Before you sign a letter of intent to buy a business

An LOI is called non-binding, and parts of it usually aren't.

What's typically binding even in a non-binding LOI

• Exclusivity. You stop talking to other buyers, or the seller stops talking to other buyers, for a set period. That's a real commitment with real cost.

• Confidentiality.

• Expense allocation. Who pays for what if the deal dies.

• Governing law and dispute provisions.

Read which paragraphs are carved out as binding. They're usually listed together near the end, and they're the ones that matter.

What the LOI decides in practice even where it's not binding

• The structure. Asset sale or equity purchase. Once it's in the LOI, reopening it looks like renegotiating, and the tax consequences of each are significantly different.

• The price and the shape of it. Cash at closing, earn-outs, seller financing, holdbacks.

• What's included. Which assets, which liabilities, whether real property is in or out.

• Employment arrangements. Whether the seller stays on, and for how long.

Anything left vague in the LOI gets negotiated later from a weaker position, because you're now inside an exclusivity period and invested.

The tax point people miss

Asset versus equity is the single largest variable in what a deal costs. It gets decided in the LOI, usually before anyone runs the numbers.

Get the analysis before signing, not during diligence.

The exclusivity trap

Long exclusivity with a seller who hasn't prepared for diligence means burning your window while they gather documents. Ask what they already have ready.

What to do

Before signing: identify every binding paragraph, confirm the structure and its tax consequences, and pin down anything you'd be unhappy to renegotiate later.

An LOI reviewed in an hour saves a great deal in the ninety days after.

This is general information, not legal advice for your situation. If you want an answer for your business, book a consultation.