Why letter of intent (LOI) matters to a first-time founder
An LOI helps parties test alignment before spending heavily on due diligence and definitive documents. It can establish price, structure, timetable and negotiation boundaries. Careless drafting can still create binding obligations or weaken negotiating leverage despite a general statement that discussions are non-binding.
Examples of letter of intent (LOI)
A buyer and founder sign an LOI for a proposed acquisition at an indicative price, subject to due diligence and final contracts. The commercial deal is non-binding, but confidentiality, exclusivity, costs and governing-law clauses are expressly binding for stated periods.
Common misunderstanding
An LOI is not automatically non-binding and does not guarantee completion. Courts examine wording, conduct and applicable law, while individual clauses may bind even if the main transaction does not. Terminology such as heads of terms or memorandum of understanding may overlap but is not decisive.
When to use it
Use an LOI when the parties need a clear negotiating framework before definitive contracts. Mark binding and non-binding provisions precisely, include conditions and expiry, and avoid operational commitments that should wait for signing. Obtain legal advice before agreeing exclusivity or relying on enforceability.