Here is the answer up front: the letter of intent is where sellers lose deals they think they have already won. The day you sign it, competition for your business ends. The chipping begins. Every term you leave open gets settled later, against a seller with no alternatives and mounting pressure to close. I wanted hard data on what these letters really do. So I analyzed 196 letters of intent filed with the SEC. This page gives you those findings, plus the terms I lock before any client signs.
If the offer arrived out of the blue, start with my guide on what to do when someone wants to buy your business. This article picks up at the next step, when a written offer is in your hands. Most of my clients are the same main-street owners I help with LLC formation: landlords, contractors, and service businesses. The buyer across the table has usually done this many times. You will do it once. The LOI is where that experience gap costs real money. A small amount of preparation closes it.
What an LOI Is, and What "Non-Binding" Really Means
A letter of intent (also called a term sheet or heads of terms) is a short document, usually a few pages. In it, a buyer proposes the price, the deal structure, and the process for getting to a signed purchase agreement. Nearly every LOI uses the same hybrid design. The deal terms are labeled non-binding. A short list of provisions is expressly binding. In my study of SEC-filed letters, that binding core was remarkably stable. It is almost always the same protective quartet: confidentiality, exclusivity, expenses, and publicity, rounded out with governing law and a termination clause. Treat that quartet as the market perimeter. Anything a buyer adds to the binding list is a negotiating position, not boilerplate.
Look at what that design actually does. Everything you care about, starting with the price, does not bind the buyer. Everything the buyer cares about, your silence and your lockup, binds you. Buyer-drafted letters routinely reserve the right to withdraw at any time, for any reason, with no costs owed. That asymmetry is by design. The LOI buys the buyer a low-cost option on your company while you sit contractually benched. The review question is never simply "is this letter binding." The question is which clauses got carved out to bind, and whether anything substantive leaked into that carve-out. When the binding list reaches past the quartet into price, structure, or your conduct of the business, the letter is drifting toward an enforceable agreement to sell. Push those clauses back to the non-binding side.
The "non-binding" label is also weaker protection than sellers assume. Take Turner Broadcasting System, Inc. v. McDavid, 303 Ga. App. 593, 693 S.E.2d 873 (2010). It is Georgia law, not Illinois, so it does not bind an Illinois court. But the drafting lesson travels. The LOI's language saying no agreement existed until final documents were signed terminated automatically with its 45-day exclusive negotiation period. Only the confidentiality terms survived. The parties kept negotiating anyway. Turner's negotiator told McDavid not to worry. A $281 million jury verdict for breach of an oral contract was upheld on appeal. Two lessons: make the writing requirement survive the LOI's expiration, and watch what you say out loud once a letter is in play.
What's Normal in an LOI? 196 Real Letters, Measured
Sellers ask me the same question in every review: is this term normal? I wanted a better answer than my own anecdotes. So I built one. I analyzed 196 letters of intent filed with the SEC. Public companies must file their material agreements. That means real LOIs from real deals sit in the public record. I read them, classified them, removed the noise, and measured what the letters actually do.
The raw pile was messy. I cut press releases, duplicate filings, and full purchase agreements attached as exhibits. That left 124 genuine letters of intent across 104 distinct deals. Of those, 50 involved the purchase of an operating business. That is the same kind of deal my clients sign. Every frequency below is measured across those 50 letters unless I say otherwise.
| The Clause | What the Letters Do | What It Means for You |
|---|---|---|
| Exclusivity | Present in 34 of the 50 letters. Almost always one-way against the seller. The market band is 45 to 90 days, with 60 days the recurring anchor. | Fight the clock, not the clause |
| Payment for the lockup | Most no-shops are granted free. The default is no deposit, no break fee, and each side bears its own costs. | Free is the default; ask for a price |
| The real deadline | About three in five letters tie a drop-dead date to exclusivity, typically 30 to 90 days. Only 3 of 50 used a signing deadline as the only clock. | Watch the lockup clock |
| Binding architecture | The standard letter is non-binding except a stable quartet: confidentiality, exclusivity, expenses, publicity. | Audit the carve-out list |
| Earnouts | Appear in about one third of the letters. Revenue metrics are the plurality. The usual window is two to three years. | Demand a metric you can verify |
| Seller notes | Appear in about one third of the letters. Rates cluster at 5 to 9 percent. Security runs from a first lien down to nothing. | Security decides collectibility |
Finding 1: The exclusivity market band is 45 to 90 days
Where the letters state a day count, the heartland runs 45 to 90 days. Sixty days is the anchor that recurs again and again. The outliers bracket that band: I found locks as short as 14 days and as long as 180. A one-way no-shop that binds only the seller is the standard form. Mutual no-shops are rare. So is any fiduciary out in a private-company deal. And here is the number that matters most: the large majority of these lockups were granted for free. The buyer got a binding option on the company. The seller got a non-binding price. If a buyer asks you for more than a short confirmatory lock, that departs from the market I measured. Make the buyer pay for the departure.
