What Is a Letter of Intent (LOI) When Buying a Business?
A letter of intent sets out the price, structure and timeline of a business purchase before the lawyers draft the final agreement. Here is what it covers.
Once you have signed an NDA and reviewed a seller's real numbers, the next milestone is the letter of intent, or LOI. It is the document that turns interest into a deal you can actually work on.
This guide explains what an LOI is and what it covers. It's part of our complete guide to how to buy a business in Canada.
What a letter of intent is
An LOI is a short document — often three to six pages — that sets out the main commercial terms you and the seller have agreed on, before lawyers spend money drafting a purchase agreement. Most of it is non-binding: it signals serious intent rather than locking in the sale. A few clauses usually are binding, most commonly confidentiality, exclusivity, and who pays their own costs.
What an LOI typically covers
- Price and how it is paid — cash at closing, vendor take-back note, earn-out.
- Deal structure — whether it is an asset sale or a share sale, which has significant tax consequences for both sides.
- What's included — equipment, inventory, working capital target, real estate or lease.
- Conditions — financing, landlord consent, satisfactory due diligence.
- Exclusivity — a period, often 30 to 90 days, when the seller will not shop the business to other buyers.
- Timeline — diligence window and a target closing date.
- Transition — how long the owner stays on to train you.
Where the LOI fits in the process
The usual order is: sign the NDA, review summary information, meet the owner, submit the LOI, then start due diligence under exclusivity. If diligence uncovers problems, the LOI is where you renegotiate — or walk away, since it is mostly non-binding.
Getting the LOI right
Be specific about price, structure, and conditions. Vague LOIs create fights later, and a term you skipped is a term you have already conceded. Set an exclusivity period long enough to finish diligence and financing, and confirm the structure before you sign — sellers rarely agree to switch from a share sale to an asset sale after the fact.
Have a business lawyer review the LOI even though most of it is non-binding; you can find professionals in the BizListings advisor directory.
The bottom line
The LOI is the deal in outline: price, structure, conditions, and timeline. Get it clear and you protect both the negotiation and your diligence period.
Read the rest of our complete guide to buying a business in Canada, or browse businesses for sale across Canada.
This guide is general information, not legal advice. Always have a qualified lawyer review agreements before signing.
