Letter of Intent (LOI) – binding or not? How companies write them correctly
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Short answer: A letter of intent, often referred to as an LOI, is used to document what the parties have agreed upon so far in preparation for a major deal. The document may be entirely or partially non-binding, but certain clauses—such as confidentiality, exclusivity, and liability for costs—are often intended to be binding.
| Key terms of the deal | Often preliminary and explicitly non-binding until a final agreement is signed. |
| Confidentiality | Can be made binding immediately. |
| Exclusivity | Can prohibit the seller from negotiating with others for a set period. |
| Governing law/disputes/costs | Can be binding even if the transaction itself is not. |
Why use an LOI?
In company acquisitions, investments, and joint ventures, an LOI can reduce the risk of misunderstandings before the parties invest significant resources in due diligence, financing, and final agreements.
Binding or non-binding?
The title alone does not determine the legal effect. The wording of the document, the conduct of the parties, and other circumstances can influence the assessment. Therefore, it should be explicitly stated which points are binding and which are merely intentions for further negotiation.
Common LOI clauses
- indicative purchase price or valuation model,
- transaction structure,
- due diligence,
- financing terms,
- exclusivity/no-shop,
- confidentiality,
- timetable and long-stop date,
- costs,
- requirements for a final agreement and board/owner approval.
Common mistakes
The most common problem is that a document is called "non-binding" while certain formulations appear to be final commitments. Another is that exclusivity lacks an end date or that the due diligence process is not defined.
Letter of Intent / LOI 2026/2027
The template package contains Swedish and English versions with a clear distinction between binding and non-binding provisions.
FAQ
Is an LOI legally binding?
It depends on the content. An LOI can be entirely non-binding or contain certain binding clauses.
Is a non-disclosure agreement (NDA) also needed?
Sometimes. Confidentiality can be regulated in the LOI or in a separate NDA, depending on the scope of the process.
What is a no-shop clause?
An exclusivity clause that restricts the ability to negotiate with others during the agreed-upon period.
This article provides general information and does not replace individual legal advice. Agreements, collective bargaining agreements, and the circumstances of each individual case may affect the assessment.
