Definition
A letter of intent, or LOI, sets out the proposed basis of a transaction before definitive agreements are completed. It may address price, structure, conditions, diligence, timetable, and how the parties intend to proceed. The document can expose misunderstandings early by making assumptions and proposed responsibilities explicit.
The title does not determine which provisions create obligations. Confidentiality, access, exclusivity, expenses, and other provisions need to be read in their actual wording and context. Signing an LOI does not establish that diligence is complete or that a transaction will close. Research teams should describe the recorded stage accurately and leave interpretation of the document's legal effects to the transaction's advisers.
In origination work
Record the executed version, parties, date, outstanding conditions, and any separately confirmed process deadlines. Keep public research distinct from information obtained under the transaction's access arrangements. A target that reaches LOI remains subject to unresolved commercial and financial questions, so a pipeline should not count it as acquired. If terms change, retain the previous version and explain which assumptions changed rather than rewriting the record of the earlier proposal.
Binding and non-binding provisions
A letter of intent normally combines two kinds of text. The commercial terms, such as price, structure and timetable, are typically stated as non-binding because they will be replaced by a definitive agreement. A short list of provisions, often confidentiality, expenses and exclusivity, is stated to be binding from signature. The document's own wording determines which is which, and the heading does not.
Courts have addressed what happens when parties sign preliminary agreements and then disagree about the obligation to keep negotiating. Delaware, a common governing law for private deals, has produced decisions on the point. The practical lesson for a research team is limited but useful: do not describe an LOI as binding or non-binding from general knowledge; look at the executed text, and leave interpretation to counsel.
Why the stage matters for pipeline accuracy
Signing a letter of intent normally signals that the parties have agreed enough to spend money on diligence: accountants, lawyers, third-party reports and management time. It is therefore a useful stage marker, and many pipelines count it as a milestone. The tax structure, such as an asset purchase or a stock purchase, is also often addressed at this stage, and the IRS publishes an overview of how sales of businesses are taxed and reported. A letter of intent is not a proxy for completion. A significant share of signed letters never become definitive agreements, because diligence or financing turns up issues, and the figure varies by market so no general rate should be assumed.
Regulatory timing may also attach to this stage. Acquisitions above the federal size thresholds require premerger notification before closing, and the rules of the programme set out when a filing may be made. Whether a specific transaction needs a filing depends on its value and the parties, and is a question for the parties' counsel. For research, the point is that the date of an LOI can be a date that triggers other workstreams.
What to capture and what to avoid
Capture the signing date, the parties' exact legal names, the summary of consideration, conditions, the expiry or target dates, and any extension. Attach the executed document to the record and note who holds the original. Link the LOI to the entity record for the target so a later renaming or conversion of that entity does not orphan the document; entity continuity problems are common in the months after a transaction.
Avoid summarising an LOI in terms stronger than its text. Do not write "agreed", "committed" or "exclusive" unless the document uses those commitments. Do not count the opportunity as won. And do not share the document beyond the people entitled to see it; LOIs are usually confidential and are often covered by the separate non-disclosure agreement.
Related terms
- Indication of interest — A preliminary expression of acquisition interest setting out a prospective buyer's proposed terms and assumptions.
- Exclusivity period — An agreed interval during which specified restrictions apply to a party's engagement with competing transaction counterparties.
- Data room — A controlled collection of transaction materials made available to authorised participants for review.
Further reading
- Access and process status
- Non-disclosure agreement
- Research around sale processes
- Intermediated versus proprietary sourcing compared
- Article: tracking entity continuity in target lists
- Article: origination pipeline stages and metrics
- Evidence standards for pipeline status
Sources and further reading
- Delaware Court of Chancery opinions, Delaware State Courts. Where the duties a board owes when running a sale process are actually litigated and defined.
- Premerger Notification Program (Hart-Scott-Rodino), U.S. Federal Trade Commission. Filing thresholds are adjusted annually; below them a deal closes without notifying anyone.
- Sale of a business, Internal Revenue Service. The IRS overview of how asset and stock sales are taxed and what each party must report.
To apply these distinctions to your own acquisition criteria, discuss your research brief or inspect the demo platform.