How to Write a Letter of Intent

Step 1: Define the deal and decide what should bind

An LOI can support a merger, an asset or stock purchase, a commercial lease, a supply arrangement, or a joint venture, so start by naming the transaction and your objective in one sentence. Then make a deliberate choice: do you want a fully nonbinding term sheet, or a hybrid document with a few binding clauses? In the United States, courts generally look to the language and the parties’ expressed intent, not the title on the page, to decide whether an LOI creates enforceable obligations. Getting this decision right first prevents the most expensive mistake in the entire process: accidentally forming a contract you meant only to outline. Write down the answer before you draft a single clause, because it governs every word choice that follows, from the verbs you use to the way you frame the price. If the other side pushes for stronger commitments, treat that as a negotiation about binding effect, not a formatting detail.

• Identify the transaction type and each party’s role (buyer, seller, licensor, tenant).
• Decide the binding posture: nonbinding in full, or binding only as to specific named clauses.
• List the terms you must lock now (confidentiality, exclusivity) versus later (price mechanics, representations and warranties).

Step 2: Write the header, parties, and recitals

Open with a dated header, the title “Letter of Intent,” and the full legal names and entity types of every party. Add short recitals that explain the background and the parties’ shared objective in two or three sentences, so a reader who has never seen the deal understands its purpose. Keep the tone businesslike and avoid promissory words such as “agrees to” or “shall” unless you actually intend that specific clause to bind. Precise party identification matters because naming the wrong entity, or a parent instead of a subsidiary, can undermine the confidentiality and exclusivity promises you expect to enforce later. If a party is a newly formed acquisition vehicle or a fund, say so and include its state of formation, so there is no ambiguity about who is actually on the hook. Where guarantors or affiliates will be involved, name them now rather than leaving their role to be argued over during due diligence.

Step 3: State the principal business terms

Set out the commercial heart of the deal in plain, numbered terms so both sides read them the same way. For a purchase, that means the price or valuation range, the structure (stock or asset), the assets or shares included, the liabilities assumed, and any earnout or holdback. Frame these as terms the parties “intend to negotiate” and make them expressly subject to a definitive agreement and to satisfactory due diligence, which signals that they are not yet binding. Precision here reduces later disputes because the LOI becomes the shared reference point when the definitive agreement is drafted. Be specific enough to be useful but leave room to negotiate the details: a valuation range with a stated basis is more honest than a single number you are not yet ready to commit to. Where a term depends on findings from due diligence, say so directly, so no one treats an open item as already settled. Include:

• Price or valuation, with any range, formula, or adjustment mechanism.
• Deal structure and exactly what is being bought, sold, leased, or licensed.
• Key economic terms: deposits, financing, earnouts, escrow, or holdbacks.
• Major closing conditions and any required third-party or regulatory approvals.

Step 4: Separate binding from nonbinding provisions

This is the clause that keeps an LOI from backfiring, so give it its own numbered section. Add an explicit “Binding Effect” provision that names which clauses bind on signature and states that all other terms are nonbinding until a definitive agreement is executed. In common US practice, parties make confidentiality, exclusivity (a no-shop), expense allocation, governing law, and dispute resolution binding, while leaving price and deal-specific terms nonbinding. Some states may read an obligation to negotiate in good faith into a signed LOI even when the business terms are not final, so address good faith expressly rather than leaving it to inference. Read this section aloud with the other party’s counsel, because a single stray “shall” in a term you meant to keep open can convert an outline into a commitment. The clauses parties most often make binding:

• Confidentiality, or a cross-reference to an existing NDA.
• Exclusivity or no-shop, for a defined period.
• Expense responsibility, including who pays fees if the deal collapses.
• Governing law and venue.
• Dispute resolution, whether litigation or arbitration.

Step 5: Add conditions, timeline, and the signature block

Close the substantive part with the guardrails that move the deal forward and cap your exposure. State an expiration date for the LOI itself, target dates for a definitive agreement and for closing, and the conditions that must be satisfied first, such as due diligence, board approval, or financing. Add a termination provision that explains how either party may walk away and which clauses survive that termination, so the binding confidentiality and exclusivity terms outlive a failed negotiation. Finish with a clean signature block naming each signatory, their title, and the date, and confirm that every signer has actual authority to bind their entity. A dated expiration is worth the extra line because it prevents a stale LOI from being invoked months later. If you plan to sign electronically, use a compliant e-signature process and keep the completed certificate with the document, so the execution date and signer identity are easy to prove. Send the final draft to counsel for a read before signature, since the binding sections carry real legal weight even though the deal terms do not.

Common mistakes to avoid, then a disciplined next step

Even careful drafters trip over the same issues, so run this checklist before you send:

• Ambiguous binding language that leaves a court to guess your intent.
• Using “shall” and “agrees” throughout when most terms are meant to be nonbinding.
• Omitting an exclusivity period, letting the other side shop your offer around.
• No expiration date, so the LOI lingers and resurfaces at an awkward moment.
• Forgetting confidentiality when you are about to share financials and customer data.
• Naming the wrong legal entity, or an officer without signing authority.
• Silence on expenses, so responsibility for broken-deal costs becomes a fight.
• Reusing an old LOI without checking its governing law and current commercial terms.

A strong LOI is only the first artifact in a contract lifecycle that should stay organized from term sheet to signature to renewal. Store the executed LOI in a central repository, tie its expiration and milestone dates to renewal and deadline alerts, and keep an audit trail so you can prove what was agreed and when. Pactolane’s CLM platform and its PactAI copilot support a reviewer at this stage: PactAI can extract key dates and obligations, surface a risk score, run a compliance playbook against your standard positions, and flag conflicts between the LOI and the eventual definitive agreement, while the human makes every legal call. Use these tools to spot, extract, and score faster, and rely on qualified counsel to decide what binds and what does not.