Which parts of a letter of intent are binding?
Legally, the frame is inverted from how it reads. The headline terms, price, structure, timing, are expressly non-binding in a well-drafted LOI: either side can walk away from them without breach. The provisions that do bind are the procedural ones, exclusivity, confidentiality, sometimes expense allocation and governing law, and of these, exclusivity is the one with commercial weight, because it is the term under which the seller dismisses every other buyer.
Practically, the asymmetry runs the other way. The non-binding price is sticky downward and loose upward: a signed number becomes the ceiling from which diligence findings are subtracted, and almost never a floor from which anything is added. The buyer signs knowing the price can be revisited; the seller too often signs believing it has been agreed. Both are reading the same document, and only one of them is reading it correctly.
This is why the standard advice, that the LOI is not the deal and should be signed quickly to get to the real documents, serves the buyer. For the seller, the LOI is the deal in every respect that leverage can still influence, and everything after it is the administration of what the letter already decided.
How should exclusivity be structured?
As a purchased asset with a term, not a courtesy with an assumption. Exclusivity is the most valuable thing a seller grants in the entire process: it converts an auction into a bilateral negotiation and hands the buyer a clock that runs against the seller. The length is a negotiated term rather than a standard, and every week of it deserves to be traded for something, a confirmed timeline, evidence of committed financing, a diligence plan with named workstreams and dates.
The structure matters as much as the length. A shorter initial period with extensions conditioned on the buyer hitting named milestones, diligence materially complete, draft agreement delivered, financing commitment shown, keeps the clock working for both sides; a single long grant keeps it working for one. Termination rights belong in the same clause: if the buyer signals a price reduction not grounded in a specific diligence finding, the seller should be free to talk to the market again, and the buyer's willingness to accept that condition is itself diligence on the buyer.
The refusals matter too. Exclusivity should not begin before the buyer has the information that supposedly justifies it, should not extend by silence or by default, and should not survive a retrade. None of these conditions is exotic; all of them are absent from the buyer's first draft, which is drafted, reasonably enough, by the party the clock is meant to serve.
“Sellers negotiate the price for weeks and the exclusivity clause for an afternoon. The buyer's counsel drafted it in the opposite order of importance.”
What should be settled before signing?
Everything the seller would refuse to concede later, stated specifically enough to be pointed at. The price and its basis: cash-free, debt-free, and on what earnings number. The working capital mechanism: at minimum, that the peg will be set from a defined methodology rather than left as an open item, because an undefined peg is a second price negotiation deferred to the moment leverage is gone; the linked position on the peg carries the mechanics. The form of consideration: how much cash at close, any rollover, and the outline of any earnout, with the measurement basis named.
Then the terms that never feel urgent at LOI stage and always are. Key employment and non-compete expectations for the founder, since these are personal terms the seller will otherwise negotiate alone at closing. The treatment of specific known issues, a customer contract, a lease, a piece of litigation, surfaced deliberately and priced into the letter, because an issue disclosed before exclusivity is a term, and the same issue found during it is a retrade. And the diligence scope and timeline, with an end date rather than an ambition.
The objection to all this specificity is that it slows the letter down, and it does, by days, at the stage when the seller still has alternatives and the buyer still has competitors. The vagueness that speeds a signature is not neutral: every open item in an LOI is resolved after signing, under exclusivity, by whichever party the passage of time pressures less, and that party is never the seller.
| Term | Binding in the LOI? | Settle before signing |
|---|---|---|
| Purchase price and basis | No, but sticky downward | Price, cash-free debt-free basis, the earnings number it applies to |
| Exclusivity | Yes | Length, milestone-conditioned extensions, termination on retrade |
| Confidentiality | Yes | Usually already governed by the NDA; confirm no expansion |
| Working capital peg | No | The methodology it will be set from, at minimum |
| Earnout, if any | No | Measurement basis, period, and control protections in outline |
| Founder employment and non-compete | No | The expectations, before they become a personal negotiation at closing |
| Diligence scope and timeline | Varies | Named workstreams and an end date |
What changes the day after signature?
The market disappears. The seller who had several interested parties has one counterparty and a confidentiality obligation; the buyer who faced competition faces none for the length of the exclusivity period. Every subsequent negotiation, the purchase agreement, the disclosure schedules, the closing adjustments, happens inside that asymmetry, which is why the letter's specificity is the seller's only imported leverage.
The process becomes a diligence process, and the seller's job becomes momentum. Responsive data-room management, scheduled management sessions, and a disciplined single channel for questions do more for the closing probability than any negotiating posture, because time inside exclusivity is the buyer's asset and the seller's cost. A well-prepared seller treats the period as a project with an end date; an unprepared one discovers that the extension request always arrives with a reason attached.
What this piece deliberately does not cover is how often signed letters fail to close and why: those figures, the cause distribution, and what they imply about preparation are quantified with sources in the companion position linked below. The two halves are one argument. The statistics say most failure causes are preparation failures; this guide is what the preparation looks like at the one moment it can still be negotiated into the document.
As of September 2026
Sources: none quoted. The binding and non-binding conventions, exclusivity mechanics, and negotiation sequence described are market convention, stated figure-free. Deal-failure rates and their cause distribution are deliberately not restated here: they are carried, with named sources, by the companion position on why one in three signed LOIs never closes, linked below. Nothing on this page is legal advice; the drafting of any specific letter belongs with counsel.
This position sits within our deal structuring practice.