--- title: "Letter of Intent (LOI) in a Business Sale: Owner's Guide" description: "A letter of intent sets the price and terms before diligence. Learn which parts are binding, how exclusivity works and what to check before you sign." url: https://capstreet.multisites.ai/guides/letter-of-intent publisher: Capstreet phone: +1-713-332-2700 contact: https://capstreet.multisites.ai/contact --- # The letter of intent: what it says, what binds you and what to negotiate A letter of intent (LOI) is a short document where a buyer states the price and main terms it proposes. Most terms are non-binding. A few, usually exclusivity and confidentiality, do bind you. Signing starts diligence and takes your company off the market, so negotiate it with a lawyer. Owner guideUpdated November 10, 20268 min read ![Downtown Houston skyline, home of Capstreet](https://capstreet.multisites.ai/_astro/houston-skyline.CI1wBZKY_Z21lbxH.webp) ## Mostly non-binding Price and structure terms in an LOI are usually non-binding. Process terms such as exclusivity usually bind both sides. ## Exclusivity is the big give You agree to stop talking to other buyers, often for 30 to 90 days. That reduces your leverage. ## Structure lives here Cash at closing, rollover, earnout and escrow are first set in the LOI. Fixing them later is harder. ## Hire counsel first Have your lawyer read the LOI before you sign it. Do not wait for the purchase agreement. ## What is a letter of intent? A letter of intent, or LOI, is a short document where a buyer states the price and main terms it proposes for your company. It starts the formal deal process. It is not the final contract. Think of it as the outline of the deal. It names the price, how it is paid, who stays and how long the buyer gets to study the company. The purchase agreement follows after diligence. Our [due diligence checklist](https://capstreet.multisites.ai/guides/due-diligence-checklist-for-owners) shows what buyers will ask for. Some firms call the same document a term sheet or an indication of interest. Names vary. What matters is what the document says and what it locks in. Our glossary defines the [letter of intent](https://capstreet.multisites.ai/glossary/letter-of-intent) in short form. ## Where does the LOI fit in the sale process? The LOI comes after early meetings and before due diligence. Once you sign it, the buyer starts a deep review of your business and you stop talking to other buyers. It is the first big commitment in the process. Alpine Investors, a private equity firm, describes its own order of steps in a 2025 article. After the first call, a data request and an in-person meeting, it presents an LOI with a proposed price “subject to standard due diligence.” Then the exclusivity period begins and confirmatory diligence follows. Other firms use a similar order. Step What happens Where you stand 1\. First call Buyer and owner learn about each other No commitment 2\. Data request You share financials, often after an NDA No commitment 3\. Meeting You meet the buyer in person No commitment 4\. LOI Buyer proposes price and terms You choose whether to sign 5\. Exclusivity and diligence Buyer reviews your company You cannot talk to other buyers 6\. Purchase agreement Final contract is signed Binding 7\. Closing Funds transfer Done Alpine describes the same flow from first call to closing. For the full process, see our page on [selling your business to private equity](https://capstreet.multisites.ai/sell-your-business-to-private-equity). ## Is a letter of intent binding? Mostly no. Most LOIs are non-binding on price and structure. A few process terms usually are binding. Check which sections bind you before you sign. Morgan & Westfield, an M&A advisory firm, says “the only elements of the LOI that are usually binding are the exclusivity, confidentiality, and no-hire provisions.” The price, the structure and the way working capital is counted are normally non-binding. Morgan & Westfield also lists other terms that are often binding: buyer access to information for diligence, expenses, deposits and termination. It warns that “a common mistake in many LOIs is to indicate that the entire LOI is non-binding” when some clauses should bind. The rule of thumb is simple: ask your lawyer to mark each section binding or non-binding in plain words. Usually non-binding Usually binding Purchase price Exclusivity Working capital target Confidentiality Form of the deal Expense sharing Rollover and earnout terms Access to information for diligence Escrow amount Termination terms This table is general, not legal advice. Your document may differ. Ask your lawyer to review the exact language. ## What does exclusivity mean, and how long does it last? Exclusivity means you agree not to look for, discuss or accept other offers for a set period. It usually runs 30 to 90 days after you