Letter of Intent

Definition

A letter of intent (LOI) is a written statement from one party indicating a preliminary agreement to engage in business with another. It outlines the key terms of a potential deal. LOIs are commonly used in major corporate transactions and resemble term sheets, but unlike term sheets, which are usually listed in bullet points, LOIs are written in letter format.

Purpose of a Letter of Intent (LOI)

The main purposes of an LOI include:

• Allowing parties to outline basic terms quickly before investing in detailed negotiations, due diligence, or third-party approvals.
• Officially acknowledging that negotiations are in progress, such as in mergers or joint venture proposals.
• Protecting if a deal falls through during negotiations.
• Confirming certain obligations, like payments made on behalf of another party (e.g., credit card payments).