TEMPLATES · DUE DILIGENCE
Letter of Intent Template to Purchase a Business
Every clause of a standard business-purchase LOI, in plain template language, with what each one actually means and where buyers most often give up protection they didn’t need to. Copy the full text below or read clause-by-clause first.
Not legal advice. This is an educational template for understanding LOI structure. Have a qualified attorney review and customize any LOI before you sign it — deal specifics, state law, and entity structure all change what you actually need.
The template, clause by clause
1. Parties & Preamble
This non-binding Letter of Intent ("LOI") is entered into as of [DATE], by and between [BUYER NAME / ENTITY] ("Buyer") and [SELLER NAME / ENTITY] ("Seller"), setting forth the principal terms under which Buyer proposes to acquire [substantially all of the assets of / all of the outstanding equity interests in] [BUSINESS NAME] (the "Business"), located at [BUSINESS ADDRESS].What it means
Names the buyer, seller, and the business, and states upfront whether this is an asset deal or a stock/equity deal — the single biggest structural decision in the whole transaction.
Buyer protection note
Confirm asset vs. equity deal here, not later. Asset deals generally let a buyer leave behind unknown liabilities; equity deals inherit them unless carved out separately.
2. Purchase Price & Structure
The total purchase price for the Business shall be [$PURCHASE PRICE] (the "Purchase Price"), payable as follows: (a) $[CASH AT CLOSING] in cash at Closing; (b) $[SELLER NOTE AMOUNT] via a seller promissory note bearing interest at [X]% per annum, amortized over [Y] years; (c) $[EARNOUT AMOUNT], if any, payable per the earnout terms in Exhibit A. The Purchase Price is subject to a customary working capital adjustment as determined during due diligence.
What it means
Breaks the price into how it’s actually paid — cash, a note the seller carries, and any earnout tied to future performance — plus a placeholder for a working-capital true-up.
Buyer protection note
The "subject to working capital adjustment" line is easy to skip past but matters — it lets the price move (usually down) once diligence confirms the real numbers. Don’t agree to a fixed price with no adjustment mechanism.
3. Deposit / Earnest Money
Upon execution of a definitive Asset Purchase Agreement, Buyer shall deposit $[DEPOSIT AMOUNT] into escrow with [ESCROW AGENT], to be applied toward the Purchase Price at Closing or refunded to Buyer in accordance with the terms of the definitive agreement.
What it means
Sets aside a good-faith deposit once the parties move to a real contract — not at LOI signing itself, which should stay deposit-free.
Buyer protection note
Make sure the deposit is only due at the definitive-agreement stage, not with this LOI, and confirm in writing exactly which scenarios entitle you to a full refund (e.g., failed financing, a diligence red flag).
4. Assets Included / Excluded
The purchased assets shall include all tangible and intangible assets used in the operation of the Business, including but not limited to equipment, inventory, customer lists, goodwill, intellectual property, and assignable contracts and leases, but excluding: cash and cash equivalents on hand as of Closing, personal vehicles, and [OTHER EXCLUDED ASSETS], which shall remain the property of Seller.
What it means
Spells out what actually transfers with the business — the equipment, customer list, and goodwill — and what the seller keeps, like personal cash or a car titled to the business.
Buyer protection note
Get specific. "All assets used in the operation of the Business" sounds airtight but invites disputes later — list major equipment, vehicles, and any IP by name in an exhibit before signing the definitive agreement.
5. Due Diligence Period
Buyer shall have a period of [30–60] days from the date of this LOI (the "Due Diligence Period") to conduct financial, legal, operational, and market due diligence on the Business, during which Seller shall provide reasonable access to books, records, contracts, employees, and facilities. Buyer may terminate this LOI at any time during the Due Diligence Period, for any reason, without penalty.
What it means
The window where the buyer actually verifies everything the seller has claimed — financials, contracts, customer concentration — and can walk away cleanly if something doesn’t check out.
Buyer protection note
This is the buyer’s single most important protection in the whole LOI. Get "for any reason" language, not "for cause" — a for-cause exit right forces you to prove a specific breach instead of simply walking away.
