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Letter of Intent (LOI) Template Explained: Sections, Example and How to Write One

May 25, 202619 min read

A letter of intent (LOI) is a short document that records the key terms two parties have agreed to before signing a full contract. It outlines the deal structure, price, timeline and conditions, signalling serious intent to proceed. Most clauses are non-binding, but confidentiality and exclusivity are often made binding.

A letter of intent template gives you a structured starting point for one of the most useful documents in business: a short, written record of what two parties have agreed to before they sign a full contract. Whether you are buying a company, leasing premises, locking in a partnership, or starting a large project, the LOI captures the deal in plain terms so everyone is moving in the same direction.

This guide is educational and not legal advice. Laws vary by jurisdiction, and the binding effect of an LOI depends heavily on how it is worded and where you operate. For any deal with real money or risk attached, have a qualified lawyer review your letter before you sign it.

Below, you will find what an LOI is, when to use one, whether it binds you, the exact sections it should contain, a section-by-section breakdown, a realistic example, the mistakes that cause disputes, and best practices that keep your LOI clean and useful.

What Is a Letter of Intent (LOI)?

A letter of intent is a document that records the major terms two parties have provisionally agreed to, ahead of a definitive contract. It is sometimes called a term sheet, heads of terms, or a memorandum of understanding, though those documents differ in tone and format.

The LOI does three jobs at once. It confirms that both sides are serious. It sets out the headline terms so negotiation does not drift. And it creates a framework for the detailed contract that follows.

Crucially, most of an LOI is intentionally non-binding. It signals direction without locking either party into the full deal. Certain clauses, however, such as confidentiality and exclusivity, are usually made binding so the parties can share sensitive information and negotiate in good faith without the risk of being undercut.

Think of the LOI as the handshake written down. It is more formal than a verbal agreement and less rigid than a contract.

When Do You Need a Letter of Intent?

You do not need an LOI for every transaction. A quick freelance gig is better served by a simple quote and contract. The LOI earns its place when a deal is large, multi-stage, or involves several moving parts that take time to finalize.

Typical situations include:

Buying or selling a business - the LOI sets the purchase price, structure, and due diligence period before lawyers draft the share or asset purchase agreement.
Commercial property leases - landlords and tenants use an LOI to agree rent, term, and fit-out responsibilities before the formal lease.
Partnerships and joint ventures - two companies record how they will collaborate, split revenue, and govern the relationship.
Large service engagements - an agency and client agree scope, fees, and timeline at a high level before the master service agreement.
Investment and funding - investors issue an LOI or term sheet outlining valuation and conditions before legal closing.
Supplier and distribution deals - buyers signal commitment to a vendor so both sides can plan inventory and resources.

If a deal will require weeks of negotiation, due diligence, or third-party approvals, an LOI keeps everyone aligned and reduces the chance of a late-stage collapse.

Is a Letter of Intent Legally Binding?

This is the question that causes the most confusion, and the answer is: it depends entirely on the wording.

A well-drafted LOI is a hybrid. Most of it is non-binding, an expression of intent rather than a promise to perform. But specific provisions are deliberately made binding. The document should state clearly which is which.

Commonly binding clauses include:

Confidentiality - neither party may disclose information shared during talks.
Exclusivity (no-shop) - the seller agrees not to negotiate with other buyers for a set period.
Governing law and jurisdiction - which courts and laws apply to disputes.
Expenses - who pays their own costs if the deal falls through.

Commonly non-binding clauses include the price, structure, and the overall agreement to proceed, all of which are subject to a definitive contract.

The danger is ambiguity. If an LOI reads like a contract and does not explicitly state that the commercial terms are non-binding, a court in some jurisdictions may treat parts of it as enforceable. That is why a clear "binding vs non-binding" clause matters, and why legal review is worth it for any meaningful deal.

The Essential Sections of a Letter of Intent Template

A clean LOI template contains the following sections. Not every deal needs all of them, but this is the full menu to work from.

Date and parties - who is involved, with legal names and addresses.
Purpose / introduction - what the LOI is for, in one or two sentences.
Description of the transaction - what is being bought, leased, or agreed.
Key commercial terms - price, payment structure, quantities, or scope.
Timeline and milestones - target dates for due diligence and closing.
Conditions / contingencies - what must happen before the deal proceeds.
Due diligence - access the buyer or counterparty will be given.
Exclusivity (no-shop) clause - whether parties can talk to others.
Confidentiality clause - how shared information is protected.
Binding vs non-binding statement - which clauses are enforceable.
Expenses - who bears their own costs.
Governing law - the jurisdiction and applicable law.
Expiration date - how long the LOI stays open.
Signatures - authorised representatives of both parties.

