1. Introduction
You’ve received an offer to buy your company—finally, the moment you’ve been working toward. The buyer sends over a “Letter of Intent,” or LOI, outlining the proposed price and basic terms. It looks simple—maybe just a few pages—and you’re tempted to sign quickly to keep momentum.
But here’s the catch: the LOI is far more powerful than it appears.
Even though it’s labeled “non-binding,” the terms you agree to here often shape the entire deal—economically and legally. By the time the full purchase agreement is drafted, many of these provisions are treated as settled facts.
At Paracuellos Law Group, we’ve seen countless transactions where sellers lost leverage not in the final agreement—but right here, in the LOI. In this post, we’ll explain why the LOI matters so much, what to negotiate before signing, and how to keep your deal aligned with your goals from day one.
2. Why This Matters
The Letter of Intent marks the transition from “talking about selling” to formally entering the deal process. Once signed, the buyer invests in due diligence, drafts agreements, and commits serious resources—so changing key terms later becomes much harder.
That’s why sellers who treat the LOI casually often find themselves boxed in during negotiation. Common misconceptions include:
- “It’s just a placeholder.” Not really. It sets expectations that shape every future document.
- “It’s non-binding, so it doesn’t matter.” Some provisions are binding—like exclusivity, confidentiality, and cost-sharing—and can directly impact your leverage.
- “We’ll fix the details later.” By then, your bargaining power has usually declined.
Handled correctly, the LOI can be a powerful tool for protecting your interests. It allows you to:
- Clarify deal structure (stock vs. asset sale) and timing expectations.
- Set ground rules for diligence and confidentiality.
- Align tax treatment and payment structure early.
- Avoid costly surprises later in the definitive agreement.
Bottom line: getting the LOI right means your deal starts on solid footing—and your path to closing is smoother, faster, and more profitable.
3. Key Insights & Best Practices
a. Confirm the Deal Structure and Price Components
The LOI should clearly define whether the deal is structured as an asset sale or stock sale—and what the price actually includes.
Does it assume cash-free, debt-free terms? Is working capital included? Are there earn-outs or adjustments tied to future performance?
Even a one-line misunderstanding here can change the economics by hundreds of thousands of dollars.
Pro Tip: Before the structure and price of the deal are even preliminarily agreed consult with your lawyer and CPA to make sure you understand tax implications. Agreeing to a structure that does not optimize tax results could potentially cost you literally millions.
b. Clarify Exclusivity and Timing
Most LOIs include a binding exclusivity period—a window during which you can’t negotiate with other buyers.
Buyers want certainty; sellers need flexibility. Overly long exclusivity (60–90 days or more) can freeze your market and reduce leverage.
Negotiate a reasonable period (often 30–45 days) tied to deal milestones.
Also, outline timing expectations: when diligence starts, when drafts are due, and when closing is targeted. A defined timeline keeps deals moving and prevents “drift.”
c. Address Key Deal Terms Early
Certain terms are easier—and cheaper—to negotiate in the LOI than in the definitive agreement. These include:
- Escrow or holdback amounts (how much of the price is deferred to cover potential claims)
- Indemnification and limitations of liability concepts (who bears which risks post-closing)
- Seller employment or transition terms (if you’ll stay on temporarily)
- Non-compete or non-solicitation clauses (how long and how broad the restrictions are)
Pro Tip: Even if details are deferred, outline principles now to prevent surprises later. Most buyers will present LOIs and then initial purchase agreement drafts that leave seller will unlimited liability for the deal terms. Savy sellers will set expectations early and often regarding reasonable limitations on liability.
d. Define What’s Binding (and What’s Not)
The LOI typically contains both binding and non-binding provisions. Commonly binding clauses include:
- Confidentiality
- Exclusivity (“no-shop”)
- Expense-sharing or deposits
- Governing law and dispute resolution
Everything else—price, structure, timing—should be “non-binding”. Sometimes, draft LOIs will blur these concepts and either purposefully (or not) expand seller’s scope of binding obligations. For example, we have seen LOIs that purport to require delivery during due diligence of “all documents requested by buyer”.
To the contrary, an LOI should not obligate seller to share any particular document or to create materials not already on hand. Seller may choose to cooperate, but should remain free to choose.
Use clear labels like:
“Except for Sections X, Y, and Z, this Letter of Intent is non-binding and does not create any obligation to consummate the transaction.”
Also make sure binding language does not creep into provisions otherwise intended to be non-binding, creating confusion and risk o misunderstanding.
This helps prevent disputes if negotiations later fall apart.
e. Protect Your Leverage and Information
Finally, don’t underestimate the strategic side of the LOI. Once signed, you’ll likely be sharing sensitive financial, customer, and IP information.
Before you do, ensure there’s a robust confidentiality clause and that disclosures flow through a controlled process (like a virtual data room).
Also, consider requiring the buyer to return or destroy materials if the deal doesn’t close—protecting your competitive position.
Pro Tip: Be careful with pre-LOI NDAs. Even before an LOI is in play, parties will sign an NDA to cover their discussions and initial exchanges of information. While we do encourage use of early-stage NDAs, we caution that clients should always have these reviewed by counsel before signing to ensure unwanted terms do not slip in.
For example, we have seen NDAs that contain exclusivity clauses and non-circumvention/non-compete obligations. In at least one case, a potential buyer threatened a lawsuit to force a deal to proceed based solely on an NDA, claiming that it represented a binding right of first refusal in favor of the buyer. Legal review can help ensure these types of terms are caught before its too late.
4. How Paracuellos Law Group Helps
At Paracuellos Law Group, we help business owners negotiate NDAs and Letters of Intent at the outset of an M&A process that set them up for success by protecting value, clarifying expectations, and minimizing surprises later in the deal.
Our role isn’t to slow things down—it’s to make sure you don’t accidentally give up leverage before you’ve even begun.
We can help you:
- Review and redline LOIs for deal structure, price mechanics, and risk allocation.
- Coordinate with your CPA to confirm tax and other financial implications.
- Tailor confidentiality and exclusivity terms to your situation.
- Ensure non-compete and transition terms are reasonable and enforceable.
Our goal is to empower sellers with clear, well-structured agreements that set the stage for a smooth due diligence and negotiation process—so you can sign confidently and move forward toward closing.
5. Takeaway & Next Steps
Your Letter of Intent isn’t just a formality—it’s the foundation of your deal. Handled strategically, it preserves value, minimizes risk, and positions you for success in every stage that follows.
Before signing any LOI, make sure you fully understand what’s included, what’s binding, and how it shapes your next steps.
If you’re evaluating an offer or preparing to go to market, schedule a Deal Readiness Consultation with our team.
We’ll help you negotiate an NDA and letter of intent that protects your interests—without slowing momentum.
Next in the Series: What Are You Really Promising? How to Handle Reps and Warranties Like a Pro.
