Letter Of Intent Template: When To Use One And How To Tailor It

If you’re negotiating a new deal for your startup or small business, it’s common to reach a point where you and the other side are aligned on the “big picture” - but you’re not ready to sign the final contract yet.

That’s where using a letter of intent template can be incredibly useful. A Letter of Intent (often shortened to “LOI”) helps you capture key commercial terms, set a pathway to the final agreement, and reduce misunderstandings while you complete due diligence, internal approvals, or legal drafting.

At the same time, LOIs can create risk if they’re unclear (especially around whether anything is legally binding). The last thing you want is to think you’re “just negotiating”, only to find you’ve accidentally committed your business to a deal or exposed sensitive information.

Note: This article provides general information for Australian businesses and isn’t legal advice. Because LOIs can be binding (in whole or in part) depending on how they’re drafted and used, it’s a good idea to get legal advice for your specific situation.

Below, we’ll walk you through when to use a letter of intent template, what to include, what to leave for the final contract, and how to tailor an LOI for common Australian startup and small business scenarios.

What Is A Letter Of Intent (LOI) In Australia?

A Letter of Intent is a written document that sets out proposed terms for a transaction or commercial relationship, before the parties sign the “long form” agreement.

In practice, an LOI sits in the middle ground between:

• Informal discussions (emails, meetings, phone calls), and
• The final binding agreement (for example, a Share Sale Agreement, Services Agreement, Supply Agreement, or Lease).

Many businesses use a letter of intent template as a starting point because LOIs tend to follow a familiar structure. But an LOI should still be tailored carefully - what you include (and how you phrase it) matters.

Is A Letter Of Intent Legally Binding In Australia?

An LOI can be legally binding in Australia - even if it’s called a “letter of intent”. What matters is the substance of the document, not the label.

If you want a quick sense-check on the legal principles at play, it helps to understand what makes a legally binding contract (for example, offer, acceptance, intention to create legal relations, and certainty. Consideration is also commonly required for contracts, although there are exceptions - including where a document is executed as a deed).

Most LOIs are drafted so that:

• Some clauses are binding (for example, confidentiality, exclusivity, costs, governing law), and
• The main commercial deal is non-binding until final documents are signed.

This “partly binding” approach is common, but it needs to be expressed clearly. If the LOI is ambiguous, you may end up in dispute about whether the parties intended to be bound.

Letter Of Intent Vs Heads Of Agreement: What’s The Difference?

In Australia, “Letter of Intent” and “Heads of Agreement” are often used interchangeably. Some businesses prefer an LOI when one party is formally “proposing” terms in a letter format, while others use a Heads of Agreement for a more structured term-sheet style document.

From a legal perspective, the practical difference usually comes down to:

• Format (letter style vs numbered clauses / schedules), and
• How clearly the document separates binding and non-binding terms.

For many deals, you may be better served by a structured Heads of Agreement approach - but the best fit depends on your transaction and how far negotiations have progressed.

When Should Your Business Use A Letter Of Intent Template?

A letter of intent template is most useful when you have genuine commercial alignment, but you need a “bridge document” to move things forward safely.

Common situations where Australian startups and small businesses use LOIs include:

• Buying or selling a business (asset sale or share sale), before the formal sale agreement is finalised
• Raising capital (for example, recording key investment terms while lawyers draft the definitive documents)
• Strategic partnerships (co-marketing, co-development, channel partnerships)
• Major supply arrangements (especially if you’re committing to minimum orders or exclusivity)
• High-value service engagements (where scope, milestones, and pricing need to be locked in early)
• Commercial leasing negotiations (where you want to record key commercial terms before lease documentation)

Signs You’re Ready For An LOI (And Not Just An Email Summary)

If you’re not sure whether to use an LOI, these are common “green flags”:

• You’ve agreed the key commercial points (price, scope, timeframe, structure)
• There are still unknowns that need due diligence (financials, IP ownership, customer contracts, approvals)
• Multiple stakeholders need alignment (co-founders, investors, board, bank, landlord)
• You want to control the process (exclusivity, timelines, who does what next)

When An LOI Might Be The Wrong Tool

LOIs aren’t always the best next step. For example, if the deal is straightforward and you’re ready to contract, it can be more efficient (and safer) to move straight into contract drafting.

Similarly, if you’re still far apart on key terms, an LOI can lock you into a messy negotiation framework or create false confidence that a deal is “basically done”.

