Letter of Intent
A preliminary written document outlining the proposed terms of a transaction, purchase price, structure, key conditions, exclusivity, timeline, before parties negotiate definitive agreements. Typically the first formal step after parties identify a deal.
A letter of intent (LOI), sometimes called a "term sheet" or "memorandum of understanding," is a preliminary written document outlining the proposed terms of a transaction, purchase price, structure, key conditions, exclusivity, and timeline, before the parties negotiate definitive agreements. LOIs are the conventional first formal step after parties identify a deal worth pursuing.
Hybrid binding/non-binding structure
Most M&A LOIs are deliberately structured as partly binding and partly non-binding. Typically binding: confidentiality, exclusivity / no-shop, expense allocation, governing law, and dispute resolution. Typically non-binding: purchase price, structure, indemnification, closing conditions, and other commercial terms. The LOI should expressly identify which provisions are binding and which are not.
Texas enforceability
Texas courts enforce binding LOI provisions like any other contract. The principal risk for parties seeking non-binding effect: ambiguous "agreement to agree" language that a court may interpret as a binding obligation to negotiate in good faith. Foreca, S.A. v. GRD Develop. Co., 758 S.W.2d 744 (Tex. 1988). Clear "non-binding except as expressly stated" language at the front of the document is the standard protection.
Exclusivity / no-shop
The most consequential binding provision in most LOIs. A typical no-shop binds the seller for 30–90 days from LOI execution, prohibiting the seller from soliciting, negotiating with, or providing diligence to other potential buyers during the period. Buyers rely on no-shops to justify investment in due diligence and definitive-document negotiation.
The LOI sets the negotiating frame for the entire transaction. Items left vague in the LOI are typically renegotiated downward against the buyer (or upward for the seller) in the definitive agreement. Sellers benefit from specifying as many commercial terms as possible in the LOI; buyers benefit from preserving optionality.