If you are buying or selling a small business in Texas, the letter of intent, often called an LOI, is typically the first document that sets out the terms of the deal. It arrives before the purchase agreement, before due diligence is complete, and often before either party has retained legal counsel.
That timing is exactly why it deserves careful attention.
What an LOI covers
A letter of intent in a small business acquisition typically addresses the proposed purchase price, the deal structure (asset purchase or stock purchase), the exclusivity period during which the seller agrees not to negotiate with other buyers, key conditions to closing such as financing or due diligence, a projected timeline, and any material terms the parties have already agreed to. Some LOIs also include an allocation of the purchase price across asset categories, which has direct tax implications for both sides.
Which parts are legally binding
This is where many buyers and sellers are caught off guard. An LOI is generally described as non-binding, meaning the parties are not yet committed to closing the deal. But most LOIs contain provisions that are binding and enforceable: the exclusivity period, confidentiality obligations, and sometimes a break-up fee if the buyer walks away without cause. Signing an LOI without reviewing these provisions carefully can limit your options and create real legal exposure.
The LOI anchors the negotiation that follows
The terms you agree to in the LOI tend to set the baseline for the purchase agreement. If you accept a price, a structure, or an exclusivity period without fully understanding their implications, backing away from those terms later becomes difficult. Buyers may rely on the LOI as an expression of mutual intent and resist reopening terms that were already agreed. This is especially true in deals where both sides have already invested time and money in due diligence.
What a well-drafted LOI should do for a seller
A well-drafted LOI protects the seller’s flexibility while the deal is still in progress. It should define clearly what the exclusivity period covers and when it expires, limit representations the seller is making at this stage, and preserve the seller’s ability to walk away if due diligence reveals that the buyer is not proceeding in good faith or cannot secure financing.
What a well-drafted LOI should do for a buyer
For a buyer, a strong LOI secures adequate time to complete due diligence without the risk that the seller is simultaneously negotiating with competing buyers. It also establishes the key economic terms early, reducing the likelihood of price renegotiation later. The LOI is the buyer’s opportunity to signal seriousness while preserving flexibility on terms that cannot be finalized until due diligence is complete.
In business acquisitions in the $3 million to $10 million range, the LOI stage often moves quickly because both parties are eager to move forward. Taking the time to have an attorney review the LOI before signing costs far less than unwinding a deal that went sideways because the terms were not properly understood at the outset.
Filippov Law Group, PLLC advises buyers and sellers in business acquisitions throughout Texas and Utah, including LOI review and negotiation, due diligence, and purchase agreement drafting. Contact our Houston office at (832) 305-5529 or visit filippovlaw.com/contact to schedule a consultation.