The investor’s field guide · L
Letter of intent
A document recording a proposed transaction’s main terms and the parties’ intention to continue negotiations.
Explained by the editorial team
A letter of intent, or LOI, outlines a potential transaction before final contracts. The term is especially common in US business acquisitions, though it is used elsewhere. It often serves a similar purpose to heads of terms in the UK.
How it works
A buyer may describe the proposed price, whether assets or shares will be purchased, the funding plan and conditions for completion. The letter may also set out a timetable for due diligence and a period of exclusive negotiation.
What to examine
A statement that the deal is non-binding does not necessarily make every clause non-binding. Confidentiality, exclusivity, expenses and governing-law provisions may take effect immediately. Nor does signing normally mean the purchase is complete. The consequences depend on the wording and the relevant legal system. Make sure the commercial outline matches the intended structure and have an adviser explain which obligations begin at signature and which require a later agreement.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.