What is a Letter of Intent?

A letter of intent (or LOI) is a document that declares one party’s preliminary commitment to agree to do business with another. The letter outlines the terms of the agreement, such as key points that need to be negotiated and steps both parties agree to take before, during, and after the transaction.

LOIs are typically drafted by a business’s legal team, after that business conducts due diligence research into the company they plan on working with. This usually happens during early negotiations with that company. Businesses use LOIs for a wide variety of major transactions, including mergers and acquisitions, joint ventures, and real estate leases.

LOIs also commonly include nondisclosure agreements (NDAs) outlining the elements of the deal that both parties must keep confidential.

This content is for general educational purposes only and is not intended, and should not be considered, legal advice.

What is the purpose of a letter of intent?

A letter of intent (LOI) can accomplish a few different purposes. First and foremost, they specify and clarify the specifics of a transaction, ensuring that both parties involved have a clear understanding of what they agree on and what they expect from each other.

Creating an LOI during the negotiation process is a good way to avoid future misunderstandings that could disrupt the eventual completion of the transaction. When both parties understand the terms they’re agreeing to from the outset of negotiations, it can significantly expedite the negotiation process and even the execution of the deal.

LOIs can also safeguard both parties during the deal-making process. Though LOIs are not themselves legally binding documents, they often contain provisional clauses—such as NDAs—that are binding. Including such provisions helps ensure that the other party doesn’t accidentally or willfully misinterpret the terms of the deal and inconvenience their would-be partner.

Different types of letters of intent

There are several different types of LOI. A few of the most common include: 

• Business letters of intent: The primary example used here. Business LOIs announce a preliminary agreement between businesses. This type of LOP outlines the details of the deal and what each party requires of the other to reach agreement.

• Education letters of intent: LOIs may be used as part of a student’s application to a college or university to declare their interest in studying there. LOIs are often used by student-athletes to negotiate scholarships in exchange for playing for the school’s team.

• Employment letters of intent: A job seeker may write an LOI declaring their interest in working for an employer. Employer LOIs differ from cover letters because cover letters focus on a specific position, while employer LOIs usually focus on the whole organization.

• Government grant letters of intent: Organizations send government grant agencies LOIs to solicit their government grants. These LOIs outline what the project seeking funding will accomplish, and how the organization will apply the money it’s asking for.

• Real estate letters of intent: Prospective real estate buyers may write an LOI to indicate their interest in purchasing a property. Landlords and prospective tenants may also use these LOIs to detail rent agreements.

What is included in a letter of intent?

Though they take the form of a letter instead of a list or outline, LOIs are similar to term sheets. They typically follow a standardized format and include the following information:

• The names and contact information the of parties involved

• A brief description and explanation of the transaction 

• A clear roadmap of the transaction, including a list of what both parties must accomplish and a proposed timeline for the completion of these tasks 

• The terms of the agreement for both parties

• (When applicable) a confidentiality clause

• Any other pertinent details both parties would like formalized, such as proposed pricing or a list of assets to be included in the deal

How do you create a letter of intent?

Instead, your LOI should be clear, concise, and precise. As you write, it may help to review expert guidelines for effective LOI writing or to create and follow an outline to keep your LOI focused and organized.

Your LOI should contain the following sections:

• A greeting and introduction.

• A brief summary statement of the deal/proposal.

• Statement of need: address why you are sending the LOI and what you hope to accomplish with it.

• A summary of the deal/project. This should be the majority of the LOI and outline the specific steps both parties will take, along with a timeline for completion.

• Any relevant technical and logistical details such as pricing and budget.

• Closing: A summary of the next steps.

Create a letter of intent with Docusign

If you’d like to make drafting a letter of intent as quick and easy as possible, Docusign can help:

• Quickly generate and edit your own custom LOI templates.

• Store in-progress and completed agreements in a single location, where you can review, edit, and share them with team members as efficiently as possible.

• Keep track of the version history of your agreements to monitor how they change over time and to ensure you’re always working with the most up-to-date and accurate document.

This content is for general educational purposes only and is not intended, and should not be considered, legal advice. Laws frequently change and this information may not be current or accurate. Docusign disclaims all warranties of any kind with respect to this material including merchantability, fitness for a particular purpose, or accuracy. You should consult with a licensed attorney in your area for legal advice.