Letter of Intent Template: What to Include and How to Use It

A letter of intent (LOI) can move negotiations forward without forcing you into a full contract straight away. For small businesses in Australia, it’s a practical way to record commercial terms, set timelines, and protect confidentiality while you complete due diligence.

If you’re weighing up whether to use a letter of intent template, this guide explains what an LOI is, when to use one, what to include, and how to avoid common pitfalls. We’ll also look at how an LOI compares to similar documents, and the other agreements you’ll likely need alongside it.

With the right preparation, your LOI can help you test the waters and create momentum-without locking you into a deal before you’re ready.

What Is A Letter Of Intent?

A letter of intent is a document that records the key terms the parties intend to include in a final agreement. Think of it as a roadmap for negotiations. It clarifies the commercial “headlines” (like price, scope and timing), sets out a process for due diligence, and often includes some binding protections (for example, confidentiality or exclusivity) while the parties work towards a definitive contract.

In Australia, LOIs are commonly used for business purchases, joint ventures, supplier arrangements, property deals, and strategic partnerships. They are sometimes called a term sheet or an indicative offer, depending on the context. While many LOIs are drafted to be mostly non-binding, parts of them can be binding if the wording indicates the parties intend to be legally bound.

When Should Your Business Use A Letter Of Intent?

You’d typically use an LOI when you want to confirm you’re on the same page before spending time and money on due diligence and contract drafting. It’s particularly useful when:

• You’re exploring a business or asset acquisition, and you want to lock in an indicative price, timeline and exclusivity while you review financials and operations.
• You’re discussing a share purchase, and need to agree high-level valuation, conditions and structure before drafting a detailed agreement.
• You’re forming a strategic partnership or joint venture, and want to outline roles, responsibilities and next steps without committing to final terms yet.
• You’re negotiating a major supply or distribution arrangement, and want clarity around quantities, pricing and key commercial terms before detailed legal work.

The benefit is speed and clarity. An LOI gets deal terms down in writing early, which reduces misunderstandings and helps both parties justify progressing to a full agreement.

What Should A Letter Of Intent Template Include?

A strong letter of intent template balances commercial clarity with legal safeguards. While your final content will vary by deal, most LOIs cover the following:

1) Parties And Transaction Overview

• Full legal names and ABNs (or ACNs for companies) of all parties.
• A plain-English summary of what the parties intend to do (for example, the buyer intends to acquire the business operated at ).

2) Indicative Commercial Terms

• Price or valuation approach (e.g. fixed amount, earn-out, or pricing formula).
• Scope of the transaction (assets vs shares, inclusions/exclusions).
• Payment structure (deposit, completion payments, adjustments).
• Key deliverables (for example, transfer of contracts, stock, or IP).

3) Conditions And Due Diligence

• Access to financials, customer and supplier information, and key contracts.
• Any regulatory or third-party approvals required.
• Target dates for completion of due diligence and signing the final agreement.

4) Exclusivity (No-Shop)

• Whether the seller must not negotiate with others for a set period.
• Duration of exclusivity, with a clear start and end date.
• Any breakup fee or consequences if exclusivity is breached.

5) Confidentiality

• Limits on using or sharing information provided during negotiations.
• Return or destruction of confidential materials if the deal doesn’t proceed.

6) Binding vs Non-Binding Clauses

• Make it explicit which clauses are intended to be legally binding (e.g. confidentiality, exclusivity, governing law, costs) and which are not (e.g. indicative price and other commercial terms).
• Use clear language to avoid accidental binding obligations on items that are still subject to contract.

7) Process And Timelines

• Milestones for due diligence, drafting and negotiating definitive agreements.
• Target dates for signing and completion (even if indicative).

8) Costs, Governing Law And Dispute Resolution

• Who pays their own costs during negotiations.
• Governing law (e.g. NSW, VIC) and how disputes will be handled.

9) Execution And Signatures

• How the LOI will be signed (including company execution requirements).
• Whether electronic signatures will be accepted and any witnessing needs.

Make sure your template is easy to adapt. You don’t want to force a transaction into a one-size-fits-all framework-especially where timing, structure or regulatory approvals differ between deals.

LOI, Heads Of Agreement, Or MOU: What’s The Difference?

These documents all sit in the same “deal framework” family, but they serve slightly different purposes and have different expectations around binding effect.

• Letter of Intent (LOI): Often used in acquisitions and major deals to record commercial intent and process. It prioritises headline terms, due diligence and exclusivity. It’s typically mostly non-binding, with certain clauses binding.
• Heads of Agreement: A more detailed outline of agreed terms that can be binding or non-binding depending on wording and intent. Many businesses use a Heads of Agreement when the parties are aligned on most terms and want a clearer bridge to a final contract.
• Memorandum of Understanding (MOU): Usually a high-level summary of a proposed collaboration. It’s common to keep an MOU non-binding (except for confidentiality and similar clauses) when the parties are still exploring the relationship.

There’s overlap between these labels. What matters is the content and the parties’ intention. If you want a document to be non-binding (except for some clauses), say so. If you want it to be binding, say that too-and ensure the terms are drafted with sufficient certainty to be enforceable.

Is A Letter Of Intent Legally Binding In Australia?

It depends on the wording and the context. Courts will look at the intention of the parties, the language used, and whether the terms are sufficiently certain. You can make a clause binding by stating it is binding and ensuring it reads like a complete obligation (not just an “agreement to agree”).

Commonly, LOIs treat these clauses as binding:

• Confidentiality
• Exclusivity
• Governing law and jurisdiction
• Costs
• Intellectual property ownership in materials shared during negotiations

By contrast, the commercial terms (like price, scope and completion) are often expressly stated to be non-binding and “subject to contract”, so no one is forced to proceed if due diligence reveals issues.

