Good news! Your business transfer advisor is reaching out to let you know that they have received a letter of intent — also known as an “LOI” — from a potential buyer. So, is the deal done? Not quite yet!
Although this letter of intent is a key milestone in the selling process, it does not constitute a definitive purchase agreement. Instead, it sets out in writing the buyer’s intentions, with the ultimate goal of finalising the transaction. Often compared to a preliminary sales agreement in real estate, the LOI isn’t quite the same thing. So, what exactly should you be paying attention to?
The Letter of Intent: Binding or Non-Binding?
Under Belgian law, the principle of consensualism applies: an agreement on the object and the price is enough to conclude a sale. In real estate, for example, signing a preliminary agreement practically seals the deal. But in a business sale, the LOI typically marks the beginning of the relationship with the buyer. The buyer usually wants to deepen their understanding of the company, often leading to new negotiations.
That’s why buyers tend to emphasise the non-binding nature of the LOI. It’s also important to identify the points still open for discussion, to avoid them being taken as settled. That said, suspensive conditions can be included, such as securing financing or completing due diligence. In short, how the LOI is worded can significantly impact the rest of the process.
The Price — But Which Price?
In real estate, the price in the preliminary agreement is generally final. The property’s value remains stable between the preliminary and final acts.
In a business transfer, however, the price proposed in the LOI is usually based on a partial analysis of the accounts and early information provided by the seller.
And several months may pass before the final sale agreement is signed. Setting a fixed price in the LOI may seem reassuring, but it’s a risky gamble — the company’s value may change over time.
The buyer may therefore propose:
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a price adjustment mechanism using a formula, or
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an earn-out, which links part of the price to the company’s future performance.
Hold Off on the Champagne
As you can see, a letter of intent and a preliminary sales agreement don’t have the same legal effects. Mentioning a final price in the LOI without clarifying its legal weight can lead to confusion.
Still, receiving an LOI is a strategic milestone. Being well-supported during its drafting or review helps lay a solid foundation for the next negotiation phase — and, ultimately, to turn that LOI into a definitive sale agreement. And only then… should you pop the champagne!
Anthony Henrion
