# Business Purchase Letter of Intent: What Is Binding?

## An LOI can create obligations before a definitive agreement

A letter of intent often outlines purchase price, structure, timing, diligence, and exclusivity. Parties sometimes assume the entire document is nonbinding. In practice, particular clauses may be binding depending on their language, context, and applicable law.

## Separate proposed deal terms from binding promises

Clearly state which provisions are nonbinding expressions of current intent and which are enforceable. Binding terms commonly include confidentiality, exclusivity, expenses, governing law, and sometimes dispute-resolution procedures. Avoid drafting that inadvertently commits the parties to close.

## Define exclusivity narrowly and deliberately

A no-shop clause may prevent a seller from negotiating with other bidders for a set period. Specify the duration, prohibited conduct, permitted communications, and consequences of breach. Buyers should seek enough time for diligence without creating a needlessly long restriction.

## Address diligence and financing early

Identify what information the seller will provide, when access begins, and whether the buyer has a financing contingency. If lender approval, equipment appraisal, landlord consent, or regulatory clearance is critical, the LOI should not imply that closing is assured.

## Avoid false precision on price

A headline price may be subject to working-capital adjustments, debt and cash calculations, earnouts, seller financing, or escrow. An LOI should flag the intended methodology without pretending unresolved accounting questions are settled.

## Preserve negotiating flexibility

An LOI can accelerate negotiations when it establishes commercial alignment. It can also create leverage problems when it contains ambiguous obligations or an unrealistic closing timetable. Have counsel review the LOI before signature, not only the definitive purchase agreement.

## When should you consult a California business attorney?

Consider obtaining legal advice before signing, issuing a formal notice, accepting investment funds, or committing to a transaction structure. The appropriate approach depends on the documents, the parties’ leverage, and the specific facts. Alex Nahai Law assists businesses with contract, corporate, financing, and transaction matters. Contact the firm to discuss your circumstances.

*This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship.*