The letter of intent: not binding on price, very binding on two other things

Between first interest and a purchase agreement sits the letter of intent. It states the proposed price, the structure, what is included, and the timetable. Generally it does not obligate anyone to complete the deal. The parts that do bind are the ones to read carefully. Confidentiality. The seller is about to open their numbers, their customer list and their contracts. A signed confidentiality agreement usually precedes the LOI and the LOI reinforces it. Exclusivity, or no-shop. The seller agrees not to negotiate with anyone else for a period. This is what the buyer purchases with the time and money they are about to spend on diligence, and it is what the seller gives up: a long exclusivity with a buyer who does not progress costs the seller months of market. Sixty or ninety days with interim milestones is a healthy structure. The diligence window and what starts it. The LOI should say what information triggers the clock — without financial statements delivered, the period should not be running. And the deposit, if any: how much, who holds it, and when it is returned. Two items that belong here rather than in the final agreement, because afterwards they negotiate badly: the seller's non-compete — scope, geography and duration — and the seller's role in the transition, stated in hours and weeks. A seller who walks out on closing day from a business that depended on them is the most common way a good purchase goes wrong. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com