Finding 2: The pressure runs through the lockup clock, not a signing deadline
Sellers fear the "this offer expires Friday" line. My data says that fear is misplaced. Only 3 of the 50 letters used a signature deadline as the only operative clock. The deadline with teeth is different. About three in five letters set a drop-dead date for signing the definitive agreement, and that date usually runs together with exclusivity, typically 30 to 90 days out. That paired clock is the buyer's real weapon. It defines how long you sit locked up while the buyer decides. A short signing deadline costs you little. An exclusivity period with no end date can cost you the deal.
Finding 3: Earnout metrics have a hierarchy, and it favors the top line
An earnout appeared in about one third of the operating-business letters. The metric choice decides who controls the money. The pattern in my corpus is a clear hierarchy for sellers: revenue beats gross profit, and gross profit beats EBITDA. Revenue is hard for a buyer's accounting to push down. Gross profit absorbs some cost allocation games. EBITDA absorbs all of them, because the buyer runs the company during the measurement window and books the costs. The modal measurement window was two to three years. Caps were near universal. Floors were rare, and a floor is your friend. The letters were thinnest exactly where sellers get hurt: control of the measured number. Almost none carried separate-books covenants or bars on charging buyer overhead against the metric. Pull those protections forward into the LOI. One letter in my corpus even barred any clawback of earnout money already paid. Ask for that line by name. My earnout guide covers the full playbook.
Finding 4: Seller-note security runs a full spectrum, and most sellers sign the wrong end
A seller note or deferred payment appeared in about one third of the letters. Rates clustered at 5 to 9 percent, with 6 percent the common floor. But the rate is the least important term. Security is what decides whether you get paid. My corpus runs the whole spectrum. At the seller-favorable end: a first-priority lien on all the business assets, a personal guaranty, a confession of judgment delivered at closing, and a lockbox that sweeps payments on default. At the other end: an unsecured note, deeply subordinated to the buyer's bank, in the worst case pledged to the buyer's own lender as collateral. A note at the first end is an enforceable debt. A note at the second end is a hope. Watch the set-off clause too. The aggressive form makes your note the first fund for every claim the buyer raises, so the buyer can shrink it unilaterally. The protective form bars set-off against the note and points claims at a bounded escrow instead. One more point on the confession of judgment. In Illinois, a confession of judgment is effective only in the place where the agreement is signed. Sign one in Chicago and the confession applies only to Cook County cases. Venue is baked in at signing. My seller financing guide goes deeper.
Exclusivity: The Leverage Cliff
Exclusivity, sometimes called a no-shop, is your written promise not to talk to any other buyer for a set period. The buyer uses that window to finish due diligence and negotiate the contract. Buyers have a legitimate reason to want it. Diligence costs serious money in accountant and attorney fees. No buyer wants to spend it while you shop the offer around. My study confirms the clause is standard: 34 of the 50 operating-business letters contained one, and nearly all ran one-way against the seller. Refusing exclusivity outright signals inexperience. Spend your leverage on its terms instead.
But understand what you are handing over. Competition, real or potential, is what set your price. The moment you grant exclusivity, that competition is gone. The price is then held up by nothing but the buyer's goodwill. The diligence period the no-shop protects is structurally the buyer's window for chipping the price. Meanwhile your alternatives go stale. A backup buyer who was told the process is over cannot be rewarmed on the timeline a retrade forces on you. That is why the corpus red flags matter so much. Exclusivity that runs "until closing" or "until the definitive agreement" with no outside date is a free, open-ended option for the buyer. So is an extension the buyer can grant itself. I found both forms in the filings. Insist on a hard date, and on extensions only by your written consent.
The moment just before your signature is your peak. The buyer needs the signed LOI almost as much as you need the deal. It lets the buyer credibly approach a lender and start spending on diligence. That need is your currency. Spend it on the terms below. The morning after you sign, it is gone.
Been Handed an LOI This Week?
