A letter of intent (LOI) is a document that states a party’s preliminary commitment to do business with another party. The letter lays out the key parameters of a potential agreement. LOIs are comparable to term sheets in substance and are commonly used in large commercial deals. However, one significant distinction between the two is that LOIs are written in letter style, whereas term sheets are written in a listicle fashion.
When two parties are brought together to iron out the broad strokes of a contract before the finer aspects of the transaction are determined, letters of intent are important. LOIs sometimes include terms saying that a deal will only go through if one or both parties have obtained funding, or that a contract will be canceled if documents are not signed by a particular date.