If you later need to change a binding clause, follow a clear process for updating it. In many cases, it’s cleaner to record the change in a short-form amendment before you sign the final contract, in line with the principles in making amendments to contracts.

How To Build And Use A Letter Of Intent Template (Step-By-Step)

Step 1: Clarify Your Objectives And Deal Structure

Before drafting, write down your goals, the deal type (asset or share sale, partnership, supply agreement), and any non-negotiables. This ensures your LOI template prompts you to capture the right information for each scenario.

Step 2: Draft Clear Sections For Commercial Terms And Binding Clauses

Separate commercial terms (usually non-binding) from legal protections (usually binding). Use bold subheadings and plain-English wording. Include placeholders for pricing mechanism, due diligence scope, exclusivity period, and timelines.

Step 3: Add Confidentiality And IP Protections

Even if you’ll later sign a standalone Non-Disclosure Agreement, include a confidentiality clause in your LOI. This protects sensitive data exchanged while the parties are still at the discussion stage.

Step 4: Cover Execution Requirements

Make it simple for the right people to sign. If a company is a party, consider how it will be executed under company law, including options explained in signing documents under section 127. Also think about electronic signing and whether witnesses are needed for any binding clauses.

Step 5: Keep A Version You Can Tailor

Your template should be modular. Create optional clauses you can switch on or off (for example, exclusivity, breakup fees, staged access to information). This helps you tailor the LOI to the risk and complexity of each deal.

Step 6: Use The LOI To Drive The Timetable

Include target dates for due diligence, first draft of the definitive agreement, and signing. The LOI should create momentum and accountability. If there’s slippage, consider whether to extend exclusivity to keep both parties engaged.

Step 7: Transition Smoothly To The Final Agreement

Once due diligence is satisfactory, your LOI will inform the draft of your definitive agreement. For a business purchase, that may be a Business Sale Agreement; for a share acquisition, a Share Sale Agreement; for early-stage ventures, a Term Sheet leading into a full contract might be appropriate. Keep track of what the LOI says and update any changed terms as you draft the final deal.

Common Mistakes To Avoid With LOI Templates

• Accidentally creating a binding contract: If your wording looks final and complete (and the parties act like it is), a court may treat it as binding. Use “subject to contract” language for commercial terms and separate binding clauses clearly.
• Missing exclusivity detail: If you need exclusivity, state it clearly, set a timeframe, and say what happens if it’s breached.
• Vague due diligence scope: Specify the documents and access you’ll need, plus a timetable. Vague wording causes delays and disputes.
• Overlooking confidentiality: Sensitive information can leak quickly during negotiations. Include robust confidentiality obligations or sign a standalone NDA at the same time.
• Unclear execution: Ambiguous signing blocks or missing company titles can undermine the document. Follow Australian execution requirements and the practical guidance in legal requirements for signing documents.
• Not updating the LOI when terms change: If you’ve made certain clauses binding, record changes with a short amendment or restated LOI, then reflect those terms in the final contract.

Which Other Legal Documents Do You Need With An LOI?

An LOI is a starting point, not the finish line. Depending on the deal, consider these documents alongside or shortly after your letter of intent:

• Non-Disclosure Agreement (NDA): A standalone NDA can sit alongside or precede your LOI to protect confidential information and trade secrets.
• Heads of Agreement: If you want a more detailed, structured outline of agreed terms, a heads of agreement can act as a firmer bridge to the final contract.
• Memorandum of Understanding (MOU): Useful for high-level collaborations where you want clarity without legal commitment (other than confidentiality and similar clauses).
• Business Sale Agreement: The definitive contract if you’re acquiring the assets of a business (stock, equipment, IP, contracts, etc.).
• Share Sale Agreement: The definitive contract when you’re buying or selling shares in a company.
• Term Sheet: A concise, often non-binding summary of key investment or partnership terms that guides the long-form documents.

Which documents you need-and in what order-will depend on your industry, the deal size, and how quickly both parties need to move. It’s normal to use an LOI and NDA first, then draft the definitive agreements once due diligence supports proceeding.

Practical Tips For Australian Small Businesses

• Keep it plain-English: Your LOI should be easy for decision-makers to read and sign. Short clauses and simple language reduce confusion and speed up approvals.
• Make binding clauses explicit: Use headings like “Binding Clauses” and “Non-Binding Terms” so there’s no ambiguity.
• Set realistic timeframes: Build in enough time for due diligence and approvals. Rushing can lead to missed risks or poorly drafted terms.
• Align the LOI with the final contract structure: If the end goal is an asset sale, use asset-sale language in the LOI. If it’s a share deal, use share terminology from the start.
• Plan for execution and record-keeping: Decide upfront if you’ll use e-signing and ensure the correct signatories are available. Keep a clear record of the latest signed version.
• Know when to get help: LOIs feel simple, but a few words can change whether you’re bound to proceed. Getting targeted advice before signing can save major headaches later.

Key Takeaways

• A letter of intent template helps you record headline terms, set a timetable, and protect confidentiality while you work towards a final contract.
• Make it clear which clauses are binding (e.g. confidentiality, exclusivity) and which commercial terms are non-binding and subject to contract.
• Include the essentials: parties, transaction summary, price or valuation approach, due diligence scope, exclusivity, confidentiality, timelines, costs and governing law.
• Choose the right “deal framework” document for your situation-consider whether an LOI, Heads of Agreement or MOU best fits your stage and objectives.
• Use the LOI to drive momentum, then transition to definitive contracts like a Business Sale Agreement, Share Sale Agreement or a Term Sheet as appropriate.
• Get the execution right and keep a clean paper trail; follow Australian signing rules and, if needed, the guidance on signing under section 127.

If you’d like a consultation on drafting or tailoring a letter of intent for your deal, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.