LOI meaning in business: LOI stands for “letter of intent.” It’s a document that sets out the main terms two parties plan to agree on, such as price, timing and conditions, before they sign a final contract. LOIs are common in business sales, mergers and acquisitions, commercial leases and large partnerships. Most of an LOI is usually non-binding, but some sections can be binding.
What does LOI mean at work?
An LOI is a “we’re serious, here’s the outline” step. It lets both sides confirm they agree on the big points before spending time and money on lawyers, due diligence and a detailed contract.
A typical LOI includes:
- Names of the parties and a description of the deal
- Price or key financial terms
- Deal structure, such as buying assets or company shares
- Timeline and target closing date
- Conditions, such as financing or satisfactory due diligence
- Exclusivity (“no-shop”) period, if any
- Confidentiality terms
- Which sections are binding and which are not
Is an LOI binding?
Usually, the main business terms in an LOI are non-binding, meaning either side can still walk away. But LOIs often include binding sections, commonly confidentiality, exclusivity, who pays costs and which state’s law applies.
Courts look at the wording and the parties’ actions, so a poorly drafted LOI can create obligations nobody intended. That’s why LOIs should clearly state what is and isn’t binding.
Examples of LOI in emails and messages
Deal email: “Attached is our LOI to acquire the company for $2.4M, subject to due diligence and financing.”
Slack: “The LOI is signed. We have a 60-day exclusivity window to finish diligence.”
Commercial lease: “The tenant sent an LOI for 5,000 square feet with a 5-year term.”
Lawyer: “Before you sign, let’s confirm the price terms are marked non-binding.”
LOI vs MOU vs term sheet vs contract
| Document | What it is | Typically binding? |
|---|---|---|
| LOI | Letter outlining key deal terms and intent | Mostly no, with some binding clauses |
| MOU (memorandum of understanding) | Similar outline, often for partnerships or between organizations | Usually no |
| Term sheet | A list of key terms, common in investing | Mostly no |
| Final contract | Full, detailed agreement | Yes |
How to use an LOI correctly
- Cover the deal-breakers. Price, structure and key conditions should be clear.
- Label binding and non-binding sections. Remove any doubt about what’s enforceable.
- Set a realistic timeline. Include an expiration date for the LOI itself.
- Think carefully about exclusivity. Sellers may not want to stop talking to other buyers for too long.
- Get legal review. An LOI shapes the final deal, so it’s worth having a lawyer check it.
Related terms
See more in our Business and Finance hub.
FAQ
What does LOI stand for in business?
LOI stands for letter of intent, a document that outlines the main terms of a proposed deal before a final contract is signed.
Is a letter of intent legally binding?
Usually the main terms are non-binding, but sections such as confidentiality and exclusivity are often binding. The exact wording matters.
What comes after an LOI?
Typically due diligence, then negotiation and signing of the final purchase agreement or contract.
What is an exclusivity clause in an LOI?
An exclusivity or no-shop clause stops the seller from negotiating with other buyers for a set period while the deal is worked out.
What is the difference between an LOI and an MOU?
They are similar outline documents. LOIs are common in deals like business sales and leases, while MOUs are often used for partnerships and agreements between organizations.
This article is general information, not legal or tax advice. Check with a qualified professional for your situation.
