Mergers & Acquisitions · Practical Guide
Writing a Better Letter of Intent: Practical Tips for NJ Buyers and Sellers
A short letter of intent can save months of argument or cause them. These drafting tips cover the clauses that matter most when you are buying or selling a New Jersey business, and the traps that appear when an LOI is signed in a hurry.
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The LOI is short, but it is not casual
Brokers and buyers often circulate a letter of intent within days of a first meeting. Treat it as a negotiating document in its own right: the terms you leave vague now are the ones you will argue over later.
Most letters of intent run two to five pages. They set out the price, the structure, the main conditions and the timetable, and then say that most of those terms are not binding until a definitive agreement is signed. A handful of clauses, typically exclusivity and confidentiality, are binding immediately.
This guide is about the drafting itself: what to write, what to avoid, and how much detail is worth including. Once the LOI is signed, the separate page on moving from LOI to the purchase agreement explains how the definitive contract gets negotiated. Both fit within the firm's broader M&A representation for buyers and sellers.
Drafting tips
Ten tips for a letter of intent that holds up
None of these require a long document. They require precise wording on the points that move money or time.
- State the price as a number and say what it assumes, for example that the business is delivered without debt and with a normal level of working capital.
- Name the structure: an asset purchase or a purchase of shares or membership interests. The choice changes which liabilities come with the business; see how asset and stock purchases differ.
- Describe the payment mix: cash at closing, any seller note, any earnout, and any escrow or holdback.
- List financing as a condition only if it really is one, and give it a deadline.
- Set a due diligence period with a start date and an end date, and say what the seller must make available.
- Keep exclusivity proportionate: long enough for genuine diligence, short enough that a seller is not frozen if the buyer stalls.
- Say whether key employees, the landlord or major customers must be on board before closing.
- Preview the seller's post-closing role, such as a transition consulting period or a non-compete.
- Spell out which paragraphs are binding and state plainly that the rest are not.
- Add an expiry date for the offer so an unsigned LOI does not linger.
If one of these points cannot be agreed at the LOI stage, it is better to know now. A disagreement on structure or payment mix usually signals a larger gap in expectations.
Binding clauses
The paragraphs that bind on signature
Because the business terms are usually non-binding, it is easy to overlook the clauses that are enforceable from day one. These deserve the closest reading.
- Exclusivity or no-shop: the seller agrees not to solicit or negotiate with other buyers for a stated period. Check the length, whether it extends automatically, and whether it ends early if the buyer changes the price.
- Confidentiality: the buyer agrees to protect information shared during diligence. If a separate non-disclosure agreement already exists, the LOI should refer to it rather than create a conflicting second standard.
- Access and conduct: the seller agrees to give access to records and to run the business normally until closing.
- Expenses: each side usually bears its own costs; any break fee or expense reimbursement needs explicit wording.
- Governing law and termination: which state's law applies, and how either side can end the LOI.
Also watch for language that unintentionally binds. A phrase such as the parties agree to the following terms, followed by no disclaimer, can support an argument that the whole document is a contract. New Jersey courts look at the words and the conduct of the parties, so consistency matters.
Common mistakes
LOI errors that come back at the closing table
Price without assumptions
A number with no statement of what it includes invites a later fight over whether cash, debt or inventory sits inside or outside it.
Open-ended exclusivity
A seller who grants exclusivity with no end date, or one tied to vague milestones, can lose other buyers while the first one hesitates.
Silent on the seller's role
If the buyer expects the owner to stay for a transition period, saying nothing in the LOI often leads to a mismatch on time commitment and pay.
Forgotten consents
Leases, franchise agreements and lender documents frequently need consent. Ignoring them in the timetable pushes the closing date back.
Broker forms signed unread
Template LOIs supplied by intermediaries may favor one side or omit key points. Read them like a contract, because parts of them are.
No expiry date
An offer with no deadline can be accepted weeks later in different circumstances. A simple expiry date avoids that.
A sensible order
How to get from first offer to signed LOI
Agree the economics informally
Price range, payment mix and structure are discussed between principals, often with a broker or accountant involved.
Put it on paper early
One side prepares a draft LOI. Having counsel prepare or review the draft at this point costs far less than unwinding a poor one.
Mark up and respond
The other side comments, typically on exclusivity, conditions and the binding paragraphs.
Sign with a timetable
The signed LOI should leave both parties clear on the diligence deadline, the target closing date and who drafts the purchase agreement.
Questions
Letter of intent drafting FAQs
What should a letter of intent to buy a business include?
At minimum: the price and what it assumes, the structure, how the price is paid, the main conditions such as financing and diligence, a timetable, the seller's transition role, and a clear statement of which paragraphs are binding. Exclusivity and confidentiality are usually the binding ones. Anything else that is important to you, such as keeping a key employee, belongs in the LOI too.
How long should an exclusivity period be?
There is no standard length; it should match the diligence and financing the deal actually needs. A simple deal with organized records needs less time than one involving bank financing or third-party consents. Sellers often negotiate a shorter initial period with an extension available if the buyer is making real progress.
Should a seller sign a buyer's LOI form as written?
Usually not without review. Buyer forms tend to include long exclusivity, broad conditions and access rights, and sometimes language that sets up later price adjustments. A seller can mark up the form just as a buyer would mark up a seller's draft. Small changes now can preserve meaningful leverage later.
Do I need a lawyer to review a letter of intent?
It is not legally required, but it is worth it. Parts of the LOI bind immediately, and the non-binding terms set expectations that are hard to move later. A focused review is a modest piece of work compared with the cost of renegotiating a poorly framed deal. Paul offers this review on a written, agreed scope and fee.
Your attorney
Paul H. Appel, Esq.
Every matter at the firm is handled personally by Paul — the same attorney reads the documents, gives the advice and negotiates on your behalf.
- Education
- Columbia Law School, Juris Doctor (1967)
- Experience
- 58+ years in commercial and business law
- Focus for this matter
- Business acquisitions, sales, due diligence and closing documents
- Office
- Freehold, NJ — serving Monmouth, Middlesex & Ocean Counties
Contact
Discuss Your Business Matter With Paul
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