To close a letter of intent, you finalize which provisions bind the parties and which don’t, collect signatures from people with authority to bind each entity, start the clocks on exclusivity and the deposit, and then move through due diligence and drafting until a definitive agreement replaces it. The LOI itself is usually non-binding on the core deal terms, but several clauses carry real legal weight the moment both sides sign. The job at closing is making sure the right ones bind and the wrong ones don’t.
The Risk of Accidentally Signing a Binding Deal
The single biggest risk when closing an LOI is accidentally creating an enforceable contract on the full transaction. Courts look past the “non-binding” label on the cover and examine the document itself: whether it expressly reserves the right not to be bound without a later writing, whether the language is clearly non-committal, whether either party has already started performing, and whether all material terms have been settled. If your LOI spells out the purchase price, payment structure, closing timeline, and asset list with no open items, a court may treat it as a done deal regardless of any boilerplate disclaimer at the top.
Vague “this is non-binding” language is not a safety net. The closing paragraph of the LOI needs to state explicitly which provisions are binding, which are not, and that no obligation to complete the transaction arises until a definitive agreement is signed by both parties. That specificity is what separates an LOI that protects you from one that traps you.
Which Provisions You Actually Want to Bind
Some provisions are intentionally made enforceable from day one. They protect both sides during the gap between the LOI and the final contract. Label each one explicitly as binding or non-binding inside the section itself; a sentence at the end of each clause is cleaner than relying on a blanket disclaimer to sort things out.
Confidentiality
A binding confidentiality clause prevents either party from disclosing or using information shared during negotiations for any purpose other than evaluating the deal. Standard carve-outs allow disclosure of information that is already publicly available or that a party obtained independently from a source with no confidentiality obligation. When the LOI expires or terminates, the receiving party is generally required to return or destroy all confidential materials. Leaving this provision non-binding is a serious mistake, especially for sellers who will be opening their books during due diligence.
Exclusivity or No-Shop
An exclusivity provision prevents the seller from soliciting or entertaining competing offers during the negotiation period. Depending on the drafting, it can also require the seller to cut off existing discussions and notify the buyer if unsolicited offers arrive. Typical duration runs 30 to 60 days, though 15 to 30 days is common when the buyer has already done significant preliminary work. Too short and the buyer cannot finish diligence; too long and the seller loses leverage if the deal stalls.
Expenses, Good Faith, and Governing Law
Other clauses commonly made binding include the allocation of transaction expenses, the obligation to negotiate in good faith, dispute resolution procedures, and the choice of governing law. The good-faith obligation has teeth: if one party strings the other along while secretly pursuing a different deal, or makes demands designed to blow up negotiations, the injured party may have a promissory estoppel claim for reliance damages covering legal fees, appraisal costs, and accounting expenses incurred in reliance on the commitment to negotiate.
Signing the LOI
Each signature block should include the full legal name of the entity (“Acme Holdings, LLC,” not a trade name or abbreviation) and the title of the person signing, such as “Managing Member” or “Chief Executive Officer.” The title matters because it establishes that the signer has authority to bind the organization.1Cornell Law. UCC 1-201 General Definitions
For larger transactions or deals involving unfamiliar counterparties, the other side may ask for an incumbency certificate. This is a document signed by the company’s secretary or a managing member certifying the names, titles, and specimen signatures of the individuals authorized to execute agreements for the entity. If you’re asked for one, it’s routine, not a sign of distrust.
Electronic signatures are valid for LOIs. Under the Electronic Signatures in Global and National Commerce Act, a signature or contract cannot be denied legal effect solely because it is in electronic form, as long as the transaction affects interstate or foreign commerce.2Office of the Law Revision Counsel. 15 USC 7001 – General Rule of Validity The signature must be a sound, symbol, or process attached to or logically associated with the record, executed with the intent to sign. Platforms like DocuSign and Adobe Sign meet these requirements. Once both parties have signed, add the execution date to the document; that date controls the start of time-sensitive obligations like the exclusivity window and termination deadlines.
