LOI anatomy part two: structure and closing certainty
The proposed legal form can change taxes, risk, and execution.
After price, a letter of intent (LOI) should describe how the buyer expects to complete the acquisition.
Is the buyer purchasing equity, selected assets, or a combination? Will all owners sell on the same terms? Are any business lines, real estate, cash, or other assets excluded? Does the buyer expect the owner or management team to retain equity or sign new employment agreements?
The letter should also identify material conditions. Common examples include satisfactory diligence, negotiation of definitive documents, required third-party consents, regulatory approvals, financing, and approval by the buyer’s board or investment committee. A condition is not a minor drafting point; it describes a reason the buyer may decline to close.
Ask how financing will be obtained and what evidence the buyer can provide. If the buyer is sponsored by a private equity fund, identify the acquisition vehicle that will sign, the sources of equity and debt funding, and any equity commitment letter or guarantee supporting the buyer’s obligations. If approval remains outstanding, understand the process, decision makers, and expected timing.
The seller should also examine proposed risk allocation. The LOI may outline an indemnity escrow, representations and warranties insurance, survival periods, restrictive covenants, or the treatment of transaction expenses. These points may be preliminary, but silence often allows the more detailed documents to move toward the buyer’s preferred position.
Legal and tax consequences depend on the specific parties and structure, so specialist advice is necessary before agreement.