sign. It protects the buyer’s time and money, and it reduces your leverage. Morgan & Westfield describes the clause as one that “prohibits the seller from soliciting, discussing, negotiating, or accepting other offers” for a period of time, usually 30 to 90 days. It adds: “Exclusivity is a critical concession that you should make with great care.” Alpine Investors says that after the LOI is signed it will usually enter an exclusivity period during which the owner cannot entertain other acquisition proposals. That is normal in private equity deals. Here is why it matters. Once you sign, time favors the buyer. If the deal fails, you go back to market after weeks of delay. Other buyers may ask why the earlier deal fell apart. Terms to ask for: - **A short, fixed period.** Morgan & Westfield notes that shorter periods push the buyer to move quickly. - **A clear end date.** Do not let it renew on its own. - **A way out.** If the buyer cuts the price or changes terms, exclusivity should end. - **A check-in clause.** Morgan & Westfield suggests an “affirmative response” clause. You can ask the buyer to confirm in writing that no material terms will change. If the buyer fails to answer, exclusivity ends. ## What deal terms should the LOI cover? The LOI should state the price, how it is paid, what the buyer will keep or change and what you will do after closing. Terms left blank often turn into fights later. Settle the big points now. Use this checklist. Each item has a short note on what to ask. Term What to ask Headline price Is it a cash-free, debt-free price? How is [enterprise value](https://capstreet.multisites.ai/glossary/enterprise-value) defined? Cash at closing How much is paid in cash on day one? [Rollover equity](https://capstreet.multisites.ai/glossary/rollover-equity) How much do I reinvest, and on what terms? See our [rollover equity guide](https://capstreet.multisites.ai/guides/rollover-equity). [Earnout](https://capstreet.multisites.ai/glossary/earnout) What is measured, for how long, and who calculates it? See our [earnouts guide](https://capstreet.multisites.ai/guides/earnouts). [Escrow](https://capstreet.multisites.ai/glossary/escrow) How much is held back, and for how long? [Working capital](https://capstreet.multisites.ai/glossary/working-capital-adjustment) How is the target set, and how is it adjusted? Role after closing What will I do? What is my pay? Management and team What happens to key employees and incentive plans? Expenses Who pays for advisers and diligence? Timeline How long until diligence ends and the deal closes? Price is only one line of this table. Two offers with the same headline price can pay very different amounts after rollover, earnout and escrow. Compare them line by line. ## How can you prepare before you sign an LOI? Prepare your financials before you receive an LOI. Buyers often cut the price if diligence finds problems you did not show. A clean set of numbers protects the price that appears in the letter. Alpine says most private equity buyers will ask for revenue over the last three years, net income and EBITDA. First Citizens, a bank, says diligence “is often rigorous and can consume a considerable amount of time from you and your executive team.” Plan for that load. A short pre-LOI plan: 1. Get a [quality of earnings](https://capstreet.multisites.ai/guides/quality-of-earnings) review so your adjusted EBITDA is supported by evidence. 2. Build a [data room](https://capstreet.multisites.ai/glossary/data-room) with contracts, customers and tax records. 3. List your goals: cash needed, role after closing and what you want for your team. 4. Choose your lawyer, tax adviser and, if you use one, your banker. See [working with an investment banker or advisor](https://capstreet.multisites.ai/guides/working-with-an-investment-banker-or-advisor). 5. Read our [preparation guide](https://capstreet.multisites.ai/guides/how-to-prepare-your-company-for-a-private-equity-sale). If you run a competitive process, you may receive several LOIs. Compare terms, not just price. Ask each buyer how long it expects diligence to take and what could change the price. ## What are common LOI mistakes? The common mistakes are signing too fast, giving too much exclusivity and leaving terms vague. Each one weakens your position after you sign. Read the document slowly, with counsel. - **Treating the whole LOI as non-binding.** Some parts bind you the day you sign. - **Giving long exclusivity with no exit.** You lose leverage and cannot restart a process easily. - **Ignoring structure.** The split between cash, rollover and earnout changes your real payout. - **Skipping your own lawyer.** The company’s usual counsel may not focus on your personal terms. - **Not comparing the buyer.