Also known as: LOI
A Letter of Intent is a short document in which two parties formally state their intention to enter a partnership, signalling seriousness before the binding contracts are negotiated. It outlines the broad shape of the intended deal without committing to final terms.
A Letter of Intent is used for high-value institutional or white-label deals where both sides must spend real time and money on due diligence before committing. It outlines the broad shape of the intended partnership, who the parties are and what they mean to build, without locking final commercial terms.
Its function is confidence, not commitment. By signing, each party demonstrates genuine intent, which justifies the broker opening its books and the partner devoting legal and analyst resource. Most of the document is explicitly non-binding, but confidentiality and exclusivity clauses are usually carved out as binding so sensitive data can be shared safely and neither side keeps shopping the deal. Keeping exclusivity time-boxed matters, because an open-ended clause can freeze the partner out of alternatives while negotiations drag.
Both parties decide the potential deal warrants formalising interest.
Outline the parties and the broad intended deal without final terms.
Mark confidentiality and a time-boxed exclusivity as binding.
Execute the LOI so the broker can share books for review.
If diligence passes, negotiate and sign the binding contract.
Why it matters for partnership: For high-value institutional or white-label deals, an LOI lets both sides justify investing time and legal cost in due diligence, confident the other party is genuinely committed rather than just shopping around.
A large payment-focused affiliate and a broker sign an LOI to explore an exclusive regional partnership. On that basis, the broker opens its books for due diligence before the parties draft the full MSA.
| Aspect | Letter of Intent | Term Sheet |
|---|---|---|
| Focus | Intent to proceed | The specific commercial terms |
| Detail | Broad shape of the deal | Itemised tiers and clauses |
| Binding | Confidentiality and exclusivity only | Non-binding except named clauses |
Keep exclusivity in the LOI time-boxed. An open-ended exclusivity clause can freeze you out of other deals while negotiations drag on.
Believing an LOI guarantees a deal. Most LOIs are explicitly non-binding except for confidentiality and exclusivity clauses.
Generally only its confidentiality and exclusivity provisions are; the commercial intent itself is usually non-binding.