Send it to me before you sign it. I will tell you what binds you, what the exclusivity clause really costs, and what to push back on while the buyer still needs your signature.
The Retrade: How the Price Gets Chipped After You Sign
A retrade is when the buyer agrees to a price in the LOI and then lowers it during due diligence, after your alternatives are gone. It rarely arrives as an open renegotiation. It arrives dressed as findings: a receivable that looks slow, a customer concentration concern, an accounting adjustment, a contract the other side never signed. Each finding becomes a price reduction request. The request often comes with an excuse: the buyer's partners or lender "won't approve" the original number.
Sophisticated buyers understand that diligence is not just verification. It is a repricing mechanism. Expect a pattern. Small asks come first, to test whether you absorb them quietly. Larger asks come later, timed to your exhaustion and sunk costs. A final round of "small" points (a longer non-compete, a working capital tweak) lands in the last week, when you are emotionally committed to closing. The first small reopening of an agreed term is a test. A seller who absorbs it silently signals that further chips are cheap.
Make the stakes concrete with a purely illustrative example. On a $1,000,000 deal, a five percent chip is $50,000. That is likely more than every professional fee in the transaction combined. The defenses are all built before signature. Disclose known problems while you still have alternatives, because bad facts surfaced early get priced with competition and bad facts surfaced late get priced without it. Get your books in order so the buyer cannot manufacture chips from missing paperwork; that is the heart of my guide to the exit-ready LLC. Keep your runner-up buyer warm. And write retrade fencing into the LOI itself. My corpus contains a device built for exactly this: one letter terminates exclusivity automatically the moment either side proposes an adverse change to the stated deal terms. The no-shop dies the instant the buyer tries to chip the price. That clause exists in the wild. Ask for it.
Five Terms to Lock While You Still Have Leverage
The rule of thumb: anything material that is still open when exclusivity starts will be settled later on the buyer's terms. So the LOI needs more than a headline number. Here is what I negotiate into it, benchmarked against what the 196 letters showed me.
The price mechanism, not just the price
A number alone is an invitation to retrade. If the buyer cannot commit to a fixed number before diligence, state a range plus a written list of the specific factors that can move it. Then add one sentence: any adjustment must trace to a specific finding not previously disclosed, quantified in dollars. A diligence argument that does not map to a listed factor was, by the parties' own writing, not part of the deal. And before you accept any anchor, know your own number. My guide to what your business is worth covers how main-street businesses actually get valued.
Working capital, at least at the concept level
Working capital is the everyday fuel in the business: receivables and inventory, minus payables. Buyers price a business assuming it comes with a normal level of that fuel included. If the LOI is silent, the buyer's accountants define "normal" months later. Their definition will not favor you. You do not need the final schedule at LOI stage. You need the concept: how the normal level will be measured, over what historical window, and against your actual books. Have your accountant model it before you agree to anything.
Exclusivity length, and the triggers that end it
Short, with an expiration date and conditions. My study puts the market band at 45 to 90 days, with 60 the anchor, so a request inside that band is normal. I still push for the short end, 30 to 60 days, tied to a dated timetable: diligence requests delivered by one date, a draft purchase agreement by another, financing confirmed by a third. If a milestone slips, exclusivity ends automatically. It extends only by your written consent. Watch for the quiet drafting trick where exclusivity runs for "the term of this letter." Many letters in my corpus skipped a day count entirely and ran the lock to an event, like signing or closing. That form can turn one bracketed number into a lockup of many months. Demand a hard date.
Deposit and break protections
The default LOI lets the buyer walk at any time for free while you sit locked up. My study measured that default directly: the largest group of operating-business letters had no deposit, no break fee, and each side bearing its own costs. Know that going in. The buyer will call deal-security money unusual, and the buyer will be right. Ask anyway, because free is what the buyer gets when you do not ask. Negotiate reciprocity: a good-faith deposit whose refundability steps down as diligence checkpoints pass, or a break fee or cost reimbursement if the buyer withdraws. Exclusivity is an option on your company, and options are paid for. In the same breath, ask for evidence the money exists: a lender commitment letter, or at least named financing sources.
Structure, in principle
Asset sale or membership interest sale changes your taxes, your liability tail, and the closing mechanics. I walk through both in my guide to selling your LLC in Illinois. If part of the price is contingent on future performance, that is an earnout. Its measurement concept belongs in the LOI, not the purchase agreement, and my corpus hierarchy applies: push for revenue, accept gross profit, resist EBITDA. Same if the buyer wants you to carry a note. The basic terms of any seller financing (amount, rate, security, subordination, set-off, term) are price terms. Treat them like price. A note with no lien behind it is not a price term at all. It is a loan application the buyer already approved for itself.
