Letter of Intent: What is an LOI and How to Write One

A letter of intent (LOI) is a formal document intended to outline a party’s interest in engaging with another in a business, investment, employment, or contractual relationship. While this isn’t a legally binding document, it nonetheless plays an important role in seriously signalling intent to pursue the relationship in good faith.

There are various circumstances in which such a letter is deployed. It is issued at the outset of a business negotiation process, it can demonstrate interest in pursuing a merger & acquisition (M&A) deal, it might officially state the desire to purchase real estate, and it even has a role to play in the job application process.

Certainly, the details of each letter depends on the circumstances, but there are some common elements. We’ve created this article to provide some insights into effective structure, usage, and the drafting process of LOIs. Importantly, we’ve taken a global perspective, rather than being limited to certain jurisdictions, ensuring that no matter where in the world you’re creating your letter, you can make informed decisions.

What Is a Letter of Intent?

Put simply, a letter of intent is a formal declaration of interest in entering into a potential agreement. Alongside introductions from the sender, the letter will typically outline the primary terms and intentions for the outcome of the relationship. In most situations, this is something that is undertaken prior to the beginning of formal negotiations.

It’s important to understand that the terms and intentions outlined in the letter do not represent a legally binding agreement. Contrary to binding contracts, which are constructed in a way that imposes enforceable obligations, the LOI is treated as a document that simply provides the other party with clarity on the sender’s expectations of the potential relationship. It also serves to open the door for more formalized discussions and the due diligence process that needs to be performed to identify issues, such as potential breaches in antitrust laws M&A deals must avoid.

This is a relatively flexible type of document, commonly used in a range of scenarios. It can trigger the beginning of business deals, open real estate negotiations, drive strategic partnerships, and begin investment discussions. This letter can also be used in employment situations, particularly for executive or academic positions.

Key Purposes of an LOI

Letters of intent serve a variety of key purposes, regardless of to whom they’re being sent. The primary role, of course, is to clarify the intentions of the parties involved in the proposed deal.

In addition, an LOI will outline some preliminary terms. These aren’t necessarily the same conditions that will form part of the final agreement, but they do serve as a set of ideal standards to guide subsequent negotiations toward.

The letter also acts as a way to demonstrate serious interest in executing a deal. It’s more formal than more casual initial discussions might be, while at the same time, it provides sufficient flexibility for due diligence processes to more meaningfully shape the next steps. Neither party is yet locked into a relationship.

Finally, a letter of intent acts as a preliminary roadmap or framework for drafting a final agreement. While not binding in and of itself, it nonetheless sets clear expectations about where the ending party would like to move toward and can help structure the drafting of the future closing contracts. For instance, it might clarify interest in or an explanation of what is an earnout in M&A deals during this initial contact stage.

When and Why You Might Use an LOI

Some of the common situations and reasons to use an LOI include:

• Business transactions – Companies often draft letters of intent prior to due diligence processes. This formally sets expectations and outlines terms early on.
• Employment – Particularly in academic or executive positions, companies might issue letters of intent to candidates at the start of active recruitment to signal interest or to clarify terms of employment before both parties proceed to final contracts.
• Real estate – Buyers or prospective tenants often use letters to express serious intent to purchase or lease a property, respectively. This doesn’t equate to finalisation for either side, but can give owners confidence in the other party’s commitment.
• Joint ventures or M&A – In complex negotiations surrounding joint ventures or M&A, LOIs can set out the initial roadmap.
• Investment rounds – Startups and investors use letters to identify and propose relationships alongside positing key milestones in the negotiation and funding process.

What to Include in a Letter of Intent

An effective letter of intent is structured for clarity and professionalism. Key elements to include are:

• Introduction – This should describe the general goal and context of the letter in a concise way.
• Identification – This section should identify all the key parties—both individuals and entities—involved in the proposed relationship or transaction. This doesn’t just aid clarity, but also supports transparency. 
• Terms – While a letter of intent is typically issued at the outset of a relationship, there should be a section featuring the central proposed terms and conditions of the deal. This can include the purchase price or other financial details, the intended timelines or deadlines for the project, and the core responsibilities and scope assigned to each party.
• Confidentiality clauses – Depending on the sensitivity of the proposed deal, confidentiality or exclusivity clauses and non-disclosure agreements may be incorporated into the letter.
• Disclaimer – A disclaimer should confirm that the terms and conditions proposed in the letter do not constitute a binding or final contract. This protects both parties from unintended obligations.
• Sign off – Finally, the letter should be signed and dated by the relevant parties. Where possible, the recipient should also formally confirm receipt.

How to Write a Letter of Intent

Using the structural elements outlined in the previous section as a framework, the actual composition of the letter is relatively straightforward. Begin with a formal salutation that reflects professionalism and approachability, which can then lead into the introductory paragraph that states the intent of the letter. 

Clear and concise language is vital from the outset. While a conversational letter may seem friendly, there’s a risk of muddying communication. Be specific about any proposed terms for the deal, while avoiding including overly detailed clauses that are confusing at this stage and are better suited to a contract. Indeed, the non-binding clause toward the end of the LOI is a good way to reduce legal ambiguity and opens the door to further discussion on terms and due diligence.

Once intentions have been set, the letter should drive the discussion forward with a statement of intent regarding proposed next steps. Finally, signing and dating the document adds an element of formality, demonstrating commitment and creating a credible record for future reference.

Common Mistakes to Avoid When Drafting an LOI

While drafting a letter of intent can be relatively straightforward when guided by clear structure, there are some common mistakes it’s important to avoid. Firstly, it shouldn’t be treated as a fully binding agreement, as this can be off-putting to recipients and causes contractual complexities for the sender. Similarly, it’s important not to overlook the non-binding clause, as doing so can cause confusion and leave senders vulnerable to liabilities.

Using vague or ambiguous language is another typical error. This can often undermine the purpose of the letter and comes across as unprofessional. Indeed, overloading the letter with unnecessary legal or industry-specific jargon derails clarity and can be alienating, particularly in the early stages of a relationship.

In the case of complex arrangements, failing to consult experienced advisors—such as M&A consultants— before sending an LOI presents unnecessary risks. They have experience navigating similar communications and know the potential pitfalls that need to be navigated. A consultant can ensure the letter is effectively constructed and contains all relevant disclaimers.

FAQs

Is a letter of intent legally binding?

It is not binding in most cases unless explicitly stated otherwise. However, some provisions like confidentiality or exclusivity may be binding. It’s also vital to include a non-binding clause to provide clarification on the letter’s legal status.

What is the difference between an LOI and a memorandum of understanding (MOU)?

Letters of intent tend to focus on commercial intent and are commonplace in business and investment situations. MOUs generally outline understanding without commercial terms and are commonly used for government and academic purposes.

Can an LOI be used internationally?

Yes, they’re recognized in global business practices, although the terminology and enforceability varies by jurisdiction. Arranging a review of local standards provides clarity here.

How long should a letter of intent be?

Usually 1 to 2 pages, depending on complexity. It’s vital to keep it concise yet informative, including only essential terms.

Should I involve a contractual or regulatory consultant when writing an LOI?

For most letters covering business or legal contexts, yes. They help clarify binding vs non-binding terms and ensure the language is appropriate for the jurisdiction.

References

Law Insider. (2025). Non-Binding Clause Examples. Law Insider. https://www.lawinsider.com/clause/non-binding 

Twin, A. (2024, May 15). Non-Disclosure Agreement (NDA) Explained, With Pros and Cons. Investopedia. https://www.investopedia.com/terms/n/nda.asp