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How to make a Letter of intent (LOI)

Use this LOI to set out the basis for a future agreement between your business and another business.

A letter of intent is an agreement between two businesses that provides the basis for a future or proposed agreement. 

Set out terms for a proposed agreement using this letter of intent (LOI) and give yourself more chance of succeeding and achieving your aims. Also called a 'memorandum of understanding' (or 'MOU' for short), this document includes details of the proposed agreement, pre-conditions, key obligations and has options to include legally binding obligations of confidentiality, exclusivity and non-solicitation.

Use this letter of intent template: 

  • if you are interested in signing an agreement with another business

  • to formalise ongoing discussions between two businesses

  • to record what has been agreed upon before a legally enforceable agreement is drawn up

  • to protect your valuable business information and key employees

This LOI template covers:

  • details of the proposed agreement

  • target completion date

  • pre-conditions to the proposed agreement

  • the parties' key obligations

  • options to include legally binding obligations of confidentiality, exclusivity and non-solicitation

A letter of intent details the initial terms of a future agreement

You can use this letter of intent both during ongoing negotiations and once negotiations are complete. An LOI sets out both parties' obligations to each other during this phase of negotiation (such as preconditions) and a basis for what the final agreement will look like when drawn up. 

A letter of intent can be used in lots of situations (eg when looking to set up a joint venture or negotiating a Services agreement).

For more information, read Letters of intent.

An LOI and Heads of terms are similar documents. Both set out the intentions of two businesses and provide the basis a future or proposed agreement. However, while an LOI is a letter, heads of terms are drafted as a skeleton contract. Nevetherless, the effect of the two documents is the same.

Due diligence is the investigation of the other party (eg potential clients or business partners, to find out any key risks to the proposed transaction). Due dilligence  can then be dealt with prior to the final agreement. It is common for businesses to impose due diligence as a precondition to the final agreement.

For more information, read Due diligence.

In this document, either or both parties may require the other party to comply with preconditions. These are conditions that must be met by either party before the finalised agreement can take effect. For instance, you may want to require certain key documents to be submitted or approved by an external agency (eg export control or safety certification) or check the articles of association to see if you need approval from shareholders.

For more information, read Letters of intent.

Only some terms of this letter are legally binding. These include the following:

  • confidentiality - this agreement will create legally enforceable obligations of confidentiality between the parties unless the parties have signed a separate confidentiality agreement
  • non-solicitation - this prevents either party from poaching the other's employees and customers
  • exclusivity - this prevents the parties from negotiating with anyone else for some period of time

The period of time each clause is legally binding depends on the circumstances of the relevant provision. However, the time and scope of the non-solicitation and confidentiality provisions must be reasonable. In this document, you can choose the period of time for both exclusivity and non-solicitation. It varies from 30 to 60 days for exclusivity and 1 to 12 months for non-solicitation.

This agreement can be ended at any time by giving notice to the other party.

The remedies available for non-compliance will be adequate to the breach and apply only to breaches for legally binding terms (eg a non-solicitation or exclusivity provision). Adequate remedies as specified in this agreement may include: 

  • an injunction (which may stop the person or a company from starting or continuing an action invading the legal right of the other party)

  • specific performance

  • other relief in addition to any other remedy such as damages

Ask a lawyer for advice:

  • if this document doesn’t meet your needs

  • regarding a legally enforceable agreement if the performance of the agreement is about to begin or has already begun

This letter of intent is governed by the law of England and Wales or the law of Scotland.

Other names for Letter of intent (LOI)

Letter of agreement, Memorandum of understanding, MOU, LOI, Negotiation agreement, Term sheet.