Letter of intent

A letter of intent (LOI) states the intention of one party to a future transaction to enter into a future agreement, or an "agreement to agree." A LOI is commonly used to put into writing a preliminary understanding of two parties. Beware against making an LOI a formal agreement that might be enforced as a binding contract in court.

Many large companies will no longer provide letters of intent because of the increasing risk of being sued on them. But smaller companies still use them, particularly in response to "Requests for Purchase" (RFPs) so that the small company does not waste its time dealing with a non-serious customer.

Sometimes LOIs can help clarify deal points, and even list terms for the planned transaction. They are often used in arranging acquisitions of companies.