What is a Letter of Intent in a Business Sale or Purchase?

Peter Lamont, Esq.
Oct 3
5 min read

What is a Letter of Intent in a Business Sale or Purchase?

In the purchase or sale of a business, the parties often sign a Letter of Intent, or LOI, before negotiating the full contract. Many business owners misunderstand the purpose of an LOI, assuming it creates a binding agreement. In most cases, it does not. The LOI serves as a roadmap for the transaction, outlining the major terms but leaving the details to be negotiated later.

An LOI typically addresses the purchase price, the structure of the deal, the assets or stock being sold, confidentiality provisions, and any exclusivity period for negotiations. It may also set forth timelines for due diligence and closing. These terms provide a framework for the attorneys to draft the definitive agreement.

The critical distinction is that most LOIs are expressly non-binding, except for certain provisions such as confidentiality or exclusivity. This means that either party can walk away before signing the final agreement, even if the LOI has been executed. Courts in New Jersey enforce the non-binding nature of an LOI when the language is clear. Problems arise when the LOI is poorly drafted or when parties behave as if the LOI is binding, creating confusion about their obligations.

I have seen situations where a buyer invests significant resources into due diligence based on an LOI, only to have the seller abandon the deal. While this is frustrating, it is consistent with the limited purpose of an LOI. That is why I advise clients to proceed carefully during this stage, understanding that the LOI does not guarantee a completed transaction.

On the other hand, an LOI can serve as powerful leverage in negotiations. By setting out the basic terms in writing, it reduces misunderstandings and establishes the parties’ expectations. A well-drafted LOI can prevent disputes later, when the attorneys draft the full agreement. It also signals to third parties, such as lenders or investors, that the deal is serious enough to merit attention.

The key is clarity. An LOI should clearly state which provisions are binding and which are not. If confidentiality is intended to be enforceable, the language must reflect that. If the purchase price or structure is subject to change, that must be made explicit. Without careful drafting, an LOI can create more problems than it resolves.

In practice, an LOI is a useful tool but not the final word. It should be viewed as a guide to negotiations, rather than a contract. Business owners who understand this distinction avoid disappointment and position themselves in a stronger position as the transaction progresses.

For more information about your legal rights or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals.

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