LOI stands for letter of intent, and in business it is the document that turns a field of interested parties into one counterparty with a clock running. It is routinely described as non-binding, which is true of the price and false of two or three clauses inside it. It is also frequently confused with an IOI, which comes earlier and commits far less. This page separates the two and says what binds.
What an LOI says
A price, a structure, the conditions to closing and a period of exclusivity, plus confidentiality and who bears costs. It is short, usually a few pages, and its function is to establish the shape of a deal clearly enough that both sides can justify the cost of the diligence that follows.
IOI vs LOI, in three differences
An IOI is a range and an LOI is a number. An IOI is one of several and an LOI is usually exclusive. And an IOI carries no exclusivity clock, which is the difference that costs the seller something: signing an LOI means agreeing not to talk to anybody else for thirty to ninety days.
What actually binds
Exclusivity, confidentiality and the expenses position, plus any break fee. Price, structure and working capital do not, because neither side can commit before diligence. The binding clauses are short and at the back, and they are the ones a first-time seller skims on the way to the number at the front.
What happens the day after signing
Diligence starts and the request list arrives, which is where most of the elapsed time in a transaction goes. A seller who assembled the obvious material during the negotiation closes weeks earlier than one who starts on receipt of the list.
Questions people ask about what is loi
What does LOI stand for?
Letter of intent. In business it is the document that moves a process from several interested parties to one, with an exclusivity period.
What is the difference between an IOI and an LOI?
A range against a number, one of several against usually exclusive, and no exclusivity clock against thirty to ninety days of one.
Is an LOI binding?
Exclusivity, confidentiality, expenses and any break fee bind. Price, structure and working capital do not.