Section-by-Section Breakdown

Date and Parties

Open with the date and the full legal names of both parties, including company numbers and registered addresses where relevant. Precision here prevents arguments later about exactly who is bound. If a parent company or individual is signing on behalf of an entity, name them and their authority.

Purpose and Introduction

State why the LOI exists in plain language. For example, "This letter sets out the principal terms on which Buyer proposes to acquire the assets of Seller." Keep it to a sentence or two. The introduction frames everything that follows.

Description of the Transaction

Describe exactly what the deal covers. In an acquisition, specify shares versus assets. In a lease, identify the property and the space. In a service deal, summarize the scope. Vague descriptions invite disputes, so be concrete without writing the whole contract.

Key Commercial Terms

This is the heart of the LOI. Set out the price or fees, the payment structure (deposit, installments, earn-outs), and any quantities or volumes. State whether figures are estimates or firm. If the price is subject to due diligence, say so explicitly.

Timeline and Milestones

Give target dates for the major stages: signing the LOI, completing due diligence, signing the definitive agreement, and closing. These are usually non-binding targets, but they keep momentum and reveal early if one side is dragging.

Conditions and Contingencies

List what must be true for the deal to proceed: board approval, financing, regulatory clearance, satisfactory due diligence, or third-party consents. Conditions protect you from being locked into a deal that no longer makes sense once you learn more.

Due Diligence

Spell out the access the counterparty will get to records, premises, staff, or systems, and over what period. For a business sale, this is where the buyer's right to inspect the books is established. Tie it to the confidentiality clause.

Exclusivity (No-Shop) Clause

If you want the other side to stop negotiating with competitors, this is where you say so, and for how long (often 30 to 90 days). Exclusivity is usually binding. A seller giving exclusivity is taking the deal off the market, so the buyer should expect to commit resources in return.

Confidentiality Clause

Both parties will see sensitive information during negotiations. The confidentiality clause prevents either side from disclosing or misusing it, and it usually survives even if the deal collapses. This clause is almost always binding.

Binding vs Non-Binding Statement

The single most important clause. State clearly that the commercial terms are non-binding and subject to a definitive agreement, while naming the specific clauses (confidentiality, exclusivity, governing law, expenses) that are binding. Without this, the whole document is open to interpretation.

Expenses, Governing Law and Expiration

Confirm that each party bears its own costs unless agreed otherwise. Name the governing law and jurisdiction. Set an expiration date so the LOI does not hang over either party indefinitely. These housekeeping clauses prevent loose ends.

Signatures

Both authorised representatives sign and date. While the commercial terms may be non-binding, signing still matters: it activates the binding clauses and demonstrates serious intent. Electronic signatures are valid in most jurisdictions.

A Realistic Letter of Intent Example

Meet Priya, founder of a six-person digital agency called Northlight Studio. A larger marketing group, Beacon Partners, wants to acquire Northlight to add design capability. Before lawyers draft the purchase agreement, Beacon sends an LOI.

The LOI opens with the date and both companies' legal names and registered addresses. The purpose clause states that Beacon proposes to acquire 100% of Northlight's shares.

The transaction description confirms it is a share purchase, including all client contracts and staff. The key commercial terms set the headline price at a figure subject to due diligence, with 70% payable at closing and 30% as an earn-out over two years tied to retained revenue.

The timeline targets due diligence within 45 days and signing of the definitive agreement within 60. Conditions include satisfactory due diligence, Beacon's board approval, and the transfer of Northlight's three largest client contracts.

A no-shop clause gives Beacon 45 days of exclusivity during which Priya will not solicit other buyers. A confidentiality clause protects the financials Priya is about to share. The binding clause states plainly that only confidentiality, exclusivity, expenses, and governing law are binding; the price and structure are not, pending the full agreement.

The LOI expires in 14 days if unsigned, names England and Wales as the governing jurisdiction, and ends with signature blocks for Priya and Beacon's managing director.

Priya has her solicitor review it, tightens the earn-out wording, signs, and the deal moves into due diligence with both sides clear on the shape of it.

The LOI overlaps with several other pre-contract documents. Knowing the differences helps you pick the right one.

Document	Primary purpose	Typical binding status	When to use
Letter of Intent (LOI)	Record key deal terms before a contract	Mostly non-binding; some binding clauses	Acquisitions, leases, large deals
Memorandum of Understanding (MOU)	Express mutual understanding or intent to cooperate	Usually non-binding	Partnerships, collaborations, public bodies
Term Sheet	Summarize commercial terms, often in bullet form	Mostly non-binding	Investment, funding rounds
Heads of Terms	Outline principal terms (UK/Commonwealth usage)	Mostly non-binding	Property, M&A in the UK
Definitive Contract	Create full, enforceable obligations	Fully binding	The final deal after the LOI
Business Proposal	Pitch a solution to win work	Non-binding	Sales and bidding

In practice, "LOI", "MOU", and "heads of terms" are often used interchangeably, and the substance matters more than the label. A term sheet is usually shorter and more bullet-driven, while an LOI reads as a letter. If you are recording detailed deal terms, you can explore the differences between a memorandum of understanding and a letter of intent before you choose.

