A Letter of Intent (LOI) might not get the spotlight like contracts do, but don’t underestimate its power. It is the opening act that sets the stage for partnerships, deals, and new opportunities.

But here's the kicker: LOIs are often misunderstood, and many people miss the mark when creating them. A poorly drafted letter of intent can breed confusion, derail negotiations, and throw a wrench in what could've been a game-changing opportunity.

In this guide, we’ll show you how to craft LOIs that aren’t just functional but effective. Whether you’re exploring a major business deal, applying for grants, or exploring academic opportunities, you’ll have what it takes to make your LOIs work like a charm.

Source: Peter Williams via LinkedIn

What is a letter of intent?

A Letter of Intent (LOI) is a document outlining the intentions of two or more parties who want to enter into a contractual relationship. It is normally used ahead of a formal agreement and initiated by the party proposing the relationship.

In every LOI’s first draft, you’ll find the proposer’s objectives, what they have to offer, what they expect, and any terms and conditions they believe are important for the potential agreement. Every detail in the LOI is provided in broad strokes but will be explored in depth once all parties agree to proceed with a formal agreement.

Upon receiving the LOI, the other party will review the document to ensure the proposal aligns with their interests. If necessary, they may initiate further negotiation to iron out some aspects before embedding their signature.

Signing on the document by all parties means they’ve all come to a preliminary agreement and are now ready to flesh out a definitive contract.

Is a Letter of Intent legally binding?

A letter of intent is generally non-binding unless all parties agree otherwise. A more binding counterpart is the Memorandum of Understanding (MOU).

But don’t be deceived: if an LOI outlines terms that create legally binding agreements, courts might consider enforcing those terms, especially if the parties’ conduct, general language, and other factors point them in that direction.

So, when laying out the details of your LOI, it’s important to be crystal clear about your intentions. If you mean for it to stay casual, make sure it reads that way. And if you want some parts to stick (like the confidentiality clause for sensitive information), be explicit about it.

The devil’s always in the details!

Source: Sarah Shergy Shepard

What is the purpose of a letter of intent?

Source: Tim Mueller via LinkedIn

The goal of a letter of intent is simple: to create an avenue for preliminary discussions where the parties involved can:

• Set expectations and timelines for potential deliverables
• Clarify the scope of the engagement
• Highlight key terms the parties intend to negotiate
• Do proper due diligence
• Set the stage for future negotiations

What are the uses of a letter of intent?

An LOI isn’t a one-dimensional document. It has a wide variety of use cases beyond business scenarios. As long as two parties (or more) are involved and there’s an opportunity for a potential engagement, an LOI can definitely play a role.

Here are some everyday use cases:

#1 Use of LOI in business transactions

Source: Edward Grenville via LinkedIn

LOIs are very common in the business world. Potential business partners use them as icebreakers when exploring possible partnerships and business transactions.

Whether you’re considering striking a merger or exploring a possible long-term supply deal, an LOI allows you to table the details of your proposal and have the necessary preliminary conversations before getting down to formalities.

Also read: 10 Types of Commercial Contracts Your Team Must Know

#2 Application of LOI in education

A student may use an LOI to express their interest in a school, academic program, scholarship, or research project.

In the same vein, schools, research institutions, or scholarship providers use letters of interest to gauge interests and identify solid candidates.

#3 LOI in employment

A job seeker may use a letter of intent to express interest in working for a company, even when there are no publicized opportunities within the company.

In this case, the letter of intent is structured like a pitch where the job seeker states why they’re interested in working for that particular company, how their unique skills and qualifications align with its values, and what they can bring to the table if given the opportunity.

Also read: How to Review Employment Contracts: A Comprehensive Guide

#4 LOI in grant applications

Source: Libby Hikind via LinkedIn

You can use a letter of intent when applying for grants from private or government institutions. An LOI talks about your project, its potential impact on the community or industry, why it needs funding, and how you plan to use the grant if awarded.

Grant providers also use letters of interest to filter through a pile of applications. They read through the details to identify projects that best fit their criteria.

What are the parts of a letter of intent?

A letter of intent can be written in many different ways, depending on what you’re using it for. But regardless of the use case, an LOI generally contains the following parts:

#1 The header section

The header section is where you describe “who’s who” in the conversation. It starts with your company details (or personal details, depending on the use case), including the name, address, email, and phone number.

After that, you’ll find the date directly underneath. This is then followed by the recipient’s details, including their name, job title, company name, and company address.

This section is essentially formatted like a conventional cover letter.

#2 The salutation

This is a simple section where you insert your greeting. Most people simply use "To whom it may concern," "Dear hiring manager," or " Dear Sir or Madam," especially when they don't know the recipient's name.

