When business owners decide to sell, the excitement of receiving a Letter of Intent (LOI) can feel like the first major move toward a successful transaction. The LOI is a non-binding document that signals interest from a buyer, outlines key deal terms, and sets the stage for the sale process. However, while the LOI may seem straightforward and “safe” since it is generally non-binding, signing an LOI without legal review can create significant risks, complications, and missed opportunities down the line.

Here’s why having a qualified Mergers and Acquisitions (“M&A”) lawyer review the LOI is not just a good idea but is essential to protect your interests.

1. The LOI Sets the Tone for the Entire Deal

The Letter of Intent is not the final agreement, but it shapes the entire sale process. It typically includes:

• Purchase price and payment structure,
• Deal timeline,
• Exclusivity and expected non-compete periods, and
• Key terms like contingencies, due diligence requirements, and risk allocation issues.

While the LOI is often labeled “non-binding,” certain provisions are binding, such as exclusivity and confidentiality clauses. These can affect your negotiating leverage and options moving forward. An M&A lawyer can ensure that the LOI sets favorable and market terms without inadvertently tying your hands.

2. The "Non-Binding" Misconception

One of the biggest mistakes sellers make is assuming the entire LOI is non-binding. While the purchase price and other broad deal terms might not be enforceable, there are certain provisions which can be legally enforced. These can include:

• Exclusivity ("No-Shop") Clauses: Restricting you from negotiating with other buyers for a defined period;
• Confidentiality Agreements: Preventing disclosure of sensitive information during the sale process; and
• Break Fees or Expenses: Provisions outlining what happens if the deal falls apart, and whether the buyer or seller will bear certain expenses for the transaction.

An effective M&A lawyer will ensure that you fully understand which parts of the LOI are binding and will negotiate those terms to protect you.

3. Price Isn’t Everything

The LOI often focuses heavily on the purchase price, but the structure of that price matters just as much. Is the payment all cash at closing? Are there holdback amounts or adjustments for items such as uncollectible accounts receivable or working capital? Is there an earnout tied to future performance? Are you providing seller financing or taking an equity stake in the buyer?

The fine print can affect the deal’s value to you. An experienced lawyer will help you:

• Understand the payment structure and tax implications,
• Negotiate terms that align with your goals and risk tolerance, and
• Identify potential red flags or vague language that could hurt you later.

4. Protect Yourself During Due Diligence

Once you sign the LOI, the buyer begins their due diligence by initiating a thorough investigation into your business’s financials, operations, contracts, workforce, and more. The LOI often dictates how this process unfolds but is not always the case.

Without legal input, you might agree to terms that:

• Allow overly broad or lengthy due diligence periods, slowing the process and creating uncertainty,
• Require disclosure of sensitive information without sufficient protections,
• Limit your ability to hold buyers accountable if they misuse that information, and
• Allow the buyer to speak to your key customers or employees without your knowledge.

Your lawyer can help structure the due diligence process to protect your business while maintaining momentum toward closing.

5. A Strong LOI Prevents Future Disputes

Clarity is key in any deal. Ambiguities or poorly drafted terms in the LOI can lead to misunderstandings, delays, re-trading terms or, in worst-case scenarios, legal disputes during the negotiation of the definitive agreement.

By addressing potential issues upfront, your lawyer can:

• Clarify the deal terms to ensure mutual understanding,
• Identify and resolve areas of disagreement early, and
• Reduce the likelihood of costly renegotiations or failed deals.

A strong, well-reviewed LOI sets the stage for smoother negotiations and a higher likelihood of a successful closing.

6. Preserve Your Negotiating Leverage

Buyers often push for exclusivity in the LOI, which means you’re barred from seeking or accepting other offers for a set period. While exclusivity is common, agreeing to long or restrictive terms can put you at a disadvantage.

A lawyer can negotiate a fair exclusivity period while preserving your leverage. For example:

• Limiting the no-shop window to a reasonable timeline,
• Tying exclusivity to the buyer’s progress on due diligence,
• Allowing you to explore backup options if the buyer stalls, and
• Maintaining leverage ensures you’re not backed into a corner if the deal begins to falter.

Conclusion: Don’t Sign Until You’re Sure

The LOI may seem like a safe and simple step, but it is a critical document that sets the foundation for your business sale. Signing an LOI without a lawyer’s review is like starting a race with your shoelaces untied—avoidable mistakes can trip you up and jeopardize your success.

An experienced M&A lawyer ensures your LOI protects your interests, avoids pitfalls, and positions you for a successful transaction. Selling your business is one of the most significant financial events of your life—make sure every step, starting with the LOI, is handled with the same care with which you built your business legacy.