Business Purchase Letter of Intent (LOI)

Business Purchase Letter of Intent (LOI)

Purpose of This Template

A Letter of Intent (LOI) is a preliminary document that outlines the key terms of a proposed business acquisition before the parties commit to a definitive purchase agreement. This LOI serves to:

• Establish Framework - Outline major deal terms before detailed negotiations
• Demonstrate Serious Intent - Show seller the buyer is a committed purchaser
• Protect Both Parties - Define exclusivity, confidentiality, and other binding provisions
• Streamline Negotiations - Identify potential issues early in the process
• Guide Due Diligence - Define scope and timeline for buyer's investigation

Binding vs. Non-Binding Provisions

Understanding LOI Structure

An LOI's legal effect depends on its language, the parties' conduct, and applicable law. This draft expressly states that the proposed transaction terms are non-binding and that selected process provisions are intended to be binding. Do not rely on headings alone; counsel should confirm that the operative language expresses the parties' intent under the governing law selected in Section 12.1.

Pre-LOI Checklist

Buyer Preparation

☐ Preliminary business valuation completed
☐ Financing pre-approval or proof of funds obtained
☐ M&A attorney engaged
☐ Accountant/financial advisor engaged
☐ Initial business information reviewed (website, public records, etc.)
☐ High-level acquisition criteria confirmed

Information Obtained from Seller

☐ Confidential Information Memorandum (CIM) reviewed
☐ Three years of financial statements reviewed
☐ Basic business overview understood
☐ Reason for sale identified
☐ Asking price range discussed

Letter of Intent

[Date]

CONFIDENTIAL

[Seller Name]
[Seller Address]
[City, State ZIP]

Re: Letter of Intent for Acquisition of [Target Business Name]

Dear [Seller Name]:

This Letter of Intent ("LOI") sets forth the principal terms pursuant to which [Buyer Name] ("Buyer") proposes to acquire [Target Business Name] ("Company" or "Target") from [Seller Name] ("Seller"). This LOI is intended to provide a framework for negotiating a definitive agreement for the proposed transaction.

Article I: Transaction Structure

Section 1.1 - Type of Transaction

☐ Asset Purchase - Buyer acquires specified assets and assumes specified liabilities
☐ Stock/Equity Purchase - Buyer acquires all outstanding stock/membership interests
☐ Merger - Company merges with/into Buyer or Buyer's subsidiary
☐ To be determined - Structure subject to further due diligence

Section 1.2 - Assets to be Acquired (Asset Purchase)

If structured as an asset purchase, Buyer shall acquire:
☐ All tangible personal property and equipment
☐ Inventory
☐ Accounts receivable
☐ Intellectual property (trademarks, patents, copyrights, trade secrets)
☐ Customer lists and relationships
☐ Contracts and agreements (specified)
☐ Real property leases
☐ Goodwill
☐ Business name and domain names
☐ Phone numbers and social media accounts
☐ Licenses and permits (to extent transferable)
☐ Other: _________________________________

Excluded Assets:
☐ Cash and cash equivalents
☐ Pre-paid expenses
☐ Personal property of owner
☐ Real estate (separate transaction)
☐ Other: _________________________________

Section 1.3 - Assumed Liabilities (Asset Purchase)

☐ Buyer assumes: _________________________________
☐ Seller retains: All liabilities not expressly assumed

Article II: Purchase Price and Payment Terms

Section 2.1 - Purchase Price

Section 2.2 - Payment Structure

Section 2.3 - Earnest Money Deposit

☐ Earnest money deposit: $_____________ (___% of purchase price)
☐ Deposited within _____ days of execution of LOI
☐ Held by: ☐ Escrow agent ☐ Seller's attorney ☐ Other: _____________
☐ Applied to purchase price at closing
☐ Refundable if: _________________________________
☐ Non-refundable after: _________________________________

Section 2.4 - Seller Financing Terms (if applicable)

Section 2.5 - Earnout Provisions (if applicable)

