If you’ve found the right business to buy or finally received an offer from an interested buyer, the next step is often a Letter of Intent, commonly called an LOI.
Many first time buyers think the LOI is simply paperwork before the lawyers get involved. In reality, it is one of the most important documents in the entire transaction. A well written LOI sets expectations, outlines the key business terms, and creates a roadmap for the purchase. While most of the document is usually non binding, certain sections such as confidentiality and exclusivity can have legal consequences, so it should always be prepared carefully.
Whether you are buying or selling a business on Vancouver Island or anywhere else in Canada, understanding how an LOI works can help prevent misunderstandings and keep the transaction moving smoothly.
If you are new to the process, you should also read our previous guide on the Important Things to Include in a Letter of Intent, which covers many of the items buyers and sellers should review before signing.
Why the LOI Is Vital for Buying and Selling a Business
When you decide to acquire or sell a business, jumping straight to a final purchase agreement is rarely a good idea. Definitive legal contracts are complex, time consuming, and expensive to draft. An LOI acts as a crucial intermediate bridge that establishes mutual understanding and momentum. It confirms that both sides are serious and aligned on the deal framework before spending thousands of dollars on legal and accounting fees.
Beyond saving time and money, a well crafted LOI protects both sides throughout the transaction. For buyers, it often grants an exclusivity period during which the seller agrees not to negotiate with other prospects. For sellers, it sets clear boundaries around confidentiality and outlines realistic timelines for due diligence. Having these expectations documented early reduces stress, eliminates miscommunication, and keeps the deal moving smoothly toward a successful closing.
Core Elements to Include in Your Business LOI
While an LOI is usually considered non binding regarding the final sale itself, certain sections like confidentiality and exclusivity carry real legal weight. Combining those core principles with professional advice ensures your document covers every technical detail.
Every comprehensive LOI should clearly address the following core areas:
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Purchase Price and Financial Structure: You must clearly state the total proposed purchase price alongside the exact breakdown of payment terms. This paragraph should detail how much cash is paid at closing, whether seller financing is involved, and if performance earnouts or deposits apply to the final total.
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Transaction Deal Type: The document needs to explicitly clarify whether the purchase is an asset sale or a share sale. This structural distinction is massive because asset sales and share sales carry completely different tax consequences, legal liabilities, and operational transfer steps for both buyers and sellers in Canada.
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Due Diligence Timeline and Parameters: The LOI should outline a reasonable timeframe for the buyer to inspect financial records, legal contracts, and physical assets. It should specify what documents are expected and confirm that the seller will grant full access while maintaining operational confidentiality.
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Exclusivity and Confidentiality Clauses: This section protects both parties by prohibiting the seller from speaking with other suitors for a set period, typically thirty to sixty days. It also binds the buyer to strict secrecy regarding all financial data and business operations shared during the review process.
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Seller Transition and Support: Buyers usually require training and support from the outgoing owner to ensure a seamless leadership handoff. Your LOI should state how long the seller will remain involved after closing, their specific duties, and whether they will be compensated for extra consulting hours.
How to Write Your LOI Step by Step
Writing a Letter of Intent does not need to feel overwhelming if you break the process down into logical steps. Start by gathering all initial notes from your preliminary discussions with the business broker and the opposing party. Having clear clarity on the valuation and general handover terms allows you to draft the letter with precision.
First, draft a simple opening that identifies the buyer, the seller, and the target business entity. Next, detail the proposed financial terms, purchase structure, and required deposits in straightforward language. After establishing the money matters, outline the timeline for due diligence, target closing dates, and any conditions that must be met before final closing, such as securing bank financing or transferring property leases.
Finally, include the binding operational clauses, including confidentiality, exclusivity, and governing law within your Canadian province. Once the initial draft is complete, both the buyer and seller should have their respective legal counsel and business brokers review the text. Once everyone is satisfied, both parties sign the document, officially kicking off the formal due diligence phase.
Sample Letter of Intent Template
Below is a practical sample framework illustrating how a standard Canadian business LOI is structured. You can adapt this general format to suit your specific transaction needs.
