What a Letter of Intent Actually Commits You To — and What It Doesn’t

Most founders treat a Letter of Intent like a handshake. The buyer seems serious, the numbers look right, and signing feels like the finish line is finally in sight. It isn’t. The LOI is the starting line — and what you agree to in it shapes every negotiation that follows.

Understanding what an LOI actually commits you to is one of the most important things you can do before a deal moves forward.

What Is a Letter of Intent in M&A?

A Letter of Intent is a preliminary document that outlines the basic terms of a proposed transaction before a formal purchase agreement is drafted. It signals mutual interest and establishes a framework for negotiations. In middle market M&A, an LOI typically covers the proposed purchase price, deal structure, timeline, and the conditions under which both parties agree to move forward.

The LOI is not the deal. But it is far more consequential than most sellers realize.

The Binding Provisions: What You Are Actually Agreeing To

Here is where founders get caught off guard. While an LOI is largely non-binding on the economic terms of the transaction, several provisions within it are legally enforceable the moment you sign.

Exclusivity is the most significant. Also called a no-shop clause, this provision prohibits you from soliciting or entertaining offers from other buyers for a defined period — typically 30 to 90 days. Once you sign, you are locked in. If another buyer emerges during that window, you cannot pursue them without breaching the agreement.

Confidentiality is also binding. Any LOI worth signing includes a mutual non-disclosure obligation that protects sensitive business information shared during due diligence. Breaching this has real legal consequences.

Expense allocation provisions, when included, may obligate each party to bear their own costs — or in some cases, create break-up fee obligations if a party walks away without cause. These terms are binding and should be reviewed carefully.

The Non-Binding Provisions: What Can Still Change

The purchase price, payment structure, earnout terms, representations and warranties, and indemnification provisions outlined in an LOI are generally non-binding. They are expressions of intent, not contractual commitments. Buyers know this — and sophisticated buyers use the period between LOI and purchase agreement to renegotiate.

This is where due diligence becomes a leverage tool. A buyer who uncovers issues during diligence — outstanding litigation, customer concentration, unclear IP ownership, or messy financials — will use those findings to adjust price or terms. The LOI gave them the runway to do exactly that.

This is also why the language in an LOI matters even when the terms are non-binding. Vague or overly favorable buyer language in a non-binding LOI sets a precedent that influences how the purchase agreement is drafted.

What Founders Misread Most Often

The most common mistake sellers make is focusing entirely on the headline number and ignoring the structure. A $10 million deal with a large earnout, significant escrow holdback, and aggressive representations and warranties is not the same as a $10 million all-cash deal at close. The LOI is where that structure first appears — and where founders have the most negotiating leverage before advisors, attorneys, and momentum take over.

Sellers also underestimate how the exclusivity period benefits the buyer. Once exclusivity is granted, the buyer controls the timeline. Delays extend the window. The seller, now locked out of the market, becomes more motivated to close — sometimes at revised terms.

Why Legal Review Before Signing Is Non-Negotiable

Signing an LOI without attorney review is one of the most expensive mistakes a founder can make. By the time the purchase agreement arrives, the leverage has shifted. The LOI has established the deal’s baseline, the exclusivity clock is running, and walking away carries real costs — reputational, financial, and strategic.

An experienced M&A attorney reviews the LOI before you sign, identifies which provisions are binding, flags unfavorable terms that will carry into the purchase agreement, and ensures that the exclusivity period is structured to protect your interests — not just the buyer’s timeline.

GNS Law advises founders and business owners through every stage of the M&A process, from LOI review to closing. Our team has guided clients across industries through the complexities of deal structuring, due diligence, and transaction execution. If you have received an LOI or are preparing to go to market, contact us at gnslawpllc.com to discuss your transaction.

About GNS Law

GNS Law is a national business law firm for entrepreneurs and business owners who are building, scaling, or preparing to sell their companies. Founded by M&A attorney Gabriela N. Smith, the firm advises clients across the full lifecycle of their business — from entity formation and contract review to risk management and exit transactions. GNS Law works with founders and operators across industries, domestically and internationally, delivering practical legal guidance that moves with the pace of business.

This article is for informational purposes only and does not constitute legal advice. Consult a qualified M&A attorney for guidance specific to your situation.