What is a Letter of Intent? Types and How to Write a LOI?

Deals do not begin with a signed contract. They begin with a letter of intent — a document that captures what two parties have agreed in principle before lawyers draft the final agreement. Miss this step, and you risk misaligned expectations, wasted due diligence, and deals that collapse over terms everyone thought were settled.

A letter of intent (LOI) is a document that declares one party’s preliminary commitment to do business with another before a formal, binding contract is signed. It is used across mergers and acquisitions, vendor agreements, employment, procurement, and real estate — anywhere parties need to establish shared ground before committing to the full legal weight of a contract.

LOI is short for “Letter of Intent.” You may also see it called a letter of understanding, a term sheet (in M&A), or a memorandum of understanding (MOU) — though these differ in format and context. This guide covers what an LOI means, how to write one, whether it is legally binding, and how it connects to your broader contract lifecycle management workflow.

What is a letter of intent (LOI)?

A letter of intent is a formal document used to declare one party’s intent to enter into a business arrangement with another before a legally binding contract is finalized. It outlines the key terms, parties involved, and the nature of the proposed transaction.

LOI stands for “Letter of Intent.” The document goes by several names depending on context: term sheet (in M&A and venture capital), heads of terms (in UK commercial deals), or memorandum of understanding (MOU) in institutional and government settings. The format differs, but the purpose is the same — documenting agreed points before full contract drafting begins.

An LOI is typically used when:

Parties want to lock certain provisions — such as confidentiality or exclusivity — while keeping core terms flexible

Parties need to signal mutual commitment before investing in due diligence

A deal is complex enough that full contract drafting cannot happen in a single negotiation

Third parties (investors, boards, regulators) need evidence of a pending agreement

What is the purpose of a letter of intent?

An LOI serves five distinct purposes in a business transaction:

1. Documents preliminary agreement before legal drafting begins. Agreed points are captured in writing so neither party can reopen settled issues during contract negotiation.
2. Identifies deal-breakers early. Surfacing incompatibilities before due diligence or contract drafting saves time and legal fees on both sides.
3. Signals commitment to all parties. An LOI demonstrates genuine intent — important for boards, investors, and third-party stakeholders who need confirmation a deal is in progress.
4. Creates a contract negotiation framework. Points agreed in the LOI become the baseline for contract drafting. They do not get relitigated unless both parties agree to revisit them.
5. Protects confidential information. An LOI often includes a confidentiality provision that governs how pre-contract disclosures are handled — legally binding even when the rest of the LOI is not.

For businesses entering complex transactions, an LOI reduces wasted effort. It also creates an auditable paper trail for regulatory filings, governance approvals, and dispute resolution — should any arise.

Types of letter of intent

LOIs are used across industries and types of contracts — from vendor agreements to M&A transactions. The structure is similar, but the specific terms covered differ significantly depending on the context.

For B2B contracting teams and procurement departments, the business LOI and procurement LOI — common in commercial contracts — are most relevant. An LOI in the tender process confirms to a supplier that they have been selected and that a formal contract will follow — protecting both sides from premature work or rejected bids while the paperwork is finalized.

Is a letter of intent binding?

An LOI is generally non-binding on its core business terms — price, payment terms, delivery obligations, and performance requirements. Parties are not legally committed to complete the deal simply because an LOI is signed.

However, specific clauses within an LOI can be and often are drafted as legally binding provisions. Courts have upheld the binding nature of confidentiality, exclusivity, and no-solicitation clauses even when the broader LOI is explicitly stated to be non-binding.

The binding nature of any LOI depends on:

• The specific language used in the document
• Whether the LOI explicitly states it is non-binding (or not)
• The conduct of the parties after signing
• The governing contract law and jurisdiction — some legal systems treat detailed LOIs as binding frameworks

To avoid unintended obligations, LOIs should include an explicit statement: “This letter of intent is non-binding except as expressly stated in Sections [X] and [Y].” When confidentiality or exclusivity periods are at stake, legal review before signing is advisable.

