Key Takeaways

  • A letter of intent (LOI form) outlines preliminary terms when forming or selling an LLC and demonstrates good-faith intent to negotiate.
  • LOIs are usually non-binding but may include binding clauses like confidentiality, exclusivity, or non-compete provisions.
  • A strong LOI form includes clear descriptions of assets or interests, price expectations, timelines, and responsibilities for drafting agreements.
  • LOIs can help avoid misunderstandings, set expectations early, and streamline the negotiation process.
  • Parties should review operating agreements, consult advisors, and avoid common mistakes (like vague language) to ensure enforceability and fairness.

Letter of Intent

If you are negotiating to sell an LLC, you will need to make sure to use a letter of intent. This letter's purpose is to start the deal, ensuring that any involved parties clearly understand the main contractual and business issues that may be involved.

As you go through the negotiation process, you might want to start with an initial offer and some basic terms in the letter of intent. The letter will outline these general terms of a proposal to start or acquire a business. This proposal could include the terms of:

  • Asset acquisition and descriptions
  • Closing conditions
  • Purchase price
  • Limitations

After receiving the letter of intent, the owner of the business can start negotiating and hopefully end up with a deal that works for them and the other involved party. Although a letter of intent won't include a full listing of the deal's terms, it's smart to be as specific as possible about the major points in the deal to ensure that all involved parties understand the general terms.

A letter of intent has several key purposes:

  • Outline a timeframe for the execution and completion of the definitive contract
  • Spell out the expectations of the terms of the potential deal for each party each party
  • Discuss a potential price for the purchase early in the transaction
  • Determine who is responsible for drafting key documents
  • Demonstrate the commitment on both sides to going through with the deal

An LLC is neither a sole proprietorship nor a corporation, although it will share some attributes with each of these business entities. Since an LLC offers some of the benefits of these two entities, this type of business is more attractive to potential buyers. An LLC is easier to operate and has less complex tax regulations and requirements, similar to a sole proprietorship, but also provides personal liability protection that is typically only available through the formation of a corporation.

The owners of an LLC are called members, and they hold the interest in the business. The terms for selling the business are outlined in the LLC's operating agreement. Some LLCs have just one member, while others have multiple members. If all involved parties are intent on purchasing or selling membership interests, the agreement to sell the business should reflect the intent. It's also critical to review the operating agreement to make sure the deal satisfies any conditions outlined before selling the business.

Selling an LLC can also be structured as the sale of assets. If this is the case, all assets held by the LLC, including intangible, tangible, and goodwill assets, will be sold to another party. In this case, the parties would still need to review the operating agreement and follow any outlined procedure when selling the assets.

Binding vs. Non-Binding Provisions

While an LOI form is primarily non-binding, certain clauses may carry legal weight. Common binding provisions include:

  • No-shop clauses, restricting sellers from negotiating with other buyers.
  • Confidentiality agreements, protecting sensitive business data.
  • Non-compete or non-solicitation clauses, preventing unfair competition.

The rest of the LOI—such as price, structure, and general terms—remains flexible until a definitive agreement is signed. Clear language (“would” instead of “will”) helps avoid accidental binding commitments.

Key Elements of an LOI Form

When drafting an LOI form to form or sell an LLC, certain components should be included to ensure clarity and reduce disputes:

  • Introduction of the parties – Identify the buyer, seller, or forming members of the LLC.
  • Transaction description – Indicate whether the deal involves selling membership interests, assets, or forming a new entity.
  • Purchase price or contribution – Note proposed consideration or capital contributions.
  • Due diligence timeline – Provide a period for financial, legal, and operational review.
  • Conditions to closing – Outline key requirements, such as regulatory approvals or financing.
  • Exclusivity and confidentiality – Prevent either party from shopping the deal elsewhere or disclosing sensitive information.
  • Termination clauses – Clarify when either party can walk away.

Although most of an LOI is non-binding, these elements frame expectations and demonstrate commitment to the process.

Making the Decision to Sell an LLC

Deciding whether to sell membership interest in an LLC is complex and has a number of tax and business considerations. Consult with experienced professionals before you choose how to proceed. In order to express your good faith, commitment, and sincerity to a potential buyer of your LLC, you should avoid discussions with other possible buyers during the pre-closing and due diligence period.

In exchange for your sincerity, the buyer of your LLC may offer a deposit toward the purchase price. Some or all of the deposit could be non-refundable if the deal doesn't close due to the buyer backing out of the deal. A non-refundable deposit may be retained by the seller only if the buyer backs out for a reason that is not the seller's fault. If something comes up during the pre-closing or due diligence period that violates the terms of the agreement, the deposit may have to be refunded.

A letter of intent should only take a few days to finalize. If the involved parties can't agree on the main business issues or purchase price within several days, it may make sense to step away from the deal, whether to work with another potential buyer/seller or to come back to the agreement later.

Benefits of Using an LOI Form

Using a properly structured LOI form when forming or selling an LLC offers several advantages:

  • Sets clear expectations early – Both sides understand price ranges, responsibilities, and timelines.
  • Protects sensitive information – Confidentiality clauses ensure business details remain private.
  • Reduces wasted time – If parties can’t agree on key points, they know early before expending more resources.
  • Facilitates smoother contracts – By resolving major issues upfront, the definitive agreement process is faster.
  • Demonstrates professionalism and good faith – A written LOI signals commitment to moving forward.

These benefits make LOIs a valuable tool in LLC transactions and new business formations.

Common Mistakes to Avoid in an LOI

When preparing or responding to an LOI form, parties should avoid:

  • Being too vague – Without detail, misunderstandings can stall negotiations.
  • Failing to address key deal breakers – Leaving out critical terms, such as financing or liability allocation, can waste time.
  • Sending too many LOIs – Overusing LOIs without intent to close can damage credibility.
  • Ignoring legal review – Even non-binding letters can create obligations, so legal counsel should review the document.

Avoiding these pitfalls ensures the LOI serves as a helpful roadmap rather than a source of dispute.

Frequently Asked Questions

  1. Is an LOI form legally binding?
    Most LOI forms are non-binding, but specific clauses—like confidentiality or exclusivity—may be legally enforceable.
  2. Who prepares the LOI form in an LLC transaction?
    Either the buyer, seller, or forming members may draft it, but legal review is strongly recommended.
  3. How long should an LOI form be?
    It should be concise—often one to two pages—covering essential terms without duplicating the final contract.
  4. Can I back out after signing an LOI?
    Yes, unless binding clauses apply. The LOI is meant to guide negotiations, not finalize the deal.
  5. Why use an LOI when forming an LLC?
    It helps members clarify capital contributions, responsibilities, and goals before creating a binding operating agreement.

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