ACQUIREMANWhat is a letter of intent?
A letter of intent (LOI) is a short document — usually 3 to 10 pages — in which a buyer sets out the main terms on which it proposes to acquire a business. In India it may also be called a term sheet, memorandum of understanding (MoU) or indicative offer. It comes after initial meetings and before full due diligence and definitive agreements.
The LOI matters because it sets the framework for everything that follows. Terms that are vague in the LOI tend to move in the buyer’s favour later, once the seller has granted exclusivity and stopped talking to other bidders.
Binding vs non-binding terms
| Usually non-binding | Usually binding |
|---|---|
| Price and valuation | Exclusivity / no-shop |
| Deal structure | Confidentiality |
| Conditions to closing | Costs (each party pays its own) |
| Timeline | Governing law and dispute resolution |
| Management roles after closing | Termination of the LOI |
Make sure the LOI says clearly which clauses are binding. Ambiguity can lead to disputes about whether a deal was agreed.
The key terms to negotiate
1. Price and how it is calculated
- Headline price — is it enterprise value or equity value?
- Cash-free, debt-free basis — the buyer pays for the business without its cash and debt, with adjustments at closing.
- Normalised working capital — the target level of working capital, and how differences are adjusted.
- Locked box vs completion accounts — a locked box fixes the price on a past balance sheet; completion accounts adjust it after closing.
2. Form of consideration
Cash, shares of the buyer (a share swap), deferred payments, or a mix. If you receive buyer shares, understand their value, liquidity, lock-in and any FEMA rules for cross-border swaps.
3. Deferred and contingent payments
- Escrow or holdback — a portion held back to cover warranty claims, with a release timeline.
- [Earn-out](/insights/earn-outs-explained) — additional payments if the business hits future targets. Define the metrics, period, accounting rules and your protections.
4. Structure
Share sale or asset sale, 100% or majority, and what happens to existing investors, ESOP holders and convertible instruments.
5. Conditions to closing
Typical conditions include satisfactory due diligence, financing, board and shareholder approvals, regulatory approvals (such as CCI or FEMA), key customer consents and key-employee agreements. Fewer and clearer conditions mean more deal certainty.
6. Exclusivity
The buyer will ask you to stop talking to other buyers for a period. Negotiate:
- a short period — often 30 to 60 days, sometimes 90 for complex deals;
- early termination if the buyer lowers the price or misses milestones;
- no automatic extension.
7. Warranties, indemnities and liability caps
The LOI may preview the buyer’s approach: whether it expects warranty and indemnity insurance, the cap on seller liability (often a percentage of price), time limits and specific indemnities for known issues.
8. Founders and team
Post-closing roles, employment terms, retention bonuses, vesting of any new equity, and non-compete and non-solicit periods. In India, post-employment non-competes are generally difficult to enforce, but non-competes given by selling shareholders as part of a sale of goodwill are treated differently — take legal advice.
9. Timeline
A realistic target date for signing and closing, and a list of the key steps.
Red flags in an LOI
- A wide price range or a price “subject to due diligence” with no explanation.
- Long or open-ended exclusivity.
- Large escrows or earn-outs with vague metrics.
- Financing not yet arranged.
- A buyer refusing to put any terms in writing.
Before you sign
- Compare offers on equity value received at closing, not on headline price.
- Model the worst case for earn-outs and escrow.
- Ask your lawyer and tax adviser to review the LOI — a few hours now can save weeks later.
- Prepare your due diligence data room so exclusivity is not wasted.
Need help evaluating an offer? Book a consultation with Acquireman’s advisory team.
Frequently asked questions
Is a letter of intent legally binding?
Usually only partly. Commercial terms such as price and structure are normally non-binding, while exclusivity, confidentiality, costs and governing law are usually binding. The LOI should state clearly which clauses are binding.
How long should an exclusivity period be?
Commonly 30 to 60 days, and sometimes up to 90 days for complex deals. Sellers should keep it short, tied to milestones, and avoid automatic extensions.
What is the difference between an LOI and a term sheet?
In practice they serve the same purpose — summarising the main terms of a proposed deal before definitive agreements. ‘Term sheet’ is more common in investment rounds; ‘LOI’ in acquisitions.
What does cash-free, debt-free mean?
The buyer pays for the business on the basis that the seller keeps the cash and repays the debt. The final equity price is adjusted at closing for actual cash, debt and working capital.
This article is general information for educational purposes, current as of 11 October 2026. It is not legal, tax, financial or investment advice. Laws, regulations and market conditions change — consult qualified professionals before acting. Acquireman is a marketplace and advisory platform; see our Terms of Use.