6. Financing Contingency
Buyer’s obligation to close is contingent upon Buyer obtaining financing on terms acceptable to Buyer, in its sole discretion, within [X] days of the date of this LOI. Buyer shall use commercially reasonable efforts to pursue such financing.
What it means
The deal only closes if the buyer’s bank, SBA loan, or other financing actually comes through on terms the buyer accepts.
Buyer protection note
"On terms acceptable to Buyer, in its sole discretion" is the key phrase — without it, a lender offering worse terms than expected could still force you to close or breach the agreement.
7. Exclusivity / No-Shop
From the date of this LOI until the earlier of (a) the expiration of the Due Diligence Period, or (b) termination of this LOI, Seller shall not, directly or indirectly, solicit, negotiate, or enter into any agreement with any other party regarding the sale of the Business or its assets.
What it means
Buys the buyer a window where the seller can’t shop the deal to other buyers or keep negotiating with a backup bidder.
Buyer protection note
This clause is usually the one binding provision in an otherwise non-binding LOI, and it’s the one worth pushing hardest on — without it, you can spend real diligence money while the seller quietly takes a better offer.
8. Confidentiality
Each party agrees to keep the terms of this LOI, and all non-public information exchanged during due diligence, confidential, and shall not disclose such information to any third party without the other party’s prior written consent, except as required by law or to the parties’ respective advisors, lenders, and investors on a need-to-know basis.
What it means
Keeps deal terms and anything learned during diligence (financials, customer lists, employee details) private on both sides.
Buyer protection note
Confirm this survives if the deal falls through — you don’t want a seller who walks away from a failed deal free to use whatever they learned about your financing or strategy.
9. Representations (Non-Binding at LOI Stage)
Seller represents that, to Seller’s knowledge, the financial statements provided to Buyer fairly present the financial condition of the Business, and that there is no pending or threatened litigation, undisclosed liability, or material adverse change affecting the Business, except as disclosed in Exhibit B. These representations are provided for informational purposes only and shall not be binding until set forth in a definitive agreement.
What it means
A preliminary, non-binding statement from the seller that the numbers are accurate and there’s nothing major they haven’t told you — the real, enforceable version of this comes later in the purchase agreement.
Buyer protection note
Don’t treat this as real protection — it explicitly isn’t binding yet. Its value is a paper trail: if a seller’s definitive-agreement reps later contradict what they said here, that inconsistency is useful leverage.
10. Employee Matters
Buyer [intends to / does not intend to] offer employment to substantially all of Seller’s current employees, on terms to be determined by Buyer. Seller shall be solely responsible for all wages, benefits, and severance obligations accrued through the Closing Date.
What it means
States the buyer’s general plan for existing staff and makes clear the seller — not the buyer — is on the hook for any pay or severance owed for time worked before closing.
Buyer protection note
If specific employees (a manager who runs day-to-day operations, for example) are critical to the deal, name them and make their retention a condition to closing — don’t leave this generic if the business depends on one or two people.
11. Non-Compete & Non-Solicitation
For a period of [3–5] years following Closing, within a [X]-mile radius of the Business, Seller shall not directly or indirectly own, operate, or have any interest in a competing business, and shall not solicit any customers, employees, or vendors of the Business.
What it means
Stops the seller from opening a competing business nearby or poaching customers and staff for a set number of years after the sale.
Buyer protection note
Get the radius and term in writing now, not left to the definitive agreement — a seller who agrees to "reasonable" restrictions in an LOI has less room to fight a specific 5-year/10-mile term later.
12. Conditions to Closing
Closing shall be subject to customary conditions, including but not limited to: (a) satisfactory completion of Buyer’s due diligence; (b) receipt of financing on terms acceptable to Buyer; (c) assignment or transfer of all material leases, licenses, and permits necessary to operate the Business; (d) no material adverse change in the Business between the date of this LOI and Closing; and (e) execution of a mutually acceptable definitive purchase agreement.
What it means
The checklist of things that must all be true before the deal actually closes — diligence clears, financing lands, licenses transfer, and nothing material has broken in the meantime.
