A letter of intent (LOI) can make the proposed purchase price and closing obligation nonbinding while making selected process terms binding. Common candidates include confidentiality, exclusivity or no-shop, access to information, expense reimbursement, breakup fees, non-solicitation, governing law, and dispute procedures. The answer depends on the document’s wording, the parties’ conduct, authority, and applicable jurisdiction, so a heading or the words “nonbinding” do not settle every issue. Read the binding-effect clause together with each carve-out, duration, remedy, and survival provision. Before signing, ask qualified transaction counsel to mark which promises are intended to operate now and which wait for definitive agreements.
Start with the binding-effect clause
A careful LOI usually separates preliminary commercial terms from obligations that govern the negotiation itself. Look for a section titled “Binding Effect,” “Nonbinding Provisions,” or something similar. It may say that the parties do not have to complete the acquisition until definitive agreements are signed, then identify selected sections that are binding. That structure is common enough to be a useful review starting point, but it is not a universal legal rule.
An SEC-filed LOI illustrates the approach. Its binding-effect provision says that term and exclusivity, confidentiality, and access provisions are binding, while the rest is not intended to bind the parties before definitive agreements. The same document describes proposed consideration, due diligence, closing conditions, fees, and transaction documents separately. [2] Treat this as an example of drafting, not a template that controls your transaction.
Separate the deal outline from process promises
An LOI may outline a purchase price, assets or shares to be acquired, financing assumptions, proposed employment arrangements, diligence conditions, and an anticipated signing or closing path. Those items often remain subject to negotiation, approvals, due diligence, and definitive agreements. The practical question is whether the writing commits either party to close, or instead records a present intention to keep working toward a possible deal.
A court may examine the whole document rather than relying on one label. In a Delaware Court of Chancery opinion, the court described an LOI as nonbinding regarding an obligation to complete a specific transaction on particular economic terms, even though the document separately addressed breakup, exclusivity, non-solicitation, and confidentiality provisions. The opinion also noted contradictory drafting. [1] This is why the owner should have counsel reconcile the headline statement with every cross-reference and carve-out.
Confidentiality can operate immediately
Confidentiality terms can protect the existence of negotiations, the LOI itself, business records shared during diligence, and information received from the other side. Review who is covered, what counts as confidential, how representatives may use the information, permitted disclosures, legally required disclosures, return or destruction duties, and how long the obligations last. A prior nondisclosure agreement may be incorporated, amended, or left to operate alongside the LOI.
The SEC-filed example requires confidentiality for the LOI, the parties’ identities, related discussions, negotiations, and information supplied by the parties. It also provides for a post-termination period and return or destruction of information on request. [2] A business owner should not assume that a nonbinding purchase proposal permits unrestricted disclosure to employees, lenders, customers, or competing buyers.
Exclusivity and no-shop terms limit alternatives
An exclusivity or no-shop provision can restrict the seller from soliciting, encouraging, discussing, or accepting another offer for a stated period. The wording matters. Some clauses prohibit only active solicitation. Others restrict responses to inbound approaches, sharing information, negotiating with alternatives, or taking steps that could facilitate a competing transaction. Check for permitted discussions, fiduciary or board exceptions where relevant, notice duties, and the date and event that end the restriction.
The Delaware opinion describes a 90-day exclusive negotiating period and a strict no-shop clause in an LOI that was otherwise treated as nonbinding on the proposed transaction. [1] The SEC-filed LOI likewise states that sellers will not engage with another party for a 90-day period, while expressly making its exclusivity provision binding. [2] These examples show why “the deal is nonbinding” does not necessarily mean the seller remains free to run a parallel process.
Access and diligence duties may be enforceable
An LOI can grant the buyer access to financial, operational, legal, technical, or customer information before definitive agreements exist. The owner should check what may be requested, who may access it, security and use limits, audit or copying rights, return or destruction duties, and whether access is conditioned on a separate nondisclosure agreement. The clause should also identify a human owner for responding to requests and a source-of-truth record for what was delivered.
