
It is generally advisable. Many significant business terms are negotiated at the Letter of Intent stage, and changes become more difficult later.
A Letter of Intent outlines the proposed framework for a transaction, while the purchase agreement contains the complete legally enforceable terms governing the transaction.
The appropriate period depends on the size and complexity of the business. Many transactions allow between 30 and 90 days, although larger acquisitions may require additional time.
No. The transaction remains subject to due diligence, financing, negotiation of final documents, and any other conditions identified by the parties.
