What should an LOI review establish?
The parties need to know the proposed deal, open price questions and duties the documents may create. This checklist organizes review. It does not prescribe legal wording.
The buying hub and acquisition roadmap cover the wider process. This page tracks missing decisions and adviser questions before anyone treats the LOI as a settled plan.
Write the parties, proposed firms, version, related confidentiality or exclusivity agreements, date and advisers on the copy. Keep it with the complete documents used in review.
A completed row records the question and proof reviewed. It cannot establish binding duties, approved funds, work authority or agreement on a term the parties left unstated.
Which fields belong in the term-and-decision matrix?
Record the actual provision or reference. A loose paraphrase may lose a key condition. Keep the commercial effect beside the legal question that counsel must assess.
| Field | What to record | Question for review |
|---|---|---|
| Term | Exact reference and proposed meaning | What decision is being made? |
| Status | Agreed, proposed, ambiguous, or missing | Do the parties understand it alike? |
| Binding question | Actual text and related document | What obligation may arise? |
| Economics | Cash, risk, control, or timing affected | What changes in the transaction case? |
| Condition | Approval, evidence, consent, or date | What must happen next? |
| Reviewer | Authorized adviser or decision maker | Who can assess or resolve it? |
| Destination | Definitive agreement or other document | Where will the final decision appear? |
These original workflow fields supply no model clauses. Keep missing and disputed terms visible. Assign a next step, owner and date rather than marking them agreed.
Which eight LOI areas should be checked?
- Identify the transaction perimeter.
Record the proposed purchaser, seller, assets or interests, operating entity, included locations, and excluded items. Identify treatment of real estate and continuing obligations where relevant. A broad company name can conceal different entities or scopes. Keep licensing and consent questions separate; an agreed commercial perimeter does not independently authorize the buyer's operating structure.
- Break apart consideration.
Separate cash, fixed deferred payments, contingent price, retained equity, and held funds. Record amounts, timing, conditions, and proposed recipients. Identify which figures are firm and which remain assumptions. A headline total is not necessarily cash available at closing, and different components can create different financing, tax, security, investment, and collection questions.
- Specify the intended adjustment framework.
Identify proposed working-capital, debt, cash, deposits, inventory, and measurement treatment. Record missing definitions, periods, estimates, and true-up intentions for the definitive schedules. Do not import a standard peg from another transaction. The parties need to understand which balances affect the price and avoid counting one obligation in several deductions without justification.
- Identify binding-status questions for counsel.
Review confidentiality, exclusivity, costs, access, governing law, duration, and actual labels with related agreements. Have counsel assess the specific wording and applicable authority. Avoid declaring every LOI nonbinding or assuming a heading settles each provision. Record the review result and unresolved question rather than substituting a checklist label for a legal conclusion.
- State conditions and the intended timetable.
Identify diligence, financing, regulator, consent, definitive-document, and other proposed conditions. Assign responsibility, evidence, expiration, and termination questions. A target date does not demonstrate that approvals or money exist. Align process obligations with actual dependencies so the parties understand what remains conditional and what consequence follows if the proposed step cannot occur.
- Check financing-dependent terms.
Record actual funding sources, lender status, proposed category, required equity, repayment evidence, and any report requirements. Review seller payments and retained roles for compatibility. A proposed loan or investor introduction is not approved capital. Resolve prohibited contingent structures and other material lender questions before presenting the LOI economics as a fundable arrangement.
- Clarify necessary owner continuity.
Identify qualifying, technical, management, consulting, and relationship duties, with proposed duration, compensation, and replacement people. Separate the seller's willingness from lawful authority and financing permission. An indefinite promise to help may not fit the actual category or cover required work. Assign each unresolved duty to an operating, regulator, lender, or adviser review.
- Map open decisions to the next documents.
Record which issues belong in the definitive agreement, schedules, financing, lease, employment, consulting, or governance documents. Have counsel examine incorporation and supersession questions. Preserve the commercial decision and its owner when wording develops.
What does the cited court example establish about binding status?
The Delaware Supreme Court's 2014 ev3 decision examined specific LOI provisions and later merger terms. It concerned a medical-device transaction, rather than a plumbing sale.
The case distinguished expressly nonbinding provisions, binding parts and later terms. It shows why complete wording matters. It supplies neither a model LOI nor a rule for every jurisdiction.
Use the case to frame precise questions for counsel. Its historical facts cannot settle an unreviewed agreement today. Record the advice on your actual wording and law.
How should financing and retained interests affect review?
Current SBA policy sets acquisition, equity, earnings, report and seller-role requirements by category for covered financing. Have the lender identify which apply to this proposed structure.
Covered ownership changes prohibit seller earnouts. Fixed seller debt is distinct, with its own conditions. Check any required subordination and standby. A renamed earnout remains contingent price.
The SBA acquisition guide develops these rules. The lender must review the actual category and terms. Calling a payment financeable in the LOI cannot establish approval.
The SEC private-placement bulletin explains illiquidity and limited disclosure in private securities. Review the rollover's issuer, security, rights, value and restrictions. A percentage alone leaves these investment questions open.
The rollover guide covers that investment review. A stated percentage or estimated value cannot prove cash access, a later return or the rights of the holder.
What does a worked consideration breakdown show?
Assume a hypothetical LOI has $800,000 nominal price: $650,000 closing cash, $100,000 fixed seller debt and $50,000 held for defined claims. These are teaching inputs.
The parts total $800,000. Immediate stated cash is $650,000 before fees, payoffs, adjustments and taxes. Review the note's payment risk and the held funds' release terms separately.
A draft putting the same $50,000 outside the price changes the total. Resolve that conflict. The shared headline cannot prove both parties understand the same economic deal.
The working-capital guide covers adjustment definitions. This example teaches arithmetic and review questions. It supplies no client's offer or customary held-funds percentage for another transaction.
Which tax and operating-authority questions remain separate?
The IRS business-sale guidance explains separate asset consequences in a business asset sale. A tax adviser must review the structure and price. The LOI alone cannot settle that treatment.
California's entity-change guidance illustrates authority tied to the real licensed firm and change route. This state example cannot establish requirements for every other jurisdiction.
Use actual local facts with the buyer licensing guide. Agreed asset or equity scope cannot prove work authority. Nor is every license universally barred from transfer.
Property, leases, contracts, staff duties and digital rights may need their own approvals or documents. Name each dependency. A broad purchase description cannot prove a completed transfer.
How should the review move toward definitive documents?
- Read the complete proposed LOI and related process agreements.
- Reconcile scope, consideration components, and proposed adjustment intent.
- Assign counsel, tax, lender, regulator, and operating questions to reviewers.
- Resolve material inconsistencies and record conditions with actual consequences.
- Carry remaining decisions into named definitive-document workstreams.
The diligence guide supplies the wider proof process. Real approvals and agreed deadlines guide timing. There is no presumed universal period from LOI to closing.
How should this matrix be printed?
Print the checklist and field table for adviser review. Put clause references, questions, decisions, owners and next dates on a separate controlled sheet linked to the document version.
Print removes navigation and call panels. Keep the proposal and private negotiation notes within the authorized deal process. A working matrix does not grant access to those files.
Which mistakes make an LOI review incomplete?
Common errors equate price with cash, label the whole LOI nonbinding, postpone funding review or leave needed seller duties vague. Each can change the actual transaction case.
A clear matrix shows proposed terms, reviewed questions and decisions still needing agreement. Carry each open issue to its next document with a named owner and consequence.