The LOI Is Non-Binding Except for the Parts That Are: What Founders Sign Without Reading
A founder I advised, with details changed, signed a letter of intent at a price he liked and told his team the deal was basically done. The document was six pages and its cover note called it non-binding. Sixty days later the buyer came back with a price cut of eleven percent, citing diligence findings. He wanted to walk. He could not talk to anyone else for another thirty days, because the exclusivity paragraph on page four was binding, had been extended once already by a side email, and ran for a fixed term whether or not the buyer was negotiating in good faith.
The standard advice is that an LOI is non-binding, so do not sweat the details. That is half right, and the wrong half is the expensive one. The commercial terms, meaning price, structure, and timeline, are generally statements of intent that either side can revisit. A short list of provisions is written to be enforceable, and those are the ones that shape your options for the next two to four months. Whether a given clause binds you depends on the wording and the governing law, so your attorney should confirm each one. What follows is the list I ask founders to read first.
Start with exclusivity. This is the clause that turns an LOI from a courtship into a lock. It usually runs thirty to ninety days and bars you from soliciting, negotiating, or even discussing a competing offer. I covered the leverage consequences in the no-shop clause. The points to check here are the length, whether it extends automatically, and whether it ends if the buyer lowers the price or changes the structure. A good clause lets you out the moment the buyer materially retrades. A weak one keeps you locked in while the buyer renegotiates against you.
Second, confidentiality. You are about to hand a stranger your customer list, margins, and pricing. The LOI often points to a separate non-disclosure agreement, or it includes confidentiality terms of its own. Confirm which document controls, how long the obligation lasts, and whether the buyer can share your information with financing sources and advisors. Check also whether it restricts the buyer from contacting your employees, customers, and suppliers. A buyer who calls your largest account before you are ready can do damage no clause repairs afterward.
Third, expenses and fees. Some LOIs say each side pays its own costs. Others allow the buyer to recover diligence costs from you if you walk away or accept another offer, and a few include a break-up fee. These provisions are rare in smaller founder-owned transactions and more common as deals grow. If you see one, treat it as a price term. A reimbursement obligation of a few hundred thousand dollars changes what a competing bid has to look like for you to take it.
Fourth, the conduct-of-business covenant. Many LOIs require you to run the company in the ordinary course between signing and closing. That sounds harmless until it prevents a hire, a capital purchase, a price change, or a contract renewal you would have made anyway. Ask for a definition of ordinary course that matches how you actually operate, and for a simple consent process with a short response time. Otherwise a routine decision becomes a negotiating chip.
Fifth, the access and diligence terms. The LOI often promises the buyer reasonable access to your books, people, and facilities. Reasonable is doing a lot of work. Agree on who the buyer may speak to, in what order, and under what conditions. Keep customer calls for late in the process, and tie them to a signed commitment on price. A founder who opens every door in week one has given up the sequencing that protects him.
Sixth, the terms that are non-binding but quietly decide the deal. Price is stated as a number, yet the LOI usually defines it as enterprise value on a cash-free, debt-free basis with a normal level of working capital. The assumptions behind that sentence are where money moves, as described in the equity value bridge, and the working capital target is where many founders lose seven figures without noticing. Get the definitions of debt, transaction expenses, and the working capital approach into the LOI itself, even though they are not binding, because a buyer who agreed to them in writing has a harder time reopening them later.
Seventh, the escrow, holdback, and deferred pieces. If the LOI mentions an escrow or holdback, put numbers and release dates next to the words. I explained why in the escrow holdback. A bare reference to customary escrow invites the buyer to define customary after you have given up exclusivity.
Eighth, the housekeeping that bites late. Look at the governing law and venue, the expiration date of the offer, any requirement that you deliver financial statements by a fixed date, and the clause that says the LOI can only be changed in writing. That last one matters because side emails and verbal assurances during diligence will not protect you. If the buyer says it is fine to extend or adjust something, make them put it in a signed amendment.
Before you sign, do three things. Have your attorney mark every provision that is intended to bind, and read those aloud to yourself as if a court were reading them. Ask the buyer to remove or narrow any clause you cannot live with while you still have other options, because the weeks before signing are the only time your leverage is real. And decide in advance what you will do if the price drops during diligence, so the exclusivity clock does not make that decision for you.
The founder in my example eventually accepted a revised price four percentage points below the original LOI. He told me he would have negotiated an exclusivity exit tied to a price change if anyone had told him the paragraph was enforceable. The LOI is the most important document most founders skim. If you are heading toward one, I help founders read it line by line at Cordis Group before the signature goes on it.