Letter of Intent (LOI): Meaning and What It Should Contain

A letter of intent (LOI) is a declaration of intent that records the key points of a planned company acquisition — usually before the due diligence begins and long before the final contract.

How a sale process runs in full and how we support it is described under Selling a company.

It is the moment at which non-binding interest becomes a serious process. Anyone selling should know what an LOI achieves — and which parts of it are indeed binding.

The essentials in brief

• A letter of intent (LOI) is a written declaration of intent that, before the due diligence, records the key points of a planned company acquisition: object of purchase, indicative purchase price, timetable and conditions.
• The intention to buy itself is not binding — neither side has to complete the purchase. Individual clauses are binding, above all confidentiality, exclusivity and the bearing of costs.
• With the commencement of contract negotiations alone, an obligation arises in Germany with duties of consideration towards the rights and interests of the other side (§ 311 Abs. 2 Nr. 1 in conjunction with § 241 Abs. 2 BGB).
• A simple LOI cannot establish an effective obligation to transfer GmbH shares: in Germany such an obligation requires notarial form (§ 15 Abs. 4 Satz 1 GmbHG), in Austria a notarial deed (§ 76 Abs. 2 GmbHG).
• In Austria a preliminary contract is binding only if the time of conclusion and the essential contract points are determined — and its performance must be demanded within one year at the latest after the agreed time, otherwise the right lapses (§ 936 ABGB).
• Exclusivity in practice binds almost only the seller. Fix its duration expressly in weeks.

Sources: § 311, § 241 BGB (gesetze-im-internet.de); § 15 GmbHG (gesetze-im-internet.de); § 76 GmbHG and § 936 ABGB (RIS, ris.bka.gv.at); retrieved on 23.09.2026. On choice of law and jurisdiction: Regulation (EC) No 593/2008 (Rome I), Art. 3, 4, 9; Regulation (EC) No 864/2007 (Rome II), Art. 12, 14; Regulation (EU) No 1215/2012 (Brussels Ia), Art. 1, 25 (each eur-lex.europa.eu); § 38 ZPO (wording read via lxgesetze.de, status of retrieval 29.09.2026). Classification, not legal advice.

What does LOI mean?

LOI stands for letter of intent: a written document in which buyer and seller record the key points of a planned company acquisition before the due diligence, namely the object of purchase, indicative purchase price, timetable and conditions; the intention to buy itself is not binding, whereas clauses such as confidentiality and exclusivity are, if agreed as binding.

Keyword	Meaning in a company acquisition
Abbreviation	LOI = letter of intent, declaration of intent
Timing	after the first contact, before the due diligence
Not binding	the intention to buy itself and the indicative price
Binding, where agreed	confidentiality, exclusivity, bearing of costs
Form	no particular form as long as it only records intentions; an obligation to transfer GmbH shares requires notarial form in Germany (Sec. 15 (4) GmbHG) and a notarial deed in Austria (Sec. 76 (2) GmbH Act)

Statutory texts retrieved on 9 November 2026.

What an LOI is for

The LOI records what both sides in principle agree on before they invest time and money in the review. It signals seriousness, marks out the framework and is the basis on which due diligence and contract negotiation build.

For the seller it is also a filter: whoever signs a robust LOI is serious — unlike with mere expressions of interest.

Before numbers are negotiated comes the company valuation.

Binding or not?

This is the most important and most frequently misunderstood point. The LOI is, in its core — the intention to buy itself — in principle not binding: neither side is obliged actually to complete the purchase. The indicative price is an intention, not a promise; it is subject to the due diligence.

Individual clauses, however, are indeed binding, and these deserve attention: confidentiality, the bearing of costs — and above all exclusivity. Anyone who agrees exclusivity undertakes not to negotiate with anyone else for a certain period. In practice this binds almost only the seller and can eliminate competition precisely when it would be most valuable.

What belongs in an LOI

A good LOI names at least:

• the object of purchase (shares or assets) and the structure
• the indicative purchase price and how it was determined
• the essential conditions and assumptions
• the planned timetable and next steps
• access to the due diligence and the data room
• confidentiality, exclusivity (duration!) and bearing of costs
• which points are binding and which are not

The clearer these points, the less dispute later.

The LOI in the process

The LOI comes after the first approach and before the due diligence. It is the switch from sounding out to a serious process — after that follow review, negotiation of the purchase agreement and closing. The overall process is described by “The process of a company sale”; what happens in the subsequent review, “What is a due diligence?”.

Choice of law and jurisdiction

For a letter of intent, the parties can expressly choose the applicable law and agree on a court; without such a clause, statutory connecting rules decide, the result of which is hard to predict in an individual case. Especially in cross-border sales, for example between an Austrian seller and a German buyer, it is worthwhile to record both in the LOI and to count them among the binding clauses.

