Letter of Intent for a Startup Acquisition: What to Include

What a letter of intent does in a business acquisition

A letter of intent in a business acquisition is a short document in which a buyer and seller record the main terms of a proposed deal before lawyers draft the definitive purchase agreement. In a small startup or SaaS acquisition it usually comes after an NDA and an initial review of the business, and before full due diligence. It may also be called a term sheet, indication of interest, or memorandum of understanding, although those labels are not used consistently.

The LOI matters more than its length suggests. It sets the price anchor, the deal structure, the diligence window, and, most importantly, how long the seller stops talking to other buyers. Many later disputes trace back to something the LOI left vague.

This guide explains what to include, which terms are typically binding, and how buyers and sellers should negotiate each one. It is general information, not legal advice. Whether an LOI or any clause in it is enforceable depends on its wording and the governing law, so have a lawyer review it before signing. The SBA lists the letter of intent among the documents an attorney and accountant can help buyers create and evaluate (SBA, “Buy an existing business or franchise”).

Binding and non-binding terms

Most acquisition LOIs are a hybrid. The commercial terms (price, structure, conditions) are expressly non-binding, while a few procedural terms are binding. A law-firm guide from Harris Sliwoski summarizes it this way: most LOIs are nonbinding, or nonbinding except for a handful of provisions, typically confidentiality and exclusivity, and sometimes expense allocation, governing law, and break-up fees (Harris Sliwoski).

The same guide warns that if the document is ambiguous, a court may treat the LOI or some of its terms as binding even when one party believed otherwise. A non-binding title with binding language in the body is a classic error.

A related risk is a promise to “negotiate in good faith.” In SIGA Technologies v. PharmAthene (2013), the Delaware Supreme Court held that an express contractual obligation to negotiate in good faith was enforceable and that expectation damages could be available for its breach, even though the underlying term sheet was marked non-binding (summary on the Columbia Law School CLS Blue Sky Blog). The practical lesson: decide deliberately whether you want a good-faith negotiation duty, and draft the binding/non-binding split explicitly.

A clear structure:

A heading or section that lists exactly which numbered paragraphs are binding.
A statement that no other provision creates a legal obligation and that no party is obligated to complete the transaction until a definitive agreement is signed.
Consistent wording throughout, so no paragraph contradicts that statement.

What to include in a startup acquisition LOI

The Harris Sliwoski guide lists the terms buyers and sellers should expect, from parties and structure through expiration (Harris Sliwoski). For a small software deal, these are the ones worth getting right.

Parties and what is being acquired

Name the buyer entity, the seller entity, and the owners. Describe the business precisely: product names, domains, and any related products excluded from the sale. If the founder runs several products from one company, this matters.

Deal structure

State whether the buyer is acquiring assets or the company's shares or membership interests. Structure determines which liabilities transfer, how contracts move, and how each side is taxed. Changing it after the LOI is possible but often reopens price. See asset purchase vs stock purchase.

Purchase price and payment terms

Write the headline price and how it is paid:

cash at closing;
escrow or holdback amount, duration, and release conditions;
seller financing: principal, interest, term, and security;
contingent consideration such as an earnout, with the metric and measurement period at least outlined;
any working-capital, deferred-revenue, or debt adjustment.

Sellers should compare offers on cash at close and risk, not headline price. Private-target M&A data shows that holdbacks are standard in larger deals: SRS Acquiom's 2026 study, as summarized by DealLawyers, found that 88% of 2025 private-target deals involved some form of escrow or holdback (DealLawyers). That population is much larger than most micro-SaaS sales, but the direction is a useful reminder.

Included and excluded assets and liabilities

List the key assets: source code, domains, trademarks, content, customer contracts, payment and app-store accounts, social accounts, and data. Name anything excluded, such as cash in the bank or a personal laptop. State which liabilities the buyer will assume, if any. Deferred revenue from annual plans deserves explicit treatment, because the buyer will be serving customers who already paid the seller.

Due diligence scope and timeline

Define the diligence period, what access the buyer gets (financials, code, contracts, vendor accounts), and how customer contacts will be handled. For what buyers typically check, see the startup buyer due diligence guide.

Exclusivity (no-shop)

This is usually the most important binding term. The seller agrees not to solicit or negotiate with other buyers for a set period. Buyers need enough time to complete diligence and financing; sellers need a hard end date so a slow buyer cannot freeze the process. Consider:

a fixed number of days, ending automatically;
an extension only by mutual written agreement;
early termination if the buyer materially changes price or terms;
whether the seller must tell the buyer about unsolicited approaches.

