Is a letter of intent to sell a business legally binding?

Mostly no. The price, structure and deal terms in a typical LOI are non-binding, so either side can walk away before the purchase agreement is signed. Exclusivity, confidentiality and expense clauses are usually binding from signature. The LOI itself should say which is which, and your attorney should confirm it.

How long should exclusivity last in an LOI?

It varies with the size of the deal and the buyer's diligence plan. Sellers should insist on a defined end date, a diligence schedule the buyer commits to, and the right to end exclusivity early if the buyer changes the price or key terms. Open-ended exclusivity mainly helps the buyer.

Who writes the letter of intent, the buyer or the seller?

Usually the buyer drafts it, because it is the buyer's offer. The seller and their advisors then negotiate before signing. Owners can ask for changes to price, structure, exclusivity, working capital and transition terms. Signing the first draft exactly as written is rarely in the seller's interest.

Can the price change after I sign an LOI?

Yes. Because the business terms are usually non-binding, a buyer can propose a lower price if due diligence finds problems, such as earnings that do not match tax returns or lost customers. Clean books and documented service agreements before you sign make a price change less likely, though nothing guarantees it.

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Letter of Intent to Sell a Business: A Service Owner's Guide to the LOI

Updated September 28, 2026 · 6 min read

A letter of intent to sell a business is a short document in which a buyer proposes the price, structure and main terms for buying your company. Most of it is non-binding, but a few clauses, usually exclusivity and confidentiality, bind you at signing. For a service business, the terms on crews, customers and working capital matter most.

Owners often treat the LOI as a formality before the lawyers take over. It is closer to the opposite. The LOI sets the frame the purchase agreement is written inside, and once you sign exclusivity your leverage drops. This guide walks through each part from the seller's side of the table.

What is a letter of intent in a business sale?

An LOI (letter of intent) summarizes the deal a buyer wants to make. It usually arrives after the buyer has signed an NDA (non-disclosure agreement), reviewed your summary financials and met you, and before full due diligence.

It is not the purchase agreement. The definitive agreement, drafted by attorneys after diligence, is what actually transfers the business. The LOI is the outline both sides agree to negotiate from, so anything left vague now gets decided later, usually when you have less leverage.

A typical LOI for a service company covers:

Purchase price and how it is paid
Whether it is an asset sale or a stock sale
What is included: trucks, equipment, customer lists, service agreements, phone numbers, software and brand
How working capital will be handled
Due diligence scope and timeline
The exclusivity period
Your transition role and its length
Expectations for key employees
Conditions to closing, such as the buyer's financing or third-party consents
Which provisions are binding

How should you read the price and structure?

The headline number is only the start. What matters is how much you receive at closing, how much depends on future events, and what can reduce it.

If you want a sanity check on the price itself, our guide What Is My Service Business Worth? explains SDE (seller's discretionary earnings, profit plus one owner's pay and perks) and how multiples work. ServiceExits rule-of-thumb ranges vary by trade and should always be reviewed by an advisor against your actual numbers.

Look for each of these and ask the buyer to put a number on it:

Cash at closing: the amount wired to you on closing day, before your own taxes and debt payoffs.
Earnout: a payment that only arrives if the business hits agreed targets after closing. Ask what the target is, who controls the results and how it is measured.
Escrow or holdback: part of the price held back for a period to cover claims under the purchase agreement.
Rollover equity: part of the price paid as ownership in the buyer's company, common with private equity buyers.
Adjustments: working capital and debt adjustments that can move the final number up or down.

Why does asset sale versus stock sale matter in the LOI?

In an asset sale, the buyer purchases selected assets and usually leaves most liabilities with your entity. In a stock sale (a membership interest sale for an LLC), the buyer purchases the company itself, including its history.

The choice affects taxes, contracts, licenses and who is responsible for past work, such as warranty callbacks. Buyers and sellers often prefer different structures, so it belongs in the LOI rather than being settled later. This is general information: confirm the tax effect with your CPA and the legal effect with a transaction attorney before you sign.