• Choice of law. Under Art. 3 para. 1 of the Rome I Regulation, a contract is governed by the law chosen by the parties. The choice must be made expressly or must clearly follow from the contract or the circumstances. If all other elements of the situation are located in another state, its mandatory provisions remain unaffected (Art. 3 para. 3). Likewise, overriding mandatory provisions of a state can apply irrespective of the chosen law (Art. 9).
• Without a choice of law. The fallback rules in Art. 4 of the Rome I Regulation link, for example, in the sale of movable goods to the habitual residence of the seller. Whether and how they fit an LOI for a share purchase must be examined in the individual case. That is a reason not to leave the question open.
• Pre-contractual liability. For claims arising from negotiations before the conclusion of a contract, under Art. 12 para. 1 of the Rome II Regulation, the law applies that applies to the contract or would have applied to it if it had been concluded, irrespective of whether the contract comes into being. A clear choice of law in the LOI therefore also settles the question under which law an aborted procedure is judged. Under Art. 14 of the Rome II Regulation, a choice of law is also possible before the damaging event if all parties are pursuing a commercial activity.
• Jurisdiction. If the parties agree that a court or the courts of an EU Member State are to decide, these have jurisdiction under Art. 25 para. 1 of the Brussels Ia Regulation, and exclusively so unless otherwise agreed. The agreement must be concluded in writing or orally with written confirmation; electronic communications that provide a durable record are equivalent to writing (Art. 25 para. 2). In German procedural law, § 38 Abs. 1 ZPO permits jurisdiction agreements between merchants.
• Arbitration clause. Arbitration is excluded from the scope of the Brussels Ia Regulation (Art. 1 para. 2 lit. d). Those who provide for an arbitral tribunal regulate this separately and should have the formal requirements of the respective country checked by a lawyer.

What you should watch for as a seller:

1. Choice of law and jurisdiction belong in the catalogue of expressly binding clauses, so that a dispute about the LOI is not first fought over jurisdiction.
2. A jurisdiction at the buyer's seat can be burdensome for you, especially if you have granted exclusivity. Ask whether a neutral place or your own seat is possible.
3. The chosen law of the LOI and the planned law of the purchase agreement should fit together. For the transfer of GmbH shares, the formal requirements named above remain (§ 15 Abs. 4 GmbHG, § 76 Abs. 2 GmbHG); whether a choice of law changes anything about this is a legal question for your lawyer.
4. For buyers from states outside the EU, other rules apply. Here legal advice before signing is indispensable.

This is a classification, not legal advice. How an LOI fits into the overall process and how we support sellers with it is described by the service Selling a company; a first assessment of the price framework on which an LOI rests is provided by the company value calculator.

Caution with the binding parts

Precisely because the LOI appears largely non-binding, sellers underestimate the binding clauses. Exclusivity that is too long or too broadly worded, an unclear cost provision or a confidentiality that binds the seller one-sidedly can become expensive. An LOI should therefore be legally reviewed — this is a classification, not legal advice.

LOI, SPA, exclusivity — those who want to look up the terms around the sales process compactly will find them in the M&A glossary.

A company sale is the most important transaction of an entrepreneur's life. Get independent and discreet support — IGCP Capital Partners. → igcp.at

Frequently asked questions

Does a letter of intent have to be notarised?

No, as long as it only records intentions. As soon as it is to contain an obligation to transfer GmbH shares, this requires notarial form in Germany (§ 15 Abs. 4 GmbHG) and a notarial deed in Austria (§ 76 Abs. 2 GmbHG).

Which law and which court apply to a letter of intent?

The parties can determine both themselves: the law under Art. 3 Rome I Regulation, the jurisdiction within the EU under Art. 25 Brussels Ia Regulation. If the clause is missing, statutory fallback rules apply, the result of which is harder to predict. Both points should therefore be regulated as binding in the LOI.

What is the difference between an LOI and a preliminary contract?

A preliminary contract obliges the parties to conclude a later contract; in Austria it is binding only if the time and essential points are determined (§ 936 ABGB). An LOI, by contrast, records intentions and the state of negotiations without obliging the parties to conclude.

What is a letter of intent?

A written declaration of intent that records the key points of a planned company acquisition — object of purchase, indicative price, timetable, conditions — usually before the due diligence begins. It turns non-binding interest into a structured process.

Is a letter of intent binding?

In its core, the intention to buy, as a rule not — nobody has to complete the purchase. Individual clauses, however, are binding, in particular confidentiality, bearing of costs and exclusivity. These binding parts should be examined closely before signing.

What should be in an LOI?

Object of purchase and structure, indicative price and its derivation, essential conditions, timetable, access to the due diligence as well as confidentiality, exclusivity with duration and bearing of costs — and a clear statement of which points are binding.

When is an LOI signed?

After the first approach between buyer and seller and before the due diligence. It marks the transition from sounding out to a serious process and forms the basis for review and contract negotiation.

How the agreed company value becomes the amount actually paid out is shown in Purchase price mechanics in a company sale.

Samples for the letter of intent, the confidentiality agreement and the teaser are included in the M&A Tool Kit of six company-sale templates.