Letter of intent (LOI)vsDefinitive purchase agreement
The LOI kicks off exclusive diligence; the purchase agreement closes the deal. One is 3-5 pages and mostly non-binding; the other is 150-200 pages and completely binding.
The one-sentence difference
An LOI sets out the price, structure, and key conditions before diligence, with a binding exclusivity clause. A purchase agreement is the fully-negotiated, legally-binding contract that governs the actual transfer of ownership.
Side-by-side
| Dimension | LOI | SPA / APA |
|---|---|---|
| Length | 3–5 pages | 150–200+ pages |
| Binding on price | No | Yes |
| Binding on exclusivity | Yes | N/A — LOI period ended |
| Reps and warranties | None | Extensive — often 30-60 pages |
| Indemnification | Not addressed | Detailed — caps, baskets, survival periods |
| Escrow | Percentage mentioned | Full escrow agreement referenced |
| Signed by | Buyer principal and seller principal | Both parties + counsel + often a separate closing certificate |
| Time to negotiate | 2–4 weeks | 4–12 weeks |
| Cost | Modest legal ($10–25K) | Material legal ($150–400K per side on middle-market deals) |
When to use which
Once buyer and seller align on price and rough structure, sign an LOI to start exclusive diligence. This is the emotional milestone that lets both sides commit resources.
Full article on Letter of intent (LOI) →After diligence completes and both sides commit to closing, the purchase agreement crystallizes everything — price, structure, reps, warranties, indemnification, escrow, working-capital peg, closing conditions.
Full article on Definitive purchase agreement →What they have in common
Both are contracts governing the transaction. Both are negotiated between counsel for both sides. Both go to closing counsel for final review. The LOI provisions on price/structure become the starting point for purchase-agreement drafting.
Frequently asked
Do I need a lawyer for an LOI?
Yes. While most LOI provisions are non-binding, the exclusivity, confidentiality, and expense-reimbursement clauses are binding — and getting these wrong can materially hurt the seller (excessive exclusivity period, insufficient expense reimbursement for a broken deal).
Can price change between LOI and purchase agreement?
Yes, and it often does. Buyers routinely re-trade on price after diligence, particularly on customer concentration, working-capital true-up, or one-time item findings. Well-prepared sell-side QoE work minimizes this.