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 LOI format 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 LOI format work like a charm. Plus, you’ll find an LOI sample that you can adapt for your needs.

Source: Peter Williams via LinkedIn

What is a LOI?

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. A well-prepared LOI format ensures both clarity and efficiency in early-stage discussions.

In every LOI format’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 format is provided in broad strokes but will be explored in depth once all parties agree to proceed with a formal agreement.

Is a LOI legally binding?

A LOI 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 format outlines terms that create legally binding agreements, courts might consider enforcing those terms. 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 LOI?

Source: Tim Mueller via LinkedIn

The goal of a LOI format 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 LOI?

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 an LOI format as an icebreaker when exploring partnerships and transactions. A good LOI sample can help frame these initial discussions.

Whether you’re considering striking a merger or exploring a possible long-term supply deal, a 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

Students and institutions rely on a clear LOI format when expressing or gauging interest in academic programs. Reviewing a strong LOI sample can guide this process.

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

#3 LOI in employment

Job seekers often use an LOI format to express intent to potential employers. An effective LOI sample can make these letters more compelling.

In this case, the LOI 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

An LOI format is essential in grant writing to present project goals and funding needs. A well-crafted LOI sample helps applicants stand out.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 LOIs to filter through a pile of applications. They read through the details to identify projects that best fit their criteria.

LOI example

Following the structure above, a sample LOI 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: LOI 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 LOI

Source: Martyn Eeles

Writing a great LOI 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

A well-organized LOI format is easier to digest. Reviewing a polished LOI sample can help you achieve this. Stick to what matters most: the core objective, fundamental terms, and next steps. Always remember that with LOIs, 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 sending your LOI format, review for clarity and accuracy. 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 LOI with language that could bind you to unexpected obligations.

#4 Include a "non-binding" clause

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

A critical component of a good LOI format is a clear non-binding clause.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

An LOI format should diplomatically handle potential sticking points. 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

Due diligence remains essential before finalizing any LOI format. Referencing an LOI sample can ensure completeness.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 LOI

Creating a standardized LOI format saves time. Companies often maintain a library of LOI sample documents.How much you achieve with your LOI 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 LOIs 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 LOI 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 LOIs into standardized templates using AI.

#2 Incorporate a version control system

Source: Justin McNaughton via LinkedIn

Proper version control ensures accuracy across every LOI format iteration. 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 LOI, 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

Platforms like SpotDraft help manage transitions from LOI format to signed agreements. 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 a final agreement, the importance of using a clear, effective LOI format cannot be understated. Reviewing a strong LOI sample can provide guidance and inspiration. Approach your LOI format with care, and it can be a powerful tool in your negotiation arsenal.

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

FAQs around LOI

1. How Do You Format an LOI?‍

Use a clear LOI format with a header, subject line, body outlining intent and key terms, and a formal closing.

2. What Should Be Included in a Letter of Intent?

‍Include purpose, roles, timelines, key terms, and a non-binding clause if needed.

3. How Do I Ensure My LOI Format Includes All Necessary Clauses?

‍Start with an LOI sample or template and review it to cover all essential legal and business clauses.