** Our guide on [how to choose a private equity partner](https://capstreet.multisites.ai/guides/how-to-choose-a-private-equity-partner) lists questions to ask before you sign anything. ## How is an LOI different from a purchase agreement? An LOI outlines the deal and is mostly non-binding. A purchase agreement is the final contract and binds both sides on every term. You sign the LOI first. You sign the purchase agreement after diligence ends. Morgan & Westfield explains that with a non-binding LOI, “the parties don’t intend to be bound to the transaction until a purchase agreement is signed.” That signing usually happens after diligence, or in many cases at closing. Feature Letter of intent Purchase agreement Length A few pages Many pages with schedules Binding terms A few process terms All terms Price Proposed, subject to diligence Final, with adjustments set out Legal promises about the business None Representations and warranties Purpose Agree on the outline, start diligence Complete the sale Terms in the LOI shape the purchase agreement. A buyer who agrees to a term in the LOI is more likely to honor it later, and a term left out is hard to add. Treat the LOI as the moment to raise your big points. ## What should you ask a buyer before you sign? Ask how much of the price is cash, how much is rolled equity, what role you will have and how the buyer plans to treat your team. The answers show whether the LOI matches what you were told. First Citizens suggests asking a buyer why it is interested in your company, how the deal is structured between cash and rolled equity, what metrics it uses to value you and whether it expects workforce reductions after closing. Add these: - How many companies has the firm bought in your field, and can you speak with former owners? - Who on the team will work with you day to day? - How does the firm treat founders who stay on versus those who leave? - Does the LOI match the offer you heard on the first call? If an answer changes between the call and the letter, ask why before you sign. ## Next step If you are weighing a sale, review our [deal criteria](https://capstreet.multisites.ai/deal-criteria) and read how a majority partner approaches the process on [selling your business to private equity](https://capstreet.multisites.ai/sell-your-business-to-private-equity). When you are ready, start a confidential conversation at [/contact](https://capstreet.multisites.ai/contact), call 713-332-2700 or email [connect@capstreet.com](mailto:connect@capstreet.com). ## Frequently asked questions ### What is a letter of intent in a business sale? A letter of intent is a document where a buyer states the price and key terms it proposes for buying your company. It sets the main deal terms, starts due diligence and usually gives the buyer exclusivity. It is not the final contract. The purchase agreement comes later. ### Is a letter of intent legally binding? Mostly not, but some parts are. Morgan & Westfield says the only elements usually binding are exclusivity, confidentiality and no-hire provisions. Price and structure terms are non-binding. Have your lawyer mark clearly which sections bind you before you sign, because a vague LOI can cause disputes. ### How long is the exclusivity period? Morgan & Westfield says exclusivity usually runs 30 to 90 days after you accept the LOI. During that window you cannot solicit, discuss or accept other offers. Shorter periods push the buyer to move fast. Ask for a clear end date and a way out if the buyer changes terms. ### Can the buyer lower the price after the LOI? Yes, it can happen. The price in an LOI is subject to due diligence, and a non-binding price is not a promise. Buyers may adjust after diligence if the numbers differ from what you showed. A clean quality of earnings review before the LOI lowers that risk. ### When should I get a lawyer involved? Before you sign the LOI. Most deal terms are first written there, and the binding parts bind you at once. A lawyer who handles company sales can spot weak points in exclusivity, structure and expenses. Ask your own lawyer, not only the company's usual counsel. ### What comes after the letter of intent? Confirmatory due diligence, then a purchase agreement. Alpine Investors describes quality of earnings, operations, tax, HR and legal reviews during the exclusivity period. Both sides then sign the purchase agreement, funds transfer and the deal closes. ## Terms on this page - [Representations and Warranties](https://capstreet.multisites.ai/glossary/representations-and-warranties) - [Quality of Earnings](https://capstreet.multisites.ai/glossary/quality-of-earnings) - [Exclusivity Period](https://capstreet.multisites.ai/glossary/exclusivity-period) - [Enterprise Value](https://capstreet.multisites.ai/glossary/enterprise-value) - [Letter of Intent](https://capstreet.multisites.ai/glossary/letter-of-intent) - [Adjusted EBITDA](https://capstreet.multisites.ai/glossary/adjusted-ebitda) - [Rollover