What To Include In A Letter Of Intent Template (And What To Avoid)

A strong letter of intent template does two things well:

• It captures enough detail to keep the deal on track, and
• It avoids accidentally creating obligations you didn’t mean to take on.

Below are the clauses most Australian startups and small businesses consider. You won’t need all of them every time, but these are the “usual suspects”.

1. Parties And The Deal Summary

Start with the basics:

• Legal names of each party (and ACN/ABN if applicable)
• Short description of the proposed deal (what’s being bought/sold/provided)
• Whether it’s exclusive or non-exclusive (and at what stage that applies)

This section should be clear enough that someone unfamiliar with the negotiations can understand what the LOI is about in 60 seconds.

2. Commercial Terms (The “Business Deal”)

This is where most businesses get the most value out of letter of intent templates. Depending on the transaction, you might include:

• Price and payment structure (fixed, staged, earn-out, deposit)
• Scope (deliverables, inclusions/exclusions, milestones)
• Timing (target dates, rollout schedule, completion date)
• Key assumptions (for example, continued access to certain suppliers)

A practical tip: if something is critical to the deal, write it down. If it’s not critical, consider leaving it for the final agreement rather than cluttering the LOI with detail that could trigger re-negotiation later.

3. Conditions Precedent (What Must Happen Before The Deal Proceeds)

Conditions precedent are the “gates” that must be satisfied before the parties are bound to complete the deal (or before completion occurs).

Common examples include:

• Satisfactory due diligence (financial, legal, operational)
• Board approval / shareholder approval
• Finance approval
• Third-party consents (for example, key customer or landlord consent)
• Execution of final documents in form and substance acceptable to each party

In many LOIs, these conditions are part of the non-binding “commercial” section, but they can still be important to show intent and reduce misunderstandings.

4. Confidentiality (Often Binding)

If you’re sharing financials, customer lists, IP, product roadmaps, or sensitive pricing, you should treat confidentiality as a priority.

Sometimes confidentiality sits inside the LOI. Other times, it’s safer to use a standalone Non-Disclosure Agreement before you exchange information (or alongside the LOI).

Either way, you want to be clear on:

• What information is confidential
• Permitted use (e.g. “only for evaluating the transaction”)
• Who it can be disclosed to (staff, advisers, investors)
• How long confidentiality lasts
• Return/destruction obligations

5. Exclusivity And “No-Shop” (Often Binding)

Exclusivity clauses are common where one party is investing time and money into due diligence or negotiations and doesn’t want the other party shopping the deal around.

Exclusivity can be helpful - but it’s also a real restriction on your freedom. If you sign exclusivity, you may be preventing yourself from negotiating better terms elsewhere for a set period.

If exclusivity is included, define:

• The exclusivity period (start/end date)
• What is prohibited (talking to competitors, accepting another offer, soliciting bids)
• Any carve-outs (existing discussions, inbound approaches)

6. Costs And Expenses

Negotiations cost time and money. Your LOI can clarify who pays for what, including:

• Each party pays their own legal/accounting costs
• One party reimburses certain due diligence expenses (sometimes capped)
• Break fees (less common for small business deals, but possible)

7. Non-Binding Statement (And A Clear “Binding Clauses” Section)

If your intention is that the “deal terms” aren’t binding yet, you should say so clearly.

A common approach is to include:

• A statement that the LOI is non-binding except for specified clauses, and
• A separate section listing the binding clauses (e.g. confidentiality, exclusivity, costs, governing law, dispute resolution).

This is one of the biggest reasons you shouldn’t rely on generic letter of intent templates without tailoring - the risk isn’t only what’s missing, but what’s unclear.

8. Governing Law And Jurisdiction

For Australian businesses, it’s often sensible to specify that the LOI is governed by Australian law (and sometimes a particular state or territory), especially if the other party is overseas.

This won’t solve every dispute, but it can reduce uncertainty later.

How To Tailor A Letter Of Intent Template For Common Startup And Small Business Deals

One of the easiest ways to get value from an LOI is to tailor it to the deal type you’re actually doing. A “one size fits all” letter of intent template can create gaps or (worse) add clauses that don’t make sense for your situation.

LOIs For Startup Investment Or Bringing In A Co-Founder

If you’re raising capital or bringing in a new co-founder, the LOI often looks more like a term sheet.

