What It Does
The LOI fixes the commercial shape of the deal by stating price, structure, consideration mix, and the major conditions, giving both sides a reference point before either spends money on diligence and definitive drafting.
A well-drafted LOI separates binding from non-binding text, naming the sections that bind on signature and stating that everything else creates no obligation until definitive documentation is signed and delivered.
Exclusivity provisions buy the buyer a no-shop window, stopping the seller from soliciting or negotiating competing offers for a defined period, and that section is drafted to survive termination of the non-binding terms.
The LOI creates a process obligation, since covenants to negotiate in good faith, meet an execution deadline, and cooperate on diligence give the deal a schedule. In SIGA Technologies, Inc. v. PharmAthene, Inc., 67 A.3d 330 (Del. 2013), the Delaware Supreme Court held a good-faith negotiation covenant enforceable even though the term sheet itself was marked non-binding, and that a trial court may award expectation damages where the parties would have reached agreement absent one side's bad faith. The holding reads narrower than the headline: the fix is drafting that scopes the covenant and states what it does not require.
LOIs set the confidentiality perimeter by either carrying their own confidentiality section or incorporating an existing NDA, which controls what each side may do with the information exchanged during diligence.
The LOI gets superseded at signing, since the definitive agreement typically states that it supersedes the LOI, closing off arguments built on earlier drafts and preliminary understandings.
When You'll See It
LOIs show up in M&A, asset purchases, joint ventures, commercial real estate leases, licensing deals, and reverse mergers. Public companies file them as exhibits or describe them in an 8-K when the proposed transaction is material.
In-house teams see them earliest in the deal cycle, typically after a banker or the CEO has already agreed to the headline number. The document arrives labeled non-binding, and the legal work is confirming that the label matches the operative language.
The same document goes by different names depending on the deal type, and none of the labels carry legal weight on their own:
Term sheet: the label financing transactions use, typically written in bullet form.
Memorandum of understanding: the label common in partnerships, consortium arrangements, and government or university dealings.
What determines exposure is which sections the parties made enforceable, whether the document leaves material terms open, whether it points to a definitive agreement, and how the parties acted after signing.
Examples
Vincerx Pharma, Inc.
Current Report on Form 8-K
Non-binding LOI
Mutual
2025
On March 14, 2025, Vincerx Pharma, Inc. ("Vincerx") entered into a non-binding letter of intent (the "Letter of Intent") with Global Digital Holdings Inc., a Georgia corporation that conducts business under the name QumulusAI ("QumulusAI"), relating to a proposed business combination between Vincerx and QumulusAI. During the 30-day period from the date of the Letter of Intent, the parties have agreed not to solicit or encourage submission of, or participate in discussions or enter into any agreement regarding, any other acquisition proposal.
QUMU Corporation and Enghouse Systems Limited
Letter of Intent
Letter of Intent
One-Sided
2023
Except with respect to the sections hereof entitled "Exclusivity", "Broker/Agent's Fee", and "Governing Law," this Letter of Intent is an expression of intent and is not meant to be binding on the parties. Unless and until the Merger Agreement has been negotiated, executed and delivered by Buyer and QUMU, neither Buyer nor QUMU will be under any legal obligation of any kind whatsoever with respect to the consummation of the Proposed Transaction regardless of any action or inaction of the parties hereto from and after the date hereof and this Letter of Intent may not be relied on as the basis for contract by estoppel or be the basis for a claim based upon detrimental reliance or any other theory at law or at equity.
Netcapital Inc.
Letter of Intent for the Acquisition of ResMAC, Inc.
Letter of Intent
One-Sided
2026
The provisions of this Section 6 are binding upon the parties immediately upon execution of this Letter and shall survive any termination of the non-binding provisions hereof. 6.1 Exclusivity Period. From the date of execution through the date that is ninety (90) calendar days thereafter (the "Exclusivity Period"), Seller, RezyFi, ResMAC, and each of their respective officers, directors, shareholders, employees, agents, and advisors shall not, directly or indirectly: (a) solicit, initiate, encourage, or entertain any inquiry or proposal from any third party regarding any acquisition, merger, asset sale, equity investment, or similar transaction involving ResMAC or its assets; (b) engage in discussions or negotiations with any such third party; (c) enter into any letter of intent, agreement, or understanding with any such third party; or (d) provide non-public information to any such third party.