What I Tell Sellers to Refuse
Some LOI terms are not negotiating positions. They are traps, and the right answer is no, or a price for yes.
Three of these deserve a sentence more. First, buyer-drafted forms sometimes have the seller doing irreversible work during the lockup, terminating employees or shedding assets, while the buyer owes nothing if it walks. Never restructure your company on the strength of a non-binding letter. Second, do not let harsh terms slide in because "it's all non-binding anyway." A term agreed in principle becomes the starting point for the purchase agreement. Clawing it back later is uphill work against a buyer who will call it a done deal. Third, the note traps are real, not theoretical. My corpus contains a structure that assigns the seller's note to the buyer's own bank as collateral, with the payments swept to that bank. It also contains notes that shrink automatically when results miss a target, and one forgiven entirely if a single named customer leaves. Each looked like deferred price on the page. None of them was.
An Hour Before Beats Months After
Your bargaining power in a business sale declines steadily from the first phone call to the closing table. Problems disclosed and terms locked early, while the buyer still fears losing the deal, get the best resolution you will ever be offered. The same issues raised late get priced against you. By then the only alternative to agreeing is blowing up months of work.
An LOI review is a small job sized to that curve. I read the document and tell you exactly which provisions bind you. I compare each clause to its pattern across the 196 letters I studied, so you hear "the market band is 45 to 90 days," not "this feels long." I mark up the exclusivity clause and its triggers, insert the price-mechanism and retrade fencing language, and flag the structure and tax fork in the road. You get back a redline the buyer will recognize as the work of an advised seller. That last part matters on its own: buyers chip hardest at sellers who look alone.
I do not quote fees in articles because every deal is shaped differently, but the review itself starts with a free call. If you take one thing from this page, take this: the letter of intent is not the paperwork before the negotiation. It is the negotiation. Get an hour of review before you sign, not after.
Don't Sign It Yet.
A 30-minute call before signature costs you nothing. Signing away your leverage can cost you a meaningful piece of the price. Send me the LOI and let's walk through it together.
Frequently Asked Questions
I analyzed 196 letters of intent filed with the SEC, including 50 sales of operating businesses. The normal letter is non-binding except for a short list of binding clauses: confidentiality, exclusivity, expenses, and publicity. Exclusivity usually binds only the seller, runs 45 to 90 days, and is granted for free. Most letters carry no deposit and no break fee. About one third include an earnout, and about one third include a seller note. Anything outside those patterns is a term to negotiate, not boilerplate to accept.
Parts of it usually are. Most LOIs state that the price and deal terms are non-binding while the exclusivity and confidentiality provisions are binding. The label is not a shield, though. Courts have held parties to preliminary agreements when the document's own protections expired or the parties' conduct suggested a done deal, so treat every sentence as if it counts and have an attorney confirm exactly which provisions bind you before you sign.
As short as you can negotiate. In my study of 196 SEC-filed letters of intent, the market band for exclusivity was 45 to 90 days, and 60 days was the most common anchor, with outliers from 14 days up to 180. For a main-street deal I push for 30 to 60 days, tied to milestones such as completion of due diligence and delivery of a draft purchase agreement, with automatic expiration and extensions only by the seller's written consent. A period that runs until closing with no end date is a red flag, and so is an extension the buyer can grant itself.
A retrade is when the buyer agrees to a price in the LOI, then pushes it down during due diligence after your competing buyers are gone. It usually arrives dressed as a diligence finding: a working capital shortfall, a customer concentration concern, an accounting adjustment. The defenses are to disclose known problems before you sign, keep exclusivity short, and require in the LOI that any price adjustment trace to a specific new finding.
Under most LOIs, yes, at any time and without penalty, because the deal terms are non-binding. Meanwhile you are locked into exclusivity and cannot talk to anyone else. That asymmetry is negotiable. You can ask for a good-faith deposit, a break fee or cost reimbursement if the buyer walks, and evidence of financing before you grant exclusivity.
Nothing in the law requires it, but the LOI review is the highest-value hour of legal work in the entire sale. Terms you leave open at signature get negotiated later with no competition and mounting pressure to close, and terms you concede in the LOI are nearly impossible to claw back in the purchase agreement. I review the document, flag what binds you, and mark up the exclusivity and price mechanism before you sign anything.