Letter of Intent in a UK Business Sale - What Founders Need to Know

If you are in the early stages of a business sale and a buyer has made a formal approach, you may be presented with a Letter of Intent (LOI). Sometimes referred to as Heads of Terms or a Term Sheet, this document outlines the key commercial principles of a proposed transaction.

It may appear simple at first glance, but it carries significant weight. The Letter of Intent in a business sale in the UK is often the foundation of the final agreement, and what you agree at this stage can have a lasting impact on the outcome.

Letter of Intent in a UK Business Sale - What Should Be Included?

Although there is no fixed legal format, a Letter of Intent in a UK business sale typically includes:

• The proposed purchase price and payment structure

• Any earn-out or deferred elements

• Whether the deal uses a locked box or completion accounts

• Definitions of debt, cash, and working capital

• Timetable and exclusivity period

• Due diligence expectations and key conditions

These commercial terms will later be reflected in the Share Purchase Agreement. Therefore, it is essential to ensure that every item reflects your understanding of the deal, not just the buyer’s intentions.

Why Founders Should Review the LOI Carefully

Founders often assume the Letter of Intent is non-binding, which leads to casual or rushed acceptance. While most LOIs are not legally enforceable in full, they create moral and commercial commitments. They also establish deal expectations that can be difficult to change later.

This is why we always advise that you review the Letter of Intent carefully before signing. Even better, seek independent corporate finance advice to ensure your position is protected from the outset.

Where to Find a Breakdown of Each Key Term

We have created a detailed blog on this topic: Understanding an Offer Letter When Selling Your Business. This post explains each component in plain English and shows how the LOI fits into the wider deal journey.

Why This Stage Is So Important

The Letter of Intent might feel like a formality, but it is often the point where real value is won or lost. A well-structured LOI creates clarity, sets the right tone, and ensures the final documents reflect your intentions as a seller.

Making the wrong assumptions, agreeing to exclusivity too soon, or accepting weak definitions of completion terms can leave you exposed. Getting professional input at this stage is cost-effective and can prevent much bigger issues down the line.