What Is a Letter of Intent (LOI)?

Building a business is impossible without establishing communication and building strong relationships. Companies cannot always immediately conclude an agreement, so a letter of intent (LOI) comes in handy in this case. The purpose of the LOI is to broadly outline the future basic terms agreements already reached, etc. Today, Icon.Partners shares its experience and tells you how to write a letter of intent.

LOI Meaning and Definition 

What does LOI mean in business?

So, what does LOI mean in business? In general, it is a preliminary document in which the parties record their intention to conclude an agreement or cooperate in the future. This is necessary in order not to lose useful connections and agreements. It is often a negotiating tool when there is still a long way to go before the agreement is signed, but it is necessary to confirm the seriousness of intentions. But let's not forget that a letter of intention (LOI) is more of a declaration by the parties that does not create legal consequences.

Letter of intention vs letter of agreement

What is the difference between a letter of intent and a letter of agreement? It is important for businesses to know the differences so as not to fall into a trap! An LOI has the meaning of preliminary communication about further cooperation. So, when writing a letter of intent, remember that it is part of the negotiations and does not create any consequences.

Conversely, a letter of agreement can give rise to consequences that are binding on the parties and be interpreted as a contract. So, be vigilant or entrust the matter to Icon.Partners, who will advise you on the best course of action for your business.

Purpose of a Letter of Intent 

Why businesses use LOIs

Now that we have answered the question of what is an LOI, let's talk about why companies resort to it instead of signing a contract right away.  So, an LOI is about interim negotiations, fixing areas of cooperation, defining roles, and starting work. The document helps to avoid misunderstandings and inaccuracies, as the “essence” of the interaction is put down on paper. An LOI is also a “sign of serious intentions” and, at the same time, a clear understanding that it is necessary to sit down and draft the main document, involve professionals, etc. Therefore, a letter of intent is both about efficiency and about starting a journey with your business partners, clients, or investors.

Common situations for LOIs (partnerships, acquisitions, contracts)

A letter of intent is a universal document (many companies have a standard LOI template) and is used in a variety of situations in business interactions. When concluding a contract, an LOI defines roles, subject matter, specifications (goods or services), and certain preliminary rights, but with the possibility of clarifying all provisions in the main document.

Before establishing a partnership, an LOI will help businesses define future roles, areas of influence and responsibility, boundaries of interaction, and more. For acquisition agreements, the preliminary subject matter, term, and approximate price may be specified. Businesses should understand that an LOI is adapted to specific requirements and situations, as its main purpose is to confirm the parties' intentions, but not to create obligations.

How to Write a Letter of Intent

Key elements every LOI should include

So, here are a few tips from Icon.Partners if you decide to draft a letter of intent yourself. Be sure to include the names of the parties, their addresses, then add the purpose of the negotiations, then describe the subject of the future agreement, if necessary, add the prerequisites and next steps. You can also note that the LOI is not binding. Each situation requires detailed consideration and depends on specific business circumstances.

Examples and Templates 

Sample of letter of intent for business

Let's draft a sample of a letter of intent for business together with Icon.Partners and see that it is not difficult. You need to write the title of the document, information about you and the other company, the purpose of the letter, the subject, the previously agreed terms and important points. We note that the letter is not binding, add the signatories' details, and that's it, a simple LOI is ready!

LOI template you can use

The Icon.Partners is accustomed to staying one step ahead, so here is an example of a letter of intent (LOI).

Letter of Intent

Business name

Address

Contact details (email, etc.)

Recipient company name

Address

Dear (recipient company name),

With this letter, (your company name) expresses its intention (add a description of the future activity).

In order to take action to agree on the terms and conditions and conclude (title of the document), the parties have preliminarily agreed on the following:

Subject matter: ___.

Price and terms: ___.

Term: ___. 

Exclusivity (if necessary): the negotiation period is exclusive and will last (specify the period).

Confidentiality (if necessary): all information provided during the negotiations is strictly confidential. 

This letter is only an expression of intent and does not create any legal obligations, except for the provisions on exclusivity and confidentiality (if provisions on exclusivity and confidentiality have been added).

The applicable law for this letter of intent is the law of ___.

The parties have agreed and entered into this Letter of Intent ___.

Company Name 1, Signature.

Company Name 2, Signature.

FAQ about Letters of Intent

What is an LOI in simple terms?

Generally no, except clauses expressly stated as binding (e.g., confidentiality, exclusivity, costs, governing law). Enforceability depends on wording and jurisdiction.

Is an LOI legally binding?

An LOI is not legally binding for the parties (except for certain requirements, such as exclusivity).

How to write a letter of intent step by step?

Identify parties and purpose, outline scope and principal terms, set timeline/next steps, separate binding vs non-binding, add signatures.

Can I use a template for writing a letter of intent?

A template is a starting point, but don't forget to make changes to suit your relationship, or better yet, contact Icon.Partners and we will do even more!