☐ Earnout period: _________________________________
☐ Performance metrics: _________________________________
☐ Maximum earnout: $_________________________________
☐ Payment timing: _________________________________
☐ Calculation methodology: _________________________________
☐ Dispute resolution for earnout: _________________________________

Section 2.6 - Working Capital Adjustment

☐ Target Net Working Capital: $_________________________________
☐ Calculation methodology: _________________________________
☐ Adjustment mechanism: Dollar-for-dollar / Collar / Other
☐ True-up timing: _____ days post-closing

Section 2.7 - Asset-Purchase Tax Allocation (if applicable)

If the transaction is an applicable asset acquisition under 26 U.S.C. § 1060:
☐ The parties will negotiate a written allocation of consideration among the acquired assets
☐ The definitive agreement will address consistent reporting and cooperation on IRS Form 8594
☐ Tax advisors will review any allocation to goodwill, going-concern value, restrictive covenants, and other intangibles

Article III: Due Diligence

Section 3.1 - Due Diligence Period

☐ Due diligence period: _____ days from execution of this LOI
☐ Extension: _____ additional days if requested in writing

Section 3.2 - Access to Information

Seller shall provide Buyer access to:
☐ Financial statements and tax returns (_____ years)
☐ Customer and vendor contracts
☐ Employee information and agreements
☐ Intellectual property documentation
☐ Real estate leases and documents
☐ Environmental reports
☐ Litigation history and pending claims
☐ Insurance policies and claims history
☐ Permits, licenses, and regulatory filings
☐ Corporate/organizational documents
☐ Bank statements
☐ Inventory records
☐ Accounts receivable aging
☐ Accounts payable aging
☐ Equipment and asset lists
☐ Other: _________________________________

Section 3.3 - Access to Personnel

☐ Meetings with key employees (with seller's consent on timing)
☐ Meetings with accountant
☐ Site visits to business premises
☐ Customer references (limited, with seller approval)

Section 3.4 - Due Diligence Termination Rights

Buyer may terminate this LOI if due diligence reveals:
☐ Material adverse information not previously disclosed
☐ Financial results materially different from representations
☐ Material litigation or liabilities
☐ Inability to obtain necessary consents or approvals
☐ Other conditions unsatisfactory to Buyer in its reasonable discretion

Article IV: Conditions to Closing

Section 4.1 - Buyer's Conditions Precedent

Buyer's obligation to close is conditioned upon:
☐ Satisfactory completion of due diligence
☐ Accuracy of Seller's representations and warranties
☐ No material adverse change in business
☐ Receipt of all required consents and approvals
☐ Landlord consent to lease assignment
☐ Customer consent (if required): _________________________________
☐ Buyer obtaining financing on acceptable terms
☐ Execution of non-compete agreement by Seller
☐ Execution of transition services agreement
☐ Key employee retention agreements
☐ If applicable, completion of Hart-Scott-Rodino Act premerger notifications and expiration or termination of the statutory waiting period under 15 U.S.C. § 18a
☐ Other regulatory approvals: _________________________________
☐ Other: _________________________________

Section 4.2 - Seller's Conditions Precedent

Seller's obligation to close is conditioned upon:
☐ Receipt of purchase price
☐ Buyer's assumption of specified liabilities
☐ Release of personal guarantees: _________________________________
☐ Other: _________________________________

Article V: Representations and Warranties

Section 5.1 - Seller's Representations (Definitive Agreement)

The definitive agreement shall contain customary representations by Seller, including:
☐ Organization and good standing
☐ Authority to enter transaction
☐ No conflicts with other agreements
☐ Accuracy of financial statements
☐ Absence of undisclosed liabilities
☐ Title to assets
☐ Condition of assets
☐ Intellectual property ownership
☐ Material contracts
☐ Compliance with laws
☐ Tax matters
☐ Employee and benefit matters
☐ Environmental compliance
☐ Insurance coverage
☐ Litigation and claims
☐ Customer and vendor relationships
☐ No broker fees (or disclosure thereof)