LETTER OF INTENT
Date: October 15, 2026
To: Seller Name or Holding Company Name
From: Buyer Name or Buyer Entity Name
Subject: Intent to Purchase Business Name
Dear Seller,
This Letter of Intent outlines the general terms and conditions under which Buyer proposes to acquire the business operations and assets known as Business Name located in British Columbia.
1. Purchase Price and Structure
The proposed total purchase price for the business is $1,000,000 CAD. The transaction will be structured as an asset purchase. The purchase price shall be paid as follows:
* $100,000 CAD refundable deposit paid upon signing this letter and held in trust.
* $750,000 CAD cash payable upon closing.
* $150,000 CAD seller financing payable over three years at a rate of five percent per annum.
2. Due Diligence Period
Buyer shall have forty five days from the execution of this letter to complete full financial, legal, and operational due diligence. Seller agrees to provide reasonable access to books, records, tax filings, and operational contracts during normal business hours.
3. Exclusivity
In consideration of the time and expense invested by Buyer, Seller agrees not to solicit, encourage, or entertain any offers from third parties regarding the sale of the business for a period of sixty days from the date of this letter.
4. Seller Transition
Seller agrees to provide up to four weeks of full time transitional support and training at no additional cost to Buyer following the closing date. Additional consulting work thereafter shall be compensated at a mutually agreed hourly rate.
5. Non Binding Nature
Except for Sections 2, 3, and 5, which are intended to be legally binding upon execution, this letter represents a statement of intent only and does not constitute a final binding contract. Final terms shall be set forth in a definitive Asset Purchase Agreement.
Sincerely,
Buyer Name and Signature
Accepted and Agreed by Seller Name and Signature
Other Important Items to Include in Your LOI
While the sample above gives you a solid foundation, every deal comes with its own unique moving parts. Depending on the complexity of your business, you will want to customize your letter to protect your interests.
Here are several additional terms and conditions you should consider adding into your specific agreement:
- Working Capital Requirements: Specify how much working capital must remain in the business accounts at closing so operations can continue running without interruption.
- Non Compete and Non Solicitation Terms: Outline geographic radiuses and time restrictions preventing the seller from opening a competing business or poaching employees and clients.
- Detailed Financing Terms: Spell out interest rates, payment schedules, and default conditions if seller financing or external bank loans are required to fund the transaction.
- Inventory and Equipment Adjustments: Detail how working inventory will be valued on closing day and specify which pieces of machinery or physical equipment are included or excluded.
- Accounting and Professional Fees: Clarify who covers transaction costs, including closing adjustments, legal bills, and accounting fees related to the sale.
Should You Use a Lawyer
The short answer is absolutely. That is usually standard advice for buyers and sellers who do not have an experienced business broker on their side. Lawyers ensure that your legal interests are protected and that you do not accidentally bind yourself to unwanted terms.
The truth is that you can draft and execute a clear, professional non binding LOI alongside an experienced business broker first. Your broker handles the commercial deal terms, valuations, and structure, keeping initial transaction costs manageable.
Once the foundational deal terms are locked down in your LOI, you bring in legal counsel to handle the official share or asset purchase agreement. A lot of efficiency and cost savings come from structuring the framework with your broker before sending it to legal team.
Next Steps After Signing Your LOI
Signing the LOI is an exciting milestone, but it is just the beginning of the transaction phase. Once the letter is signed and the deposit is secured, formal due diligence begins immediately. Accountants will review tax filings and financial records, while lawyers begin drafting the definitive purchase agreement.
A well written Letter of Intent does much more than summarize a purchase price. It establishes the framework for the entire transaction and helps both parties move toward closing with fewer surprises.
Whether you are buying your first business or selling a company you’ve built over decades, taking the time to prepare a clear, detailed LOI can save money, reduce stress, and improve the chances of a successful closing.
Want Access to Our Full LOI Template?
If you are looking for a comprehensive, battle tested LOI document that covers every single variable, you will want to hire us as your buying broker. We do not just hand out generic, one size fits all templates. Instead, we work directly with you to craft and customize a tailored LOI built specifically around your unique transaction, protecting your capital and setting you up for a seamless business purchase.
Want to hire us as your buyers agent? We will create this for you.
