If you’re buying or selling a small business, you will likely hear two terms early in the process: Letter of Intent (LOI) and Purchase Agreement. Business owners often confuse the two, or assume one replaces the other, but they serve very different purposes.

A Letter of Intent is usually the first written agreement in a business sale. It is typically signed after initial discussions but before due diligence begins. Think of it as a formal way to say, “We are serious about moving forward, and here is what we are planning.” It is not the final deal, but it sets the tone and expectations.

An LOI typically includes:

• The proposed purchase price and payment terms
• Whether the deal is an asset or equity sale
• Timeline for due diligence and closing
• Key assumptions (like access to financial records)
• Whether the LOI is binding or non-binding

Some sections of the LOI may be binding, for example, confidentiality, exclusivity, or non-solicitation clauses. But the terms related to the actual sale are usually non-binding until the final agreement is signed.

A Purchase Agreement is the final, binding contract that legally transfers the business or its assets. Once signed, it controls the entire transaction.

This agreement is usually much longer and more detailed than an LOI. It includes, but is not limited to:

• A complete description of the assets or equity being sold;
• The final purchase price and how it will be paid;
• Representations and warranties from both parties;
• Details about closing logistics;
• Indemnification provisions (who is responsible for what, and when);
• Non-compete and non-solicitation agreements; and
• Tax allocation and post-closing obligations.

If the LOI is the roadmap, the Purchase Agreement is the vehicle that gets you to the closing table.

Too often, small business owners treat the LOI as the final word. That is risky.

Example: Prior to our involvement, a buyer who signed an LOI assumed the seller would include customer lists, trade names, and service agreements in the sale. The seller believed only physical assets were being transferred. Because the LOI drafted without us was too vague, the seller later refused to include certain key assets in the final deal. The misunderstanding could have been avoided with a clearly drafted LOI and legal review.

If your LOI is too broad or too informal, it can either lead to false expectations or fail to protect key deal points. If your Purchase Agreement does not accurately reflect what was agreed to, or leaves out critical protections, you could be left with expensive obligations.

Legal counsel should be involved early, ideally before the LOI is signed. That way, your attorney can:

• Help you understand what’s binding and what’s not;
• Clarify vague terms before they become problems;
• Begin planning for due diligence and closing logistics; and
• Draft or review the final Purchase Agreement to ensure alignment.

Whether you are a buyer or seller, your leverage is strongest before the LOI is signed and the deal process begins. Do not wait until you have a contract in front of you. By then, your options may be limited.

At Twisdale Law, PC, we represent both buyers and sellers throughout the business sale process. From initial letters of intent to final purchase agreements, we help you navigate the legal details with confidence and clarity. With offices in Spartanburg, Asheville, and Jonesborough, we serve small business owners across South Carolina, North Carolina, and Tennessee.

Contact Twisdale Law today to ensure your business sale or purchase starts and ends on the right terms.