Section 5.2 - Buyer's Representations (Definitive Agreement)

☐ Organization and good standing
☐ Authority to enter transaction
☐ Availability of funds
☐ No broker fees (or disclosure thereof)

Article VI: Covenants

Section 6.1 - Pre-Closing Covenants (Seller)

Between signing and closing, Seller shall:
☐ Operate business in ordinary course
☐ Maintain assets in good condition
☐ Preserve customer and vendor relationships
☐ Maintain insurance coverage
☐ Not enter material contracts without Buyer consent
☐ Not dispose of assets outside ordinary course
☐ Not change employee compensation materially
☐ Provide Buyer with periodic financial updates

Section 6.2 - Non-Competition Agreement

☐ Seller to execute non-competition agreement at closing
☐ Non-compete term: _____ years
☐ Geographic scope: _________________________________
☐ Restricted activities: _________________________________

Section 6.3 - Transition Assistance

☐ Seller to provide transition assistance for: _____ months post-closing
☐ Compensation for transition services: $_____________/month
☐ Consulting arrangement: _________________________________

Article VII: Indemnification (Preview)

Section 7.1 - Indemnification Terms

The definitive agreement shall contain indemnification provisions including:
☐ Seller indemnifies Buyer for breaches of representations/warranties
☐ Survival period: _____ months/years
☐ Deductible/basket: $_________________________________
☐ Cap on indemnification: $_________________________________
☐ Escrow holdback for indemnification claims: $_________________________________

Article VIII: Exclusivity and Confidentiality (INTENDED TO BE BINDING)

Section 8.1 - Exclusivity (No-Shop)

THE PARTIES INTEND THIS SECTION TO BE BINDING, SUBJECT TO APPLICABLE LAW.

During the period from execution of this LOI until the earlier of (a) _____ days from the date hereof, or (b) termination of this LOI:
☐ Seller shall not solicit, encourage, or negotiate with other potential buyers
☐ Seller shall not provide information to other potential buyers
☐ Seller shall immediately notify Buyer of any unsolicited inquiries
☐ Seller shall terminate any ongoing discussions with other parties

Exclusivity Period: _____ days
Extension: _____ additional days if parties are actively negotiating definitive agreement

Section 8.2 - Confidentiality

THE PARTIES INTEND THIS SECTION TO BE BINDING, SUBJECT TO APPLICABLE LAW.

☐ All information exchanged is confidential
☐ Information may only be shared with advisors who are bound by confidentiality
☐ Neither party shall disclose the existence or terms of this LOI
☐ Confidentiality survives termination of this LOI for: _____ years
☐ Return or destruction of confidential information upon termination

Article IX: Expenses (INTENDED TO BE BINDING)

THE PARTIES INTEND THIS SECTION TO BE BINDING, SUBJECT TO APPLICABLE LAW.

☐ Each party shall bear its own expenses in connection with this transaction
☐ Including: legal fees, accounting fees, advisory fees, due diligence costs
☐ Exception: _________________________________

Article X: Non-Binding Nature

Section 10.1 - Non-Binding Provisions

Except for the provisions expressly identified as intended to be binding (exclusivity, confidentiality, expenses, governing law, dispute resolution, and Sections 12.3-12.6), the parties intend this LOI to be non-binding and subject to:
☐ Satisfactory completion of due diligence
☐ Negotiation and execution of definitive agreements
☐ Approval of Buyer's board/members (if applicable)
☐ Approval of Seller's board/members (if applicable)
☐ Obtaining necessary financing

Section 10.2 - Definitive Agreement

This LOI is not intended to create, and shall not be construed as creating, a binding obligation to consummate the transaction. The parties' obligations shall arise only upon execution of a mutually acceptable definitive purchase agreement.

Nothing in this Section 10 limits a provision expressly identified in this LOI as intended to be binding, to the extent that provision is enforceable under applicable law.