Equity](https://capstreet.multisites.ai/glossary/rollover-equity) - [Private Equity](https://capstreet.multisites.ai/glossary/private-equity) - [Due Diligence](https://capstreet.multisites.ai/glossary/due-diligence) - [Data Room](https://capstreet.multisites.ai/glossary/data-room) ## Sources 1. [Morgan & Westfield: M&A Basics, The Letter of Intent (LOI)](https://morganandwestfield.com/knowledge/letter-of-intent/) 2. [Morgan & Westfield: M&A Basics, The Letter of Intent (LOI), exclusivity](https://morganandwestfield.com/knowledge/letter-of-intent/) 3. [Morgan & Westfield: M&A Basics, The Letter of Intent (LOI), caution](https://morganandwestfield.com/knowledge/letter-of-intent/) 4. [Morgan & Westfield: M&A Basics, The Letter of Intent (LOI), drafting](https://morganandwestfield.com/knowledge/letter-of-intent/) 5. [Morgan & Westfield: M&A Basics, The Letter of Intent (LOI), shorter periods](https://morganandwestfield.com/knowledge/letter-of-intent/) 6. [Alpine Investors: What to Know Before Selling your Business to Private Equity](https://alpineinvestors.com/resource/selling-your-business/) 7. [Alpine Investors: What to Know Before Selling your Business to Private Equity (diligence)](https://alpineinvestors.com/resource/selling-your-business/) 8. [Morgan & Westfield: M&A Basics, The Letter of Intent (LOI), purchase agreement](https://morganandwestfield.com/knowledge/letter-of-intent/) 9. [First Citizens Wealth: What to know before selling your business to private equity](https://www.firstcitizens.com/wealth/insights/business-planning/selling-your-business-to-pe-firms) Written by Capstreet and checked against the sources above on November 10, 2026. Market figures and deal practice change, and nothing here is legal, tax or investment advice. Ask your own advisers before you act. ## Keep reading - [The due diligence checklist for owners selling to private equityDue diligence is the buyer's check of your business after you sign a letter of intent. Private equity firms review five areas: financial (quality of earnings), operations, tax, HR and benefits, and legal. Owners who gather clean records before the process starts shorten it and face fewer surprises.](https://capstreet.multisites.ai/guides/due-diligence-checklist-for-owners) - [How to sell your business to private equitySelling to private equity means a firm buys most of your company, usually with a mix of cash at close and equity you keep. You work through an intro call, a data request, a letter of intent, diligence and a close. Most owners stay on and invest alongside the buyer.](https://capstreet.multisites.ai/sell-your-business-to-private-equity) - [Earnouts: how they work, how long they last and how to protect your payoutAn earnout is extra purchase price you receive after closing only if the company hits agreed targets during a set period. Most last one to three years, and the median outside life sciences is 24 months. Earnouts bridge price gaps but cause disputes, so the contract details matter.](https://capstreet.multisites.ai/guides/earnouts) - [How to prepare your company for a private equity sale: a 12 to 24 month planStart 12 to 24 months before you plan to sell. Clean up your financials, support every add-back, build a team that can run without you, spread your customer base and organize your records. Buyers pay more for earnings they can verify and a business that does not depend on one person.](https://capstreet.multisites.ai/guides/how-to-prepare-your-company-for-a-private-equity-sale) - [Capstreet deal criteria: the companies we look forCapstreet looks for entrepreneur-owned business services companies with $3 to $15 million of EBITDA. We make primarily majority investments, and entrepreneurs reinvest alongside Capstreet. We want a tenured team, solid financials, a defensive business model, untapped growth potential and a niche advantage. We invest across 12 industries.](https://capstreet.multisites.ai/deal-criteria) - [Working with an investment banker or advisor when you sellMost owners should work with a deal team when selling to private equity. That team includes a lawyer, an accountant, a tax or wealth adviser and often an investment banker or sell-side advisor who runs the process. You can sell without a banker, but you carry the risk of mistakes.](https://capstreet.multisites.ai/guides/working-with-an-investment-banker-or-advisor) ## Ready to get started? Let’s talk. Tell us about your company and what you want next. Conversations are private, and there is no obligation. [Start a conversation](https://capstreet.multisites.ai/contact) [(713) 332-2700](tel:+1-713-332-2700)[connect@capstreet.com](mailto:connect@capstreet.com) ![Capstreet team members at a Houston elementary school for Houston Reads Day](https://capstreet.multisites.ai/_astro/houston-reads-day.DxNd9bIr_tggWP.webp)