Letters of Intent to Buy or Sell
an Oklahoma Business

Is a letter of intent binding? Mostly not, but parts of it almost always are. A letter of intent, or LOI, to buy or sell a business is usually written so the price, structure, and other deal terms don’t bind anyone until both sides sign a purchase agreement. A short list of provisions, such as confidentiality and exclusivity, binds the moment the letter is signed. And a loosely drafted letter can bind more than either side intended, because courts look at what the letter says and how the parties acted, not just the label at the top.

The LOI is also where much of a deal’s leverage gets spent. Once a seller signs exclusivity, the other buyers go away, and every open term gets negotiated against the buyer’s price. This guide covers what’s binding, how courts applying Oklahoma law have read these letters, and what to settle before you sign.

Table of Contents

• What a Letter of Intent Does
• Is a Letter of Intent Legally Binding?
• The Terms That Usually Are Binding
• The Business Terms to Settle in the LOI
• What Buyers and Sellers Each Push For
• What Happens After the LOI Is Signed
• What Changes in the Purchase Agreement
• How Long From LOI to Closing
• Broker Prepared LOIs and Offer Forms
• Mistakes That Cost Leverage
• Oklahoma Specific Considerations
• Frequently Asked Questions
• Sign the LOI You Mean

What a Letter of Intent Does

An LOI is a short document, signed once a buyer and seller agree on the main points, that sets out the proposed deal before anyone pays for a full purchase agreement. Some deals call it a term sheet or a memorandum of understanding; the content matters more than the name. The North Carolina Small Business and Technology Development Center’s guide to selling a small business, from a UNC System program partly funded by the SBA, describes the LOI as a nonbinding agreement listing key proposed terms such as price, timeline to closing, form of payment, financing source, and the seller’s future involvement.

A good LOI tests whether there’s a deal worth papering, gives the buyer time for diligence without being outbid, and gives lenders something to review. NerdWallet’s guide to business acquisition loans notes that lenders will often ask for a letter of intent as part of the loan application. Live Oak Bank describes a typical LOI as around three to five pages, far shorter than the purchase agreement that follows. The SBA’s guide to buying an existing business lists the letter of intent among the documents an attorney and accountant can help you create or evaluate.

Is a Letter of Intent Legally Binding?

It depends on what the letter says and what the parties do. Courts generally ask whether the parties meant to be bound before signing a final agreement and whether they’d agreed on the essential terms. Under Oklahoma law, consent isn’t mutual unless the parties agree on the same thing in the same sense, so a letter that leaves price, structure, or other key points open usually isn’t a finished contract. That’s a starting point, not a guarantee.

How Courts Have Read These Letters Under Oklahoma Law

Two decisions show both sides of the line.

In Sigma Resources Corp. v. Norse Exploration, Inc., decided in 1992, two companies teaming up to buy oil and gas assets out of a bankruptcy signed a letter agreement that set their percentages and deadlines and left a joint venture agreement and an operating agreement for closing. Norse then joined a competing group whose offer was accepted