Offer To Purchase or Letter Of Intent

A Letter Of Intent (LOI) or Offer to Purchase is a document outlining an agreement between two or more parties before the purchase agreement is finalized.  Is it a legal document? Well, not really but it sure looks like one and is often drafted or reviewed by an attorney. An LOI or Offer to Purchase is a non-binding document and is needed in order for the seller to provide sensitive information about the business. The document should spell out:

  • The proposed price
  • Down-payment
  • Terms of the purchase
  • Contingency items

The document should also state that either side may revise the terms or quit the proposed deal for any reason until a binding contract is executed.

To put it simply, an Offer to Purchase or Letter of Intent (LOI) says, "I would like to buy your business after taking a more in-depth look for a price of X amount of dollars with contingency stipulations A, B, and C."  It is a non-binding agreement.  The document’s purpose is to set the tone for what will be needed and how the due diligence will be conducted.

A contingency in the sale of a business is a condition in the offer that must be resolved, satisfied or rectified by either the buyer or seller. If they are not satisfied then the sale will generally not go forward. Most offers on a business contain one or more contingencies. The sale may be subject to the buyer obtaining financing, or the seller repaving the parking lot. Experienced business brokers have seen just about every contingency there is. Most of these are placed in the offer by a buyer who has concerns about one or more issue and needs it or them to be satisfied before proceeding with or closing the sale.