Binding vs. non-binding elements of an LOI

Understanding which provisions carry legal weight is part of sound contract compliance practice — and the reason LOIs should be reviewed carefully before execution, not treated as informal notes.

Letter of intent vs. MOU vs. offer letter

Three documents — LOI, MOU, and offer letter — are frequently confused. They serve similar purposes but are used in distinct contexts.

The key practical difference between an LOI and an MOU is format and typical jurisdiction. LOIs are written as letters; MOUs are structured as numbered lists or outlines. In commercial contracting, LOIs are more common. In cross-border or institutional agreements, MOUs are preferred because their structured format makes the preliminary nature of the agreement clearer to all parties.

How to write a letter of intent

A professional LOI follows a consistent seven-part structure. Each section has a clear function — omitting any one of them creates ambiguity that can become expensive to resolve later.

1. Header. Include the sending company name, address, date, and the recipient’s name, title, and company. Use a formal business letter header format.
2. Salutation. Address the recipient by name: “Dear [Name].” If no specific recipient, use “Dear [Title]” or “To the Relevant Party.”
3. Introduction. State the purpose of the letter, the parties involved, and the nature of the transaction in two to three sentences. This is the most-read section — be specific.
4. Body. Cover the key terms of the proposed transaction: scope of services or goods, pricing (or price range), timeline, payment structure, conditions precedent, and any contingencies. This is where most LOIs become vague — write with precision.
5. Binding clauses. If any provisions are intended to be legally binding (confidentiality, exclusivity, no-solicitation), identify them explicitly by section and state: “The parties agree that [Section X] is binding and enforceable.”
6. Closing. State the next steps, the expiration date of the LOI (typically 30-60 days), and what action is required. Without an expiration date, an unsigned LOI can create ambiguity about whether a deal is still on the table.
7. Signature. Both parties should sign and date the LOI. For remote parties, use a contract signing software to enable electronic signature without requiring physical exchange.

What to include in a letter of intent

Beyond structure, an LOI must include these eight components — mirroring the core elements of a contract — to be complete:

• Full legal names and addresses of all parties
• Clear statement of the transaction type (acquisition, partnership, service agreement, etc.)
• Key financial terms (purchase price, payment schedule, earnest money if applicable)
• Scope of goods, services, or rights involved
• Timeline: expected milestones, due diligence period, target closing date
• Conditions that must be met before the deal can proceed (conditions precedent)
• Explicit statement of which provisions are binding and which are not
• Governing law and jurisdiction clause

How to format a letter of intent

• Margins: 1 inch on all sides
• Font: Standard professional font (Arial, Calibri, Times New Roman) at 11-12pt
• Spacing: Single-line paragraphs, double space between paragraphs
• Length: 1-2 pages (400-800 words) — concise is a virtue in LOIs
• File format: Export to PDF before sending to prevent inadvertent editing
• Version control: If the LOI goes through revisions, date each version clearly and confirm which version both parties are signing

Letter of intent sample

Below is a sample LOI for a B2B software services vendor agreement. This is a working template — customize the bracketed fields for your transaction.

[Date]

[Sender Company Name]
[Address]
[City, State, ZIP]

[Recipient Name]
[Title]
[Recipient Company Name]
[Address]
[City, State, ZIP]

Dear [Recipient Name],

Re: Letter of Intent — Software Services Agreement

[Sender Company Name] ("Buyer") is pleased to submit this Letter of Intent to
[Recipient Company Name] ("Vendor") to confirm our intent to enter into a
software services agreement on the terms set out below.

1. Transaction overview
Buyer intends to engage Vendor to provide [describe services — e.g., "cloud-based
contract management software and implementation services"] beginning on or around
[target start date].

2. Key commercial terms
- Annual contract value: [USD amount] per year
- Initial term: [e.g., 24 months], with renewal terms of 12 months
- Scope: [Describe deliverables, user licenses, implementation services, SLAs]
- Payment: [e.g., invoiced annually in advance / monthly in arrears]

3. Timeline
- Due diligence and contract drafting: [Start date] to [End date]
- Target contract execution date: [Date]

4. Conditions
This LOI is subject to: (a) satisfactory completion of Buyer's due diligence;
(b) approval by Buyer's board / procurement authority; (c) negotiation and
execution of a mutually agreed master services agreement.