However, it'll benefit you greatly if you can find the name of whoever you're addressing the LOI to. It'll add a personal touch to the letter and likely ramp up your chances of having a favorable outcome.

#3 The introduction

The introduction is often a short paragraph that introduces you and states why you’re writing the letter. Whether you’re looking for a job, proposing a business transaction, or applying for a grant, the introduction is where you break the ice and set the tone for the rest of the letter.

#4 The main body

The body section is where the entire essence of the letter of intent lives. It can contain a few lines or multiple paragraphs, depending on what you’re writing about.

For business transactions, the main body will typically cover the project scope, expiration date, involved stakeholders, proposed terms, and contingencies.

For job applications, the main body is where you talk about your background, why you’re interested, how your career goals align with the company's vision, and how getting you onboard can benefit the organization.

#5 The closing copy

The closing copy is where you reiterate the main points of the LOI and highlight any necessary actions (e.g., signature) to move the engagement to the next stage.

It often ends with "yours sincerely," "best regards," or other professional closing phrases.

#6 Optional attachments or enclosures

If there are any documents relevant to the LOI, this section is where you outline them. Such attachments could be product sheets, resumes, financial records, or project plans.

#7 Signature section

The signature section is where all parties formally acknowledge their intention to move on to the next stage.

This section often includes a space for date inclusion. Including a date with the signatures is important for record-keeping as it establishes when the involved parties reached an agreement to proceed with a formalized engagement.

Letter of intent example

Following the structure above, a sample letter of intent will look like this:

Here's a revised version with all placeholders replaced by random example details:

Visionary Ventures LLC
*** Street
Austin, TX 78701
Contact Information
Email

Date

Michael Thompson
Director of Strategic Partnerships
Pinnacle Tech Solutions
*** Avenue
San Francisco, CA 94107

Dear Mr. Thompson,

Subject: Letter of Intent to Form a Strategic Partnership

Visionary Ventures LLC is pleased to formally express our intent to collaborate with Pinnacle Tech Solutions in a strategic partnership aimed at developing and delivering cutting-edge software solutions for small and medium-sized businesses (SMBs).

Our companies share a mutual commitment to empowering SMBs with innovative technologies that drive efficiency and growth. At Visionary Ventures, we specialize in designing intuitive cloud-based platforms tailored to streamline business operations. Pinnacle Tech Solutions’ reputation for exceptional hardware integration and customer support makes this partnership a natural fit for expanding our shared impact in the SMB market.

This letter outlines the key terms of our proposed collaboration:

• Project Scope: Jointly develop and market an all-in-one software and hardware solution for inventory management and sales tracking.
• Roles and Responsibilities: Visionary Ventures will lead software development and user experience design, while Pinnacle Tech Solutions will focus on hardware production and technical support.
• Proposed Timeline: Initial product launch is targeted for October 2025.
• Revenue Sharing: Revenue generated from the partnership will be distributed on a 60/40 split, favoring Visionary Ventures for leading the software innovation.
• Confidentiality: Both parties agree to maintain strict confidentiality regarding proprietary information throughout the duration of our partnership.

We are excited about the potential synergy between our organizations and the value this partnership will deliver to our clients. Upon your review of this letter, we propose scheduling a meeting by December 20, 2024, to discuss the terms in greater detail and finalize a Memorandum of Understanding (MOU).

Thank you for considering this opportunity. Please feel free to contact me directly at phone number or email if you have any questions or need additional information.

Best regards,
Jane Harper
CEO
Visionary Ventures LLC

Attachments:

• Company Portfolio
• Draft Project Plan

Best practices for a letter of intent

Source: Martyn Eeles

Writing a great letter of intent isn’t as difficult as it sounds. But like every official document, it does require careful thought and a dash of finesse.

Think of it as setting the stage for a bigger conversation. You want to make sure the tone is right, the details are clear, and everyone walks away with a solid understanding of what comes next.

#1 Keep it concise

The ideal letter of intent should span about 1 page and no more than two pages. Your LOI is not where you go super broad about everything.

Stick to what matters most: the core objective, fundamental terms, and next steps. Always remember that with letters of interest, less is always more.

#2 Use an Organized Structure

A well-organized LOI is easier to digest. Your introduction, intent, key terms, timelines, and other details should flow logically. Maintain a neat layout with headings, bullet points (where appropriate), and clear paragraphs.

This allows the prospect to quickly scan the document and zero in on the parts that matter most.

#3 Always review the details

“Get in fast, flag the biggest risks, manage those risks, and move on to the next thing. But see everything so you're not missing anything material.”

~Jonathan Franz, Head of Legal, Crunchbase
Navigating Economic Turbulence and Thriving in Chaos

Before you send your letter of intent, always take a moment to double-check everything. Read between the lines for errors and omissions. Are the terms clear and specific? Is the timeline realistic? Have you included the right names, dates, and relevant information?