The Deposit and Escrow
Many transactions require the buyer to put up earnest money around the time the LOI is signed or shortly after. The money signals genuine commitment and compensates the seller for taking the property or business off the market during negotiations. Always route the deposit into a third-party escrow account managed by an attorney, title company, or other neutral party identified in the LOI. Sending earnest money directly to the seller makes recovery far harder if the deal falls apart.
The LOI should state the deposit amount, the escrow holder’s identity, and the specific conditions under which the deposit is refundable. Typical refund triggers include the buyer’s failure to obtain financing by a stated deadline or the discovery of material problems during due diligence. If the buyer walks away without a valid reason, the seller generally keeps the deposit.
How the LOI Ends
Every LOI needs a clear expiration mechanism. A sunset provision sets an automatic termination date, typically 30 to 60 days after execution, by which the parties must either sign a definitive agreement or let the LOI lapse. Without this deadline, the LOI can linger indefinitely, leaving the seller unable to pursue other buyers and the buyer carrying vague obligations they may have forgotten about.
Manual termination provisions let either party exit by delivering written notice, usually triggered by specific failures like the buyer not securing a loan commitment or the seller refusing to provide requested documents. Identify exactly what counts as a triggering event, the form of notice required, and how many days of cure time the other party gets before termination becomes effective.
What Comes After Signing
Signing the LOI is the starting gun, not the finish line. The stretch between execution and closing typically takes two to four months and runs several workstreams in parallel.
Due Diligence
The diligence period usually runs 30 to 90 days depending on deal size and complexity. During this window, the buyer and its advisors examine financial records, tax returns, material contracts, pending litigation, employee agreements, intellectual property, and regulatory compliance history. The LOI should specify the start date (often tied to delivery of the signed LOI), the end date, and the seller’s obligation to provide reasonable access. Buyers who find material problems can renegotiate price, request indemnification, or walk away if the LOI allows it.
Disclosure Schedules
As the definitive agreement takes shape, both parties compile disclosure schedules. These are attachments listing exceptions to the representations and warranties each side is making. If the seller represents that there is no pending litigation, the schedule would list any existing lawsuits as exceptions. Sellers use schedules to limit post-closing indemnification exposure; buyers use them to confirm what they found during diligence. The back-and-forth over these contents is where deals frequently slow down.
Financing Contingency
If the buyer needs debt financing, the LOI should include a financing contingency with a deadline for obtaining a loan commitment. The clause lets the buyer walk away without penalty if financing falls through within that window. Sellers should watch the length of this window and whether it overlaps with or extends beyond the diligence period.
Drafting the Definitive Agreement
Counsel uses the LOI as a skeleton to draft the full purchase or merger agreement. This phase typically takes three to six weeks and involves negotiating detailed representations and warranties, indemnification caps and baskets, conditions to closing, and post-closing obligations like non-compete covenants. The broad strokes from the LOI get refined into precise legal commitments. Once the definitive agreement and all ancillary documents are finalized, the parties schedule a closing date to exchange signatures and funds.
Antitrust Filings on Large Deals
Deals above a certain size trigger mandatory federal antitrust filings that affect the closing timeline. Under the Hart-Scott-Rodino Act, both parties must file a premerger notification with the Federal Trade Commission and the Department of Justice if the transaction exceeds the applicable size thresholds. For 2026, the primary size-of-transaction threshold is $133.9 million.3Federal Trade Commission. New HSR Thresholds and Filing Fees for 2026 Once filed, the parties must observe a waiting period before closing, typically 30 days, during which the agencies can request additional information or challenge the transaction.
Filing fees are not trivial. For 2026, the fee starts at $35,000 for transactions under $189.6 million and scales up to $2,460,000 for deals valued at $5.869 billion or more.3Federal Trade Commission. New HSR Thresholds and Filing Fees for 2026 The LOI should address which party pays, and the LOI and eventual definitive agreement need to account for the possibility that the agencies block the deal, including whether the buyer is obligated to litigate or divest assets to obtain approval, or whether the parties can walk away with a reverse termination fee.