What is a Letter of Intent (LOI)?

A Letter of Intent (LOI) — sometimes called a Memorandum of Understanding (MOU) or Term Sheet — is a document that outlines the preliminary agreement between two parties before a formal contract is finalized. Most LOIs are non-binding except for specific clauses (confidentiality, exclusivity).

Common uses:

• Mergers & Acquisitions — preliminary terms before due diligence and final purchase agreement.
• Real estate — outline purchase terms before signing a contract of sale.
• Business partnerships — confirm intent before drafting a formal partnership/joint venture agreement.
• Major purchases (equipment, vehicles, software) — confirm pricing and delivery terms.
• Employment — sometimes used for executive hires before a formal employment contract.

Standard LOI structure:

1. Identification of both parties. 2. Statement of intent ('this letter outlines preliminary terms, not a binding agreement'). 3. Key business terms — price, structure, timeline, payment. 4. Conditions to closing — due diligence, financing, regulatory approval. 5. Binding provisions — usually exclusivity (no-shop), confidentiality, expense responsibility. 6. Expiration date. 7. Signatures of both parties.

The 'binding vs non-binding' distinction matters: even though most of an LOI is non-binding, courts have enforced LOIs when the language was ambiguous or when one party acted in bad faith. Make it crystal clear which clauses are binding and which aren't.

LOI vs Contract: An LOI says 'we plan to do this deal.' A contract says 'we are doing this deal.' LOIs are about alignment; contracts are about commitment.

Generate a free LOI at icontract.pro/letter-of-intent-generator with clear binding/non-binding language.

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