5. Exclusivity
During the period from the date of this LOI to [Date], Vendor agrees not to
enter into a competing agreement with [Buyer's direct competitors, if applicable]
for the same scope of services. This Section 5 is binding.

6. Confidentiality
Both parties agree to keep the terms of this LOI and all related discussions
confidential. This Section 6 is binding.

7. Non-binding nature
Except for Sections 5 and 6, this Letter of Intent is non-binding. Neither
party is obligated to proceed with the transaction described herein.

8. Expiration
This LOI expires on [Date, typically 30-60 days from issue] if not countersigned
by Vendor by that date.

Please confirm your acceptance by signing below.

Sincerely,

________________________
[Authorized Signatory Name]
[Title]
[Sender Company Name]

________________________
[Authorized Signatory Name]
[Title]
[Recipient Company Name]

This sample covers all eight required components: party details, transaction type, financial terms, scope, timeline, conditions precedent, binding clause disclosure, and governing expiration. Adapt the exclusivity and confidentiality sections based on legal advice for your specific jurisdiction.

Best practices for writing a letter of intent

A signed LOI is only as strong as its clarity. These practices separate professional LOIs from documents that create more problems than they solve.

• Be specific on price and scope. Vague ranges (“approximately $X”) invite renegotiation. Use exact figures where possible, and define scope in measurable terms.
• Set a clear expiration date. An LOI without an expiry date can hang over a deal indefinitely. 30-60 days is standard for most B2B transactions.
• Mark every binding provision explicitly. Do not rely on general language like “this LOI creates no binding obligations.” Courts look at the specific provisions — mark each one individually.
• Align on due diligence scope before signing. If the LOI triggers a due diligence period, both parties should understand what is being reviewed, by whom, and at whose cost.
• Route through legal review. Even a non-binding LOI can create implied obligations if the language is ambiguous. A 30-minute legal review before signing is far cheaper than litigation later.
• Keep it short. An LOI is not a contract. If you find yourself writing detailed performance obligations, dispute resolution procedures, or warranty terms — stop. Those belong in the full agreement.

For a broader view of how LOIs fit into structured contracting processes, see contract management best practices.

From letter of intent to binding contract: the CLM workflow

An LOI is the starting point of a deal, not the end point. What happens between a signed LOI and an executed binding contract is where most deals gain or lose momentum — and where AI contract management delivers the most value.

Here is the full workflow from LOI to executed contract, managed within a CLM platform:

1. LOI signed. Key terms, parties, and scope are documented. The CLM stores the LOI as the authoritative record of agreed deal points.
2. Due diligence period. The CLM tracks what was agreed in the LOI versus what due diligence reveals. Discrepancies are flagged automatically rather than discovered after contract signing. This is where contract risk management begins.
3. Contract drafted from LOI terms. Contract drafting software uses the LOI as the source document — pulling party details, commercial terms, and scope into the contract template so drafting starts from an agreed baseline, not a blank page.
4. Negotiation and redlining. Both parties refine the full contract. The CLM tracks all changes, maintains version history, and keeps the negotiation audit trail intact.
5. Execution. The contract is signed digitally and stored in the CLM repository with full metadata: value, term, renewal dates, key obligations, and owner.
6. Post-signature management. Obligations are monitored against the contract terms. Renewal reminders are automated with contract reminder software. Performance is tracked against the KPIs established in the original LOI. Using contract automation software, this entire cycle runs without manual follow-up.

No other competitor in the CLM space covers this LOI-to-contract handoff in a single, governed workflow. HyperStart deploys in 4 weeks and gives legal, procurement, and sales teams a single platform from first LOI through post-signature tracking — so nothing falls between the cracks of a spreadsheet or email chain.