Article XI: Timeline

Section 11.1 - Anticipated Timeline

Section 11.2 - Termination

Either party may terminate this LOI:
☐ Upon written notice if definitive agreement not executed by: _____________
☐ Upon material breach of binding provisions
☐ Buyer may terminate during due diligence period

Termination ends further negotiations but does not terminate a provision that expressly survives termination, including confidentiality for its stated survival period.

Article XII: General Provisions (INTENDED TO BE BINDING)

Section 12.1 - Governing Law

THE PARTIES INTEND THIS SECTION TO BE BINDING, SUBJECT TO APPLICABLE LAW.
This LOI shall be governed by the laws of the State of _________________________.

Section 12.2 - Dispute Resolution

THE PARTIES INTEND THIS SECTION TO BE BINDING, SUBJECT TO APPLICABLE LAW.
☐ Mediation required before litigation
☐ Binding arbitration under the rules of: _________________________________
☐ Court litigation
☐ Jurisdiction: Courts of _____________ County, _____________

Section 12.3 - Entire Agreement

With respect to the provisions expressly intended to be binding, this LOI constitutes the entire agreement between the parties and supersedes prior discussions and correspondence on those subjects. The proposed transaction remains subject to a definitive agreement.

Section 12.4 - Amendment

This LOI may only be amended by written agreement signed by both parties.

Section 12.5 - Counterparts

This LOI may be executed in counterparts, each of which shall be an original.

Section 12.6 - Expiration

This LOI shall expire if not executed by both parties by: _________________________________

Signature Page

BUYER:

SELLER:

LOI Review Checklist

For Buyers

☐ Purchase price reflects fair valuation
☐ Payment terms are achievable
☐ Due diligence period is sufficient
☐ Exclusivity period protects your investment of time
☐ Conditions precedent adequately protect you
☐ Non-compete terms are sufficient
☐ Indemnification framework is acceptable
☐ Timeline is realistic

For Sellers

☐ Purchase price meets expectations
☐ Payment structure is acceptable
☐ Earnest money demonstrates buyer commitment
☐ Due diligence scope is reasonable
☐ Confidentiality is adequately protected
☐ Exclusivity period is not excessive
☐ Termination rights are balanced
☐ Timeline allows for orderly transition

Key Negotiation Points

Critical Issues to Address

1. Purchase Price Allocation - Tax implications differ significantly
2. Working Capital Target - Can significantly impact effective purchase price
3. Earnout Metrics - Must be clearly defined and measurable
4. Seller Financing Security - What secures the seller note?
5. Rep & Warranty Insurance - Consider for indemnification protection
6. Escrow Terms - Amount and release conditions
7. Employee Matters - Retention bonuses, severance obligations
8. Real Estate - Included in sale or separate lease?
9. Transition Services - Duration and compensation
10. Non-Compete Scope - Requires transaction-specific review under the law governing sale-of-business restrictive covenants

Important Notices

Legal Counsel Required

Both parties should have independent legal counsel review this LOI before signing. This draft states that exclusivity, confidentiality, expenses, and specified general provisions are intended to be binding, but their enforceability and available remedies depend on applicable law and the facts.

Tax Implications

Transaction structure and purchase-price allocation can affect the parties' tax reporting and outcomes. For an applicable asset acquisition, 26 U.S.C. § 1060 governs allocation and the IRS generally requires both seller and purchaser to report the sale on Form 8594 when its stated conditions are met. Consult tax professionals before finalizing the structure or allocation.

Financing Contingencies

If Buyer's obligation is contingent on financing, clearly define what constitutes acceptable financing terms.

Broker Fees

If brokers are involved, ensure fee obligations are clearly understood and disclosed.

This template is provided for informational purposes only and does not constitute legal advice. Consult with a qualified attorney licensed in your jurisdiction before executing any legal documents.

Official Sources Verified

• 15 U.S.C. § 18a — Premerger notification and waiting period
• FTC Premerger Notification Program
• 26 U.S.C. § 1060 — Special allocation rules for certain asset acquisitions
• IRS Form 8594 guidance