Letter of Intent to Purchase a Business
Buying a business starts long before the purchase agreement. The letter of intent is where the price gets anchored, the structure gets chosen, and the seller decides how much of the company to open up. Get it right and diligence runs on rails. Get it wrong and you renegotiate the same points three times.
Asset sale or stock sale is not a detail
It is the single most consequential line in the document, and most letters of intent skip it. An asset purchase lets the buyer choose what liabilities to take and usually gives them a stepped-up basis; a stock purchase transfers the company whole, including the litigation nobody has mentioned yet. The tax outcome for the seller can differ by a large margin between the two. Agreeing on price without agreeing on structure means you have not agreed on price.
What the template covers
Purchase price and how it is actually paid
Cash at closing, seller note, earnout, escrow holdback. A headline number with no payment structure behind it is the most common cause of a deal repricing at week six.
What the seller must hand over during diligence
Financial statements and for how many years, tax returns, customer contracts, employee list, outstanding litigation. Naming these upfront turns diligence from a negotiation into a checklist.
Confidentiality that outlives the deal
The seller is about to show a stranger their margins, their customer concentration and their payroll. If the deal dies, that information must not. The clause needs its own survival period, stated in years.
What happens to the owner after closing
Whether the seller stays for a transition, for how long, paid how, and whether they are restricted from competing. Leaving this to the definitive agreement means discovering at week eight that the buyer assumed a two-year employment commitment the seller never intended.
Binding, non-binding, and who decides
No federal statute governs the enforceability of a letter of intent; that is a matter of state contract law, and the analysis turns on the parties' objective intent as shown by the document. This is why the express non-binding clause matters more here than anywhere else: business-sale letters of intent are detailed by nature, and detail is what courts read as intent to be bound. The electronic signature itself is not in doubt — 15 U.S.C. § 7001 under the ESIGN Act, and UETA in 49 states, put an electronic signature on the same footing as ink.
An earnout that meant two different things
A buyer offered a base price plus an earnout tied to "revenue" over two years. Neither the letter of intent nor, later, the purchase agreement defined whether that meant gross revenue or revenue net of returns and discounts. The business ran about eleven percent of gross in returns. The gap between the two readings was most of the earnout. It was settled eventually, but at a cost neither side had budgeted, over a word that could have been defined in the letter of intent in one clause.
Questions people ask about this
Should the LOI name a specific purchase price?
A range is common early; a specific number is common once the seller has shared financials. Either works, provided the document says the price is subject to diligence and to a definitive agreement — otherwise you have written an offer, not an intent.
How long should exclusivity last in a business sale?
Long enough to complete diligence, typically thirty to ninety days. Sellers should resist open-ended exclusivity; buyers should expect to justify the length by what diligence actually requires.
Do I still need an NDA if the LOI has a confidentiality clause?
Often the NDA comes first, before the LOI exists, because the seller must disclose something just to get to a price. If a robust NDA is already signed, the LOI can reference it instead of repeating it.
Can a letter of intent be withdrawn?
The non-binding commercial terms generally can be, subject to any good-faith negotiation obligation the document creates. The binding clauses — confidentiality, exclusivity, expenses — remain in force according to their own terms.