Ensure you’ve not inadvertently included provisions or composed the letter of interest with language that could bind you to unexpected obligations.

#4 Include a "non-binding" clause

 “This letter of intent is non-binding and serves only as a framework for discussion.”

The above is a non-binding clause and can benefit you in several ways. A non-binding clause ensures you don’t get caught unawares or locked into terms you haven’t fully negotiated yet.

It also makes the other party feel much safer, knowing they won’t be legally obligated to follow through until both parties are comfortable with the terms and ready to sign a formal contract.

#5 Address key pain points upfront

If you know there are areas or specific terms that might cause friction (like pricing, deliverables, or timelines), address it in the LOI.

Don’t avoid potential sticking points. Bring them up in a diplomatic way, like: "We are aware that the timelines may require additional discussion and would like to propose the following solutions…" 

Being proactive shows that you’ve thought through the details and are already looking for resolutions.

#6 Don't undermine due diligence

Source: Sarah Shergy Shepard

Before you agree to deal with any business, make out time for proper due diligence. Do not approach this casually as it's your opportunity to learn about the prospect and verify every information they presented.

During due diligence, you might need to cover areas like financial records, company reputation, past performances, and the qualifications of key personnel.

If you require further information, don't hesitate to ask.

Also read: Company Due Diligence Checklist

How to manage a letter of intent

How much you achieve with your letters of interest depends on more than just your drafting technique. You must learn to systematically manage the entire process from the initial stage to the point of transition.

Here are important steps you should incorporate for the best results.

#1 Templatize for scale

If your company is constantly churning out business deals, drafting fresh letters of interest for every new business opportunity is a poor use of your valuable time. This approach is unscalable as it can quickly get exhausting and prone to errors.

“The absence of templates leads to non-standardisation and makes contracts prone to errors. The legal team, therefore, is required to proofread all clauses with a fine-tooth comb to identify and rectify the simplest of human errors.”

~Igor Poroger, Director of Legal, EMEA, Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies

What you need is a collection of LOI templates, tailored to suit your company’s unique objectives. Each letter of intent template should contain placeholders for important variables like names, dates, terms and conditions, etc., relevant for different business scenarios like vendor agreements, joint ventures, etc.

With a standardized template, all you have to do is plug in the details relevant to the recipient, and you’ll be ready to go in no time.

Even better, there are several platforms that make it easy to create standardized templates for your LOIs and other business documents. SpotDraft, for instance, allows you to turn your best-performing letters of interest into standardized templates using AI.

#2 Incorporate a version control system

Source: Justin McNaughton via LinkedIn

When working on an LOI, a lot of changes can happen between making the first draft with your team and revising the details in response to feedback from your recipients.

If you don’t have a way to track the different versions of your letter of interest, you might end up working off an outdated document or, worse, sending the wrong version to the wrong person.

“Version control is key to contract risk management. The most important element of version control is to ensure that everyone (Sales, lawyers, etc.) starts every deal using the appropriate template."

~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC.
Ten Things You Need to Know As In-House Counsel

To maintain proper version control, you must first house all your documents in a central repository.

Using an automated central repository from platforms like SpotDraft ensures that every new version is immediately earmarked. And not just that, you’ll be able to see who made the changes and when such changes were initiated.

Also read: Ensuring Contract Version Control

#3 Use a CLM for an efficient transition

Say your LOI meets your prospect's requirements, and they decide to proceed to the next stage: you need to transition into the contracting phase as productively as possible.

You don’t want to be bogged down by manual processes or get limited by inefficient review workflows. Your contracting process should be completely seamless, allowing you to quickly move from intent to signed agreement without unnecessary delays.

This is what a Contract Lifecycle Management (CLM) platform is designed to help you achieve.

A CLM like SpotDraft empowers you to efficiently transition from LOI to signed agreements through its ecosystem of AI-powered, battle-tested functionalities. With SpotDraft, you can upload your LOI and receive a comprehensive contract template fortified with all the necessary legal guardrails in minutes.

It also offers automated review and approval workflows, which allow you to power through every detail, fix areas of concern, and push contracts to subsequent phases more productively.

Ultimately, a CLM is what you need if you want to close more deals without getting slowed down by manual processes.

Wrapping up

While a letter of intent may not carry the legal weight of other legal documents, its importance shouldn't be underestimated.

Through an LOI, parties involved can quickly determine whether a potential partnership is worth exploring. It offers a snapshot of expectations and gives everyone a clearer sense of direction before jumping into more binding agreements.

However, to truly get the best outcomes with your LOIs, you must approach them with foresight and strategy. If done right, an LOI will set you up for success down the line.

Ready to see how SpotDraft can help you create compelling LOIs and even better contracts? Click here to schedule a free demo.

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