Profusa, Inc.
Non-Binding Letter of Intent with Bio Insights LLC
Non-binding LOI
Mutual
2026
The parties agree to use their good faith, commercially reasonable efforts to negotiate and execute a mutually acceptable definitive agreement reflecting the terms set forth in this Letter within thirty (30) days from the date hereof (the "Execution Deadline") [...] if a definitive agreement has not been executed by such date, Profusa may, in its sole discretion, terminate this Letter and any exclusivity obligations hereunder without liability, except for any provisions expressly stated to survive, and this provision shall be binding and enforceable notwithstanding any other provision of this Letter.
Guardian Metal Resources PLC
Mining Lease and Option to Purchase
Binding LOI
Mutual
2024
Owner and GMPLC are signatories of a Confidentiality Agreement dated June 23, 2024 and a binding letter of intent dated October 30, 2024 (the "Letter of Intent") which described the general terms for Owner's lease and grant to GMPLC of the option to purchase the Property. GMPLC assigned its rights and interests in and under the Letter of Intent to GMRUS and Owner acknowledged and consented to GMRUS's assignment. The Confidentiality Agreement and the Letter of Intent are superseded by this Agreement.
Negotiate
Proposing Party Positions
Buyers push for a long exclusivity period, since ninety days gives them room to complete diligence, arrange financing, and paper the definitive agreement without a competing bidder resetting the price.
Buyers tie exclusivity to a walk-away right, pairing the no-shop with an unconditional right to terminate the letter after diligence, which keeps the seller locked up while the buyer stays free.
Buyers keep the commercial terms indicative, with language that the price and structure remain subject to diligence, board approval, and financing, which preserves their ability to retrade on findings.
Buyers push for a reimbursement or break fee, since a liquidated sum payable if the seller breaches exclusivity converts a hard-to-prove damages claim into a fixed number.
Buyers add a good-faith covenant with teeth, using execution deadlines and cooperation covenants to give themselves a documented record if the seller slows the process down.
Receiving Party Positions
Sellers shorten the exclusivity window to thirty to forty-five days, with extensions conditioned on the buyer hitting diligence milestones, to limit the time they sit off the market.
Sellers make exclusivity terminate on retrade, with a clause ending the no-shop if the buyer reduces price or materially changes structure, which removes the incentive to relitigate the deal after signature.
Sellers enumerate the binding sections precisely, using a closed list plus a sentence stating that no other provision creates an obligation until definitive documentation is executed and delivered.
Sellers add an express no-reliance sentence, disclaiming contract by estoppel, detrimental reliance, and any other theory at law or in equity, which forecloses the arguments that follow a collapsed deal.
Sellers scope the good-faith covenant, narrowing it to a duty to negotiate, stating that no party is obligated to agree to any term, and confirming that either side may terminate discussions.
The negotiating positions above repeat across deals, which makes an LOI a good fit for a standing position library. Teams running these through GC AI’s Playbooks get their preferred exclusivity length, binding-provisions list, and no-reliance language applied to an incoming draft in one pass, and GC AI for Word puts the same positions next to the redline so the markup happens where the document already lives.
Red Flags
A letter that says non-binding but reads like a contract, fixing price, closing mechanics, and conditions with no open material terms and no reference to a definitive agreement, invites a court to enforce it.
An open-ended binding carve-out list leaves room to argue that other sections bind too, since phrasing like "including" ahead of the list invites that reading. Only a closed list closes the argument.
Exclusivity with no end date and no exit is a risk, since a no-shop that runs until the parties agree otherwise leaves the seller locked up with no mechanism to get free.
An unscoped good-faith covenant, a bare agreement to negotiate in good faith with no statement that the parties are free to walk and no obligation to accept any term, is the language Delaware plaintiffs build on.
Conduct that outruns the document, such as announcing the deal, integrating teams, or beginning performance while the LOI is the only signed paper, supplies evidence that the parties intended to be bound.
An LOI that leaves confidentiality to assumption, omitting a confidentiality section and skipping any reference to an existing NDA, leaves diligence materials outside a written restriction.
When the definitive agreement never mentions the LOI, the missing supersession recital leaves preliminary terms and side emails available for interpretation arguments after closing.
FAQs
This content is for informational purposes only and does not constitute legal advice.