Pros and Cons of Using a Letter of Intent

An LOI is a tool, not a requirement. Weigh the trade-offs before you send one.

Pros

Confirms that both parties are serious and committed.
Aligns expectations on price, scope, and timeline early.
Protects sensitive information through binding confidentiality.
Secures exclusivity so you are not negotiating against rivals.
Surfaces deal-breakers before either side spends heavily on legal fees.
Gives lawyers a clear framework to draft the definitive contract.

Cons

Can create unintended binding obligations if poorly worded.
May give a false sense of certainty before due diligence.
Takes time to negotiate, which slows fast-moving deals.
Exclusivity can lock you out of better offers during the period.
Requires legal review to be safe, adding cost.
A signed LOI that falls through can sour the relationship.

For straightforward jobs, a quote or proposal is enough; understanding how a quote differs from a contract helps you avoid over-documenting small deals.

Common Letter of Intent Mistakes

Even experienced operators get LOIs wrong. These are the errors that cause the most trouble.

Not Stating What Is Binding

The biggest mistake. If your LOI does not clearly separate binding from non-binding clauses, you risk a court reading commitment into terms you thought were provisional. Always include an explicit binding-effect clause.

Treating the LOI Like a Final Contract

An LOI is a framework, not the deal. Cramming in exhaustive warranties, indemnities, and detailed mechanics defeats the purpose and slows negotiation. Keep it to the headline terms.

Vague Commercial Terms

"A fair price" or "reasonable timeline" means nothing. State numbers, structures, and dates, even if they are subject to due diligence. Ambiguity here guarantees friction later.

Forgetting Exclusivity or Confidentiality

If you are about to share financials or commit weeks of effort, omitting confidentiality and exclusivity leaves you exposed. The counterparty could shop your offer or leak your data with no recourse.

No Expiration Date

An open-ended LOI lets the other party sit on it. Set a clear deadline so the offer either advances or lapses cleanly.

Skipping Legal Review

People treat the LOI as informal and skip the lawyer, then discover a binding clause they did not understand. For any deal of substance, a short review pays for itself.

Confusing the LOI With a Proposal

A proposal pitches your solution; an LOI records agreed terms. Mixing the two muddies what has actually been agreed. If you are still selling, write a proper business proposal instead.

Best Practices for Writing a Strong LOI

Follow these steps to produce an LOI that is clear, useful, and safe.

Lead with the binding clause logic. Decide up front which clauses are binding and which are not, then state it explicitly in the document.
Keep it short. Aim for one to three pages. The LOI summarizes; the contract details. If it is creeping past four pages, you are over-writing it.
Use precise commercial terms. State price, structure, quantities, and dates as specifically as the stage allows, flagging anything subject to due diligence.
Always include confidentiality. Make it binding and have it survive a failed deal so shared information stays protected.
Set realistic timelines. Give target dates for due diligence, signing, and closing so momentum is visible and stalling is obvious.
Add an expiration date. Force a decision and prevent the LOI from lingering.
Name the governing law. Specify the jurisdiction so any dispute over the binding clauses is predictable.
Have it reviewed. A lawyer should check the binding-effect language and any exclusivity terms before you sign.
Store and version it properly. Keep the signed LOI alongside the deal file so the whole team works from the same document.

How an LOI Fits Into Your Business Workflow

The LOI sits at a specific point in the deal lifecycle: after initial discussions but before the definitive contract. Understanding its place keeps your process tidy.

A typical flow looks like this:

Initial talks - both sides explore whether a deal makes sense.
Proposal or pitch - the seller or service provider outlines what they can offer.
Letter of intent - the headline terms are agreed and the binding clauses activate.
Due diligence - under confidentiality and exclusivity, the buyer inspects the details.
Definitive agreement - lawyers draft and both parties sign the full, binding contract.
Closing and delivery - money changes hands and obligations begin.

For a service business, the LOI often precedes a master service agreement and then the operational documents that follow: scope statements, project plans, and ultimately invoices. Getting the LOI right at the top of this chain means every document downstream inherits the same clear terms.

Once the deal closes, the administrative side begins, and this is where modern tooling helps. The same plain-language clarity that makes a good LOI makes for good billing. After the contract is signed, you will issue invoices, quotes, and receipts against the terms you agreed, and keeping those documents consistent and professional protects the relationship you worked to build. A connected document and billing workflow means the price you wrote into the LOI flows cleanly into the invoices that get you paid.

Treat the LOI as the hinge between negotiation and execution. Done well, it turns a verbal handshake into a shared, written plan that the rest of your paperwork can build on.

Summary

A letter of intent template gives you a reliable structure for recording the key terms of a deal before you commit to a full contract. It confirms serious intent, aligns both sides on price and timeline, and protects sensitive information through binding confidentiality and exclusivity clauses, while leaving the commercial terms non-binding and subject to a definitive agreement.

The sections that matter most are the parties, the transaction description, the key commercial terms, the timeline, conditions, and above all the clear statement of which clauses are binding. Avoid vague terms, never skip the expiration date or confidentiality clause, and remember that this guide is educational rather than legal advice. Laws vary by jurisdiction, so have a lawyer review any LOI tied to a real deal before you sign. Get the letter of intent right, and every document that follows inherits its clarity.

Frequently asked questions

What is a letter of intent in simple terms?

A letter of intent is a short document that records the main terms two parties have agreed to before signing a full contract. It captures the price, structure, timeline, and conditions of a deal, signalling that both sides are serious. Most of it is non-binding, but clauses like confidentiality and exclusivity are usually made binding so negotiations can proceed safely.

Is a letter of intent legally binding?

It depends on the wording. A well-drafted LOI is mostly non-binding, but it deliberately makes certain clauses binding, such as confidentiality, exclusivity, governing law, and who pays expenses. The document should state clearly which clauses are binding and which are not. If that distinction is missing, a court in some jurisdictions may treat parts of it as enforceable, which is why legal review matters.

What is the difference between an LOI and an MOU?

The two overlap heavily and are often used interchangeably. A letter of intent reads as a formal letter and is common in acquisitions and leases, while a memorandum of understanding tends to express mutual cooperation between partners or public bodies. Both are usually mostly non-binding. The substance of the clauses matters far more than the title on the document.

How long should a letter of intent be?

Most LOIs run one to three pages. The point is to summarize the headline terms, not to draft the entire contract. If your LOI is stretching past four pages with detailed warranties and mechanics, you are over-writing it. Keep the commercial terms concise and leave the fine detail to the definitive agreement that follows.

Can you back out of a letter of intent?

Usually yes, because the commercial terms are typically non-binding and subject to a definitive contract. However, you remain bound by any clauses marked binding, such as confidentiality and exclusivity, and breaking those can expose you to liability. Always read the binding-effect clause carefully before assuming you can walk away with no consequences.

Do you need a lawyer to write a letter of intent?

You can draft an LOI from a template yourself, but for any deal with real money or risk attached, a lawyer should review it. The binding-effect language, exclusivity terms, and governing law clauses are easy to get wrong, and a poorly worded LOI can create obligations you did not intend. A short review is inexpensive insurance against a costly dispute.

What sections must a letter of intent include?

At minimum: the date and parties, the purpose, a description of the transaction, the key commercial terms, the timeline, conditions, and a clear statement of which clauses are binding. Most LOIs also include confidentiality, exclusivity, expenses, governing law, an expiration date, and signature blocks. Skipping the binding-effect statement is the most common and most damaging omission.

What is the difference between a letter of intent and a term sheet?

They serve the same purpose but differ in format. A term sheet is usually a short, bullet-point summary of commercial terms, common in investment and funding rounds. A letter of intent reads as a narrative letter and is typical in acquisitions, leases, and partnerships. Both are mostly non-binding frameworks for the definitive contract that follows.

Should a letter of intent have an expiration date?

Yes. Without an expiration date, an LOI can hang over both parties indefinitely, letting the other side delay a decision. Setting a clear deadline, often a week or two for signing, forces the deal to advance or lapse cleanly. It also activates exclusivity and confidentiality windows on a defined timeline rather than open-ended.

Does signing an LOI commit you to the full deal?

Generally no. Signing typically commits you only to the clauses marked binding, such as confidentiality and exclusivity, while the commercial terms remain subject to a definitive agreement. That said, signing signals serious intent and may carry a good-faith expectation to negotiate honestly. Read the binding-effect clause to know exactly what you are committing to before you sign.

Conclusion

A solid letter of intent template turns early conversations into a clear, shared plan that both parties can build on. By recording the price, structure, timeline, and conditions while explicitly separating binding clauses from non-binding ones, you reduce the risk of misalignment and protect yourself during due diligence. The LOI is the hinge between negotiation and execution, and getting it right makes every document that follows simpler and cleaner.

Remember that this guide is educational, not legal advice. The enforceability of a letter of intent depends on its exact wording and your jurisdiction, so have a qualified lawyer review any LOI tied to a real deal before you sign. Do that, and your letter of intent will do exactly what it is meant to: confirm serious intent without locking you into terms you have not finalized.