Conditions to closing

List the conditions that must be met: satisfactory diligence, financing, definitive agreements, third-party consents (for example, from key customers or platforms), and any required filings. Vague conditions such as “satisfactory diligence in buyer's sole discretion” give the buyer an easy exit; sellers may push for narrower language.

Transition and restrictive covenants

Describe the seller's post-closing support: duration, hours per week, scope, and whether it is paid. Outline any non-compete and non-solicit, including duration and scope. The enforceability of non-competes varies by jurisdiction, which is another reason to involve a lawyer.

Confidentiality, expenses, and expiry

Confirm that the NDA continues (or include confidentiality terms), that each party pays its own costs unless agreed otherwise, which law governs, and when the LOI offer expires if not signed. Harris Sliwoski notes that nearly all LOIs include an expiration date (Harris Sliwoski).

Example LOI term summary

The following is an illustrative structure, not a template or market benchmark:

Buyer: NewCo LLC. Seller: Example Software LLC and its sole member.
Structure: asset purchase of the “ExampleApp” product, including code, domains, trademarks, customer contracts, and payment accounts; cash and unrelated products excluded.
Price: $400,000, paid as $320,000 at closing, $40,000 held back for 12 months against indemnity claims, and $40,000 as an earnout payable if trailing-twelve-month revenue at month 12 meets an agreed threshold.
Diligence: 30 days from signing, with read-only access to billing, analytics, and code.
Exclusivity: 45 days, ending automatically; extendable only in writing.
Transition: 10 hours per week for 60 days at no additional cost.
Binding provisions: confidentiality, exclusivity, expenses, governing law. All other terms non-binding.

Run the numbers on terms like these with the startup acquisition ROI calculator before you sign.

Negotiation tips for sellers

Shorten and harden exclusivity. Tie it to milestones, such as diligence requests being sent within a week.
Pin down price mechanics. If any amount is contingent, outline the metric, measurement period, and accounting rules now.
Limit diligence conditions. Ask what specifically the buyer still needs to verify.
Check financing. Ask how the buyer will fund the purchase and whether financing is a condition.
Prepare first. A clean data room shortens diligence. See how to prepare a startup for sale and how to sell a SaaS business.

Negotiation tips for buyers

Be specific enough to be credible. A vague LOI invites retrading later and signals inexperience.
Secure exclusivity long enough to finish diligence and arrange financing.
Reserve the right to adjust price if diligence reveals material differences from what was represented.
State your structure preference early. Switching from stock to assets later may cost goodwill.
Plan the transfer. Identify accounts that may not transfer easily, such as payment processors or app-store listings. See how to buy a SaaS business.

Common LOI mistakes

Contradictory binding language.
No end date on exclusivity.
Leaving the asset-versus-stock question open.
Ignoring deferred revenue and annual subscriptions.
An earnout with no defined metric.
Reusing a template with the wrong party names or numbers.

Frequently asked questions

Is a letter of intent legally binding?

Usually only partly. Most LOIs state that commercial terms are non-binding while confidentiality, exclusivity, and a few other provisions are binding. Ambiguous drafting, or an express duty to negotiate in good faith, can create obligations you did not expect. Have a lawyer review it.

How long should exclusivity last in a small acquisition?

Long enough for the buyer to finish diligence and financing, and no longer. The right length depends on deal complexity and how prepared the seller is. Whatever the period, it should end automatically unless both parties agree in writing to extend it.

Can the price change after signing an LOI?

Yes, because price is typically non-binding. Buyers often renegotiate when diligence uncovers material issues. Sellers reduce this risk by disclosing problems before the LOI and by keeping the business performing during diligence.

What is the difference between an LOI and a purchase agreement?

The LOI outlines key terms and is mostly non-binding. The purchase agreement is the binding contract that transfers the business and includes representations, warranties, indemnities, schedules, and closing mechanics.

Should I use a lawyer for a small LOI?

It is strongly advisable. The LOI sets structure and exclusivity that are hard to unwind later. A short legal review costs far less than fixing a binding term you did not intend.

Does RevenueBug provide LOI templates or negotiate deals?

No. RevenueBug relays private buyer inquiries for startups marked for sale. It does not provide legal documents, broker deals, or hold funds.