What does exclusivity mean, and how long should it last?

Exclusivity, also called a no-shop clause, means you agree not to talk with other buyers for a set period while this buyer completes diligence. It is almost always binding.

This is where sellers give up the most leverage. Before you sign, competing interest is your best negotiating tool. After you sign, the buyer knows you cannot turn to someone else until the period ends.

Protect yourself with a few simple terms:

A defined end date rather than an open-ended period
A diligence schedule the buyer commits to
The right to end exclusivity early if the buyer changes the price or key terms
Clear language that exclusivity ends if the buyer walks away

How is working capital handled in a service business LOI?

Working capital is the short-term money that runs the business: receivables, inventory and prepaid items, minus payables and other short-term obligations. Many buyers expect a normal level to be delivered with the business at closing, often called a peg or target.

For service companies this matters more than owners expect. Receivables from commercial customers, parts stocked on trucks, and customer deposits can all move the number. Prepaid maintenance plans are work you still owe, so buyers often treat them as a liability.

If the LOI says only "a normal level of working capital", ask how it will be calculated and over which months. Seasonal trades should make sure the average reflects the whole year, not just the buyer's preferred season.

What should the LOI say about your crews and customers?

Your technicians, dispatchers and customer relationships are much of what the buyer is paying for, so get the buyer's intentions in writing now:

Whether employees will be offered jobs, and on what general terms
Which key employees the buyer wants committed before closing, and how that will be handled confidentially
When and how employees and customers will be told
Whether the brand and phone numbers stay the same
Your own role after closing: title, length, pay and time commitment
Non-compete scope: which trades, which area and for how long

Which parts of an LOI are binding?

Most LOIs state that the business terms are non-binding. Either side can walk away before a definitive agreement is signed, and the price can still change after diligence. Because binding and non-binding parts sit in the same document, have a transaction attorney read it before you sign.

A few provisions are usually binding from signature:

Exclusivity or no-shop
Confidentiality, if the NDA does not already cover it
Expenses, usually that each side pays its own costs
Governing law

What should you check before you sign the LOI?

Use this checklist before you sign:

I know my estimated cash at closing after taxes and debt payoff.
I understand every contingent payment and what controls it.
Asset or stock sale is stated, and my CPA has reviewed the tax effect.
The working capital method is written down.
Exclusivity has an end date and an early-exit trigger.
The buyer's source of funds is described.
My transition role and non-compete are defined.
My attorney has marked which clauses are binding.

Next step

If you have an LOI in hand, or expect one soon, a second set of eyes before you sign is cheap insurance. ServiceExits can review the terms with you confidentially and with no obligation. Request a private exit review from the homepage, or see how the process works on our How It Works page. If you are still preparing, start with Owner Dependent Business: How to Make a Service Company Sellable Without You, because owner dependence shapes almost every term above.

Common questions

Is a letter of intent to sell a business legally binding?: Mostly no. The price, structure and deal terms in a typical LOI are non-binding, so either side can walk away before the purchase agreement is signed. Exclusivity, confidentiality and expense clauses are usually binding from signature. The LOI itself should say which is which, and your attorney should confirm it.
How long should exclusivity last in an LOI?: It varies with the size of the deal and the buyer's diligence plan. Sellers should insist on a defined end date, a diligence schedule the buyer commits to, and the right to end exclusivity early if the buyer changes the price or key terms. Open-ended exclusivity mainly helps the buyer.
Who writes the letter of intent, the buyer or the seller?: Usually the buyer drafts it, because it is the buyer's offer. The seller and their advisors then negotiate before signing. Owners can ask for changes to price, structure, exclusivity, working capital and transition terms. Signing the first draft exactly as written is rarely in the seller's interest.
Can the price change after I sign an LOI?: Yes. Because the business terms are usually non-binding, a buyer can propose a lower price if due diligence finds problems, such as earnings that do not match tax returns or lost customers. Clean books and documented service agreements before you sign make a price change less likely, though nothing guarantees it.