An LOI, or letter of intent, is the document in which a buyer sets out the price and shape of the deal they intend to do before spending money on due diligence and lawyers, and although most of it is non-binding it is where the final deal is effectively decided.
Mostly not binding, and it still decides the deal
The price and structure in an LOI are typically expressed as intentions rather than obligations. What is usually binding is the exclusivity clause, which stops you talking to other buyers for a set period, and the confidentiality terms. Once you sign, competitive tension is gone and everything that follows is a negotiation about coming down, not up.
What to read hardest
The exclusivity period and what ends it. The conditions the buyer can walk away on, which should be specific rather than 'satisfactory diligence'. Whether the price is fixed or subject to a working-capital or debt adjustment. And how any earnout is measured, by whom, and using whose accounting.
Where it sits in the sequence
Marketing produces enquiries, enquiries produce offers, one offer becomes an LOI, the LOI opens due diligence, and diligence produces the purchase agreement. Marketplaces increasingly build LOI drafting into the platform: Flippa and Acquire.com both ship document builders for it, which is convenient and is not a substitute for having a lawyer read yours.
Questions people ask about loi meaning
Is an LOI legally binding?
Usually only in parts, typically exclusivity and confidentiality. Do not rely on that summary for your own document; the wording is what decides it and a lawyer should read it.
How long should exclusivity in an LOI run?
Long enough for genuine diligence and no longer. Sixty to ninety days is common; a period with no end date takes your business off the market indefinitely.
What is the difference between an LOI and a term sheet?
Largely naming. Both set out the intended price and structure before diligence; what matters is which clauses are stated to bind, which is normally exclusivity and confidentiality in either document.