This week’s question for our “Ask Us Anything” series is one we get asked all the time.
"What is the best format for a letter of intent?"
Good question, and the honest answer is that there is no prescribed format. No statute sets one out, and nobody will reject your letter of intent because it was laid out differently from someone else’s. If you have been searching for the correct template, that is why you have not found one.
What you do have is a choice between two shapes, and it is worth making deliberately.
The first is a narrative letter. It reads as prose, addressed to the seller, running through the deal in paragraphs. It feels friendlier, and for a very simple transaction it is perfectly serviceable.
The second is a term sheet, which sets out each term under its own numbered heading. Price sits under one number, the exclusivity period under another, due diligence under a third.
For buying a business, the term sheet wins almost every time, for a practical reason rather than a stylistic one. You are going to negotiate this document, probably over email, possibly through advisors on both sides. When every term carries a number, everyone can say “we accept 3 but we want to change 5” and mean the same thing by it. When the terms are buried in prose, the same conversation takes three times as long and things get missed.
Numbering also does something more valuable. It forces each term into the open. It is very easy to write a flowing paragraph that never quite says how long exclusivity runs for, and much harder to leave a numbered clause headed “Exclusivity” sitting empty.
Beyond that, the practical shape is simple. Keep it to two or three pages, because a letter of intent that reads like a purchase agreement usually means the deal terms are not settled enough for one yet. Give the binding and non-binding statement its own numbered clause rather than folding it into the closing paragraph, since it is the clause with the sharpest consequences and it should be findable in seconds. Date it, sign it, and give it an expiry date, so the offer does not sit open indefinitely.
The reason format matters at all is that it determines how quickly someone can find the parts that bind them. A well-organised letter of intent is easier to negotiate and much harder to misread, and those are the only two things you need from it.
For background on what a letter of intent does and how binding clauses work inside one, our guide to the letter of intent covers it.
This answer is general legal information, not legal advice, and it cannot account for the facts of your situation. Always speak with a lawyer before you act on it.
P.S. If a question like this one has come up in your own business, schedule a complimentary discovery call with our firm and we will walk through it with you.