Typical points you may want to include are:

• Investment amount and timing
• Valuation / price per share (or conversion mechanics if it’s a convertible instrument)
• Use of funds (sometimes included at a high level)
• Board seat / observer rights
• Information rights (financial reporting, budgets)
• Key founder obligations (vesting, restraints, IP assignment)

If you’re bringing in a co-founder or investor, it’s also worth thinking early about how you’ll govern the business long-term - for example through a tailored Shareholders Agreement.

LOIs For Buying Or Selling A Business

For business sale negotiations, an LOI is often used to record “deal architecture” before the lawyers draft the full sale documentation.

Common LOI terms for a business sale include:

• Whether it’s an asset sale or share sale
• What’s included in the sale (plant/equipment, IP, stock, customer contracts, goodwill)
• Deposit (if any) and timing
• Due diligence process and deadlines
• Restraint of trade expectations (high level)
• Transition assistance / handover

This is also where exclusivity can become a big issue. If you’re the buyer, you may want exclusivity while you spend money investigating the business. If you’re the seller, you’ll want to limit that exclusivity period so your sale process doesn’t stall.

LOIs For Ongoing Services, Supply, Or Partnerships

If you’re using an LOI to kick off a commercial relationship, focus on the things that most often cause disputes later:

• Scope and boundaries: what you will do, and what you won’t do
• Payment triggers: upfront fees, milestones, monthly invoices, late payment consequences
• Service levels: response times, deliverables, acceptance testing (where relevant)
• IP ownership: who owns what you create together
• Termination pathway: what happens if the relationship doesn’t work out

In many cases, an LOI is only a short stepping stone, and the real protection comes from having the final agreement properly drafted and negotiated.

LOIs Where You’re Still Setting Up Your Structure

Startups sometimes sign LOIs before they’ve properly set up their legal structure - for example, before the founders have incorporated a company.

If you’re still early-stage, it may be worth finalising your company set up first (or at least ensuring the LOI anticipates the correct contracting entity). Otherwise, you risk signing personally and taking on personal liability without meaning to.

Practical Tips For Using Letter Of Intent Templates Safely

Even a well-drafted letter of intent template can cause problems if the process around it is sloppy. Here are a few practical habits that help reduce risk.

Be Explicit About What’s “Non-Binding” And What’s “Binding”

Don’t leave this to implication. If confidentiality and exclusivity are intended to be binding, say so. If the commercial terms are not intended to be binding until a formal agreement is signed, say so.

Clarity here can be the difference between a smooth negotiation and a serious dispute.

Don’t Treat The LOI As A Substitute For The Final Contract

A common trap is when the LOI becomes so detailed that the parties start operating as if the deal is already final - even though key protections (like liability caps, warranties, indemnities, limitations of liability, and dispute resolution) haven’t been properly agreed.

If you’re about to start work, take payment, hand over access, or commit to ordering stock, it’s usually time to move from LOI to a proper agreement.

Make Sure The Right People Sign

If the other party is a company, you should check that the signatory has authority to bind that company. The LOI should also correctly identify the contracting entities (not just trading names).

Use The LOI To Drive Momentum (Not Delay)

A good LOI should include a clear process and timeline, such as:

• Due diligence period
• Document drafting responsibility
• Date for signing final agreements
• Target completion / start date

This helps avoid the “never-ending negotiation” problem that drains founder time and slows growth.

Get The Template Reviewed Before You Send It

LOIs often look simple, but the risk usually sits in the grey areas - especially around enforceability and partially binding clauses.

If you’re about to sign something that could meaningfully affect your business (exclusivity, confidentiality, spending money on due diligence, or committing to a transaction), it’s worth getting it reviewed properly rather than relying on generic letter of intent templates.

Key Takeaways

• A letter of intent template can help you record key commercial terms and set a clear pathway to final contracts while negotiations and due diligence are underway.
• In Australia, an LOI can be legally binding (fully or partly), so it’s important to clearly separate non-binding deal terms from binding clauses like confidentiality and exclusivity.
• LOIs are commonly used for business sales, startup investment discussions, major supplier/service deals, and strategic partnerships where you need alignment before final documents are signed.
• Generic letter of intent templates are a useful starting point, but tailoring matters - particularly around conditions precedent, timelines, confidentiality, exclusivity, and governing law.
• If you’re unsure about enforceability, authority to sign, or whether you’re accidentally committing your business, a quick legal review can prevent expensive disputes later.

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