In the SEC-filed example, buyer representatives receive reasonable access to documentation while the LOI is in force, and that access provision is one of the expressly binding sections. [2] Operationally, a seller can maintain a request log, confirm permissions before disclosure, and route sensitive material through counsel. That workflow supports orderly diligence, but it does not decide what the contract legally requires.
Expenses, breakup fees, and remedies need close review
Expense clauses can assign legal, diligence, travel, financing, or other costs even if the transaction never closes. A breakup fee may require payment if a party refuses to proceed, accepts another offer, or causes a stated termination event. Read the trigger, amount or calculation, payment deadline, exclusivity interaction, and any cap or remedy limitation. A fee can create meaningful exposure without making the underlying acquisition binding.
The Delaware opinion describes an LOI with reimbursement language and a breakup fee while still treating the proposed transaction as nonbinding on particular economic terms. [1] That is a reminder to identify the economic consequence of walking away separately from the question of whether either party must close. Do not infer that a fee is enforceable in your jurisdiction without counsel reviewing the actual language and surrounding facts.
Governing law, forum, and dispute terms can matter
An LOI may select governing law, a court or arbitration forum, notice methods, amendment requirements, waiver rules, and attorney-fee provisions. These clauses can affect where a dispute is heard and how a party must preserve or assert a claim. They may be binding even when commercial terms are expressly provisional, but enforceability and scope depend on the selected law and the complete agreement.
Check whether the LOI incorporates a prior confidentiality agreement or other document with different law, forum, definitions, or remedies. Check also whether the LOI contains an integration clause that changes how earlier emails or oral assurances are considered. A source-of-truth copy, version log, and counsel’s marked-up schedule of operative provisions can reduce confusion during a fast process.
Use a provision-by-provision signing checklist
Before signing, ask counsel to classify each section as binding now, nonbinding pending definitive documents, or unclear and requiring revision. For each binding section, record the parties and representatives covered, start date, end date, permitted exceptions, required notices, remedies, and survival after expiration or termination. For each nonbinding section, confirm that the text does not accidentally impose a present covenant through a cross-reference or mandatory wording.
Keep approval boundaries clear. A business owner can decide whether to authorize access, exclusivity, or disclosure after understanding the commercial tradeoffs, while qualified counsel addresses jurisdiction-specific interpretation. If facts change, pause new disclosures or negotiations until the owner and counsel confirm whether the change activates a notice, consent, or termination right. No software review can replace that human decision.
A practical workflow for an owner-led process
Use one controlled LOI draft and a checklist that maps every operative clause to an accountable reviewer. Store the signed LOI, incorporated agreements, disclosure permissions, diligence request log, and expiration dates together. Before sharing information, verify that the recipient is covered by the confidentiality language and that the requested material is approved for release. Before responding to another buyer, check exclusivity and any required notice process.
Acquivo gives business owners the entire sell-side process an investment bank would run, as software, with no success fee. The software is user-operated, so the owner and advisers remain responsible for legal review, permissions, disclosure choices, and approvals. Acquivo is a software platform that delivers the entire sell-side M&A process, valuation, marketing materials, buyer matching, and deal management, on one platform for business owners, M&A attorneys, and boutique investment banks.
Key Points
- Read the binding-effect clause together with every carve-out, incorporation, cross-reference, and remedy provision.
- Confidentiality, exclusivity, access, expense, breakup-fee, non-solicitation, notice, governing-law, and dispute terms may be drafted to operate before definitive agreements.
- A nonbinding purchase price or closing outline does not automatically make every process promise nonbinding.
- Ask qualified transaction counsel to classify each provision, its duration, exceptions, remedies, and survival under the governing jurisdiction.
- Use a controlled document, permission checks, a diligence request log, and human approval before disclosures or responses to other buyers.
Sources and references
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Educational information, not individual legal, tax, or investment advice. Consult qualified professionals for your circumstances. Acquivo provides software, not representation or negotiation on your behalf.