What is a Letter of Intent (LOI)? Definition or Meaning

A letter of intent or LOI is a formal document outlining the terms and conditions of an agreement. Usually circulated before negotiations, an LOI can describe one company’s intention to buy another company, a part of it or another different matter entirely. They can be drafted and edited until both parties come to an agreement regarding how the topic of negotiation will be conducted.

For example…

The CEO of Plum Jams Ltd recently received a LOI from ABC Supermarkets. In it, the LOI outlined the terms of the upcoming acquisitions. This included that the supermarket preferred to make it a cash deal and listed aspects of the deal were binding and non-binding. In it, the supermarket CEO invited the Plum Jams CEO to write back with any amendments to the LOI. This is typical of a LOI exchange process, after several drafts, both companies should effectively agree on how the acquisition will happen.