Buyer protection note
The "material adverse change" (MAC) clause protects you if the business meaningfully deteriorates between signing the LOI and closing — make sure it’s in there, especially on longer diligence timelines.
13. Closing Date
Subject to satisfaction of the conditions set forth herein, the parties shall use commercially reasonable efforts to close the transaction on or before [TARGET CLOSING DATE], or such other date as mutually agreed in writing.
What it means
A target date to close by — a goalpost, not a hard deadline, since it depends on diligence and financing finishing on time.
Buyer protection note
Treat this as aspirational. Never let a seller pressure you into closing by this date if financing or diligence conditions in Section 12 haven’t actually been satisfied.
14. Governing Law
This LOI shall be governed by and construed in accordance with the laws of the State of [STATE], without regard to its conflict of laws principles.
What it means
Picks which state’s law applies if there’s ever a dispute over this letter.
Buyer protection note
Usually matches wherever the business operates or the buyer is based — flag it if the seller proposes an unfamiliar state, since it can affect how enforceable certain clauses (like the non-compete) actually are.
15. Binding vs. Non-Binding Provisions
Except for Sections 6 (Exclusivity), 7 (Confidentiality), and this Section 14, which shall be binding upon execution, this LOI is a non-binding expression of intent only, and does not constitute an offer, obligation, or agreement to consummate the transaction described herein. Neither party shall have any obligation to proceed except as set forth in a definitive, mutually executed purchase agreement.
What it means
The clause that matters most for legal risk: it explicitly says most of this letter isn’t a real contract — except the exclusivity and confidentiality sections, which bind both sides right away.
Buyer protection note
Read this clause first, not last. Confirm the price and structure sections are explicitly listed as non-binding — you want room to renegotiate price after diligence without being accused of breaching a signed deal.
16. Expiration of Offer
This LOI shall expire and be of no further force or effect if not executed by both parties on or before [EXPIRATION DATE].
What it means
A shelf life on the offer itself — if the seller doesn’t sign by this date, the terms are off the table.
Buyer protection note
A short expiration (7–14 days) keeps a seller from shopping your offer to other buyers while they "think about it" — don’t leave this open-ended.
17. Signatures
IN WITNESS WHEREOF, the parties have executed this Letter of Intent as of the date first written above. BUYER: ___________________________ Date: __________ [Name / Title] SELLER: ___________________________ Date: __________ [Name / Title]
What it means
Standard signature block confirming both parties have agreed to the terms above.
Buyer protection note
Sign in the correct legal capacity (as an individual vs. on behalf of an LLC/entity) — this affects who is personally bound by the binding provisions in Section 15.
Frequently asked questions
Is a letter of intent legally binding?
Mostly no. A well-drafted LOI is a non-binding statement of proposed terms, except for specific carve-outs — almost always exclusivity/no-shop and confidentiality, which typically bind both parties immediately. Everything about price and structure should stay explicitly non-binding until a definitive purchase agreement is signed.
What’s the difference between an LOI and a purchase agreement?
An LOI sets the framework and shows serious intent — it’s short, mostly non-binding, and gets you into an exclusive diligence period. A purchase agreement (APA or stock purchase agreement) is the full, binding, heavily negotiated legal contract that actually closes the deal, usually drafted by attorneys after diligence.
Do I need a lawyer to write an LOI?
You can draft a first pass yourself using a template like this one — it speeds up early conversations and shows the seller you’re serious. Have a business attorney review it before signing, especially the exclusivity, non-compete, and binding-provisions sections, since small wording changes there carry real legal weight.
How long should the due diligence period be?
Most SMB deals use 30–60 days. Smaller, simpler businesses can move faster; multi-location or complex deals often need 60–90 days. Whatever the length, make sure you can exit "for any reason," not just "for cause."
Can I back out after signing an LOI?
Generally yes, if the price and closing terms are drafted as non-binding (which they should be) and you exit during or citing the due diligence contingency. You typically cannot walk away from the binding sections — exclusivity and confidentiality — without consequence.
BUYING A BUSINESS?
Get a Due Diligence Scan — the market read on any listing before you spend thousands on due diligence.
Before you send this LOI, know whether the market underneath the listing is worth locking up an exclusivity window for.