A letter of intent, often called an LOI, records major proposed terms before the parties prepare and negotiate full transaction documents. It may cover the proposed price or valuation method, asset or equity sale structure, cash at closing, earnout, rollover equity, working capital, debt, exclusivity, diligence, timing, confidentiality, and closing conditions. Some sections may be binding even if the parties do not complete the sale. The wording and governing law matter, so have transaction counsel review the document before signing.
Check how the headline price is calculated. Ask whether it assumes a certain level of cash, debt, working capital, or accounts receivable at closing. Clarify which liabilities the buyer expects to assume and which remain with the seller. If there is an earnout, ask how performance will be measured, who controls decisions that affect it, when results will be reported, and how disputes will be handled. If you retain equity, confirm that its class and core rights are stated rather than deferred.
Read exclusivity carefully. How long does it last? Can it be extended, and under what conditions? What happens if the buyer misses diligence milestones or changes material terms? Exclusivity may limit your ability to speak with other buyers, so compare the restriction with the buyer’s commitments. Ask which confidentiality and cost provisions are binding and how either party can end discussions.
Identify the buying entity and any remaining approvals. Ask whether lender, investor, board, or regulatory approval is needed, and whether financing is a condition. Make assumptions and unresolved terms visible in writing. A signed LOI can guide negotiations, but it does not guarantee closing or prevent a buyer from seeking revised terms after diligence.
Ask your attorney and CPA to review legal effect and tax treatment before signing, and compare the LOI with the complete transaction documents as they develop.
This is general education, not legal, tax, investment, or engineering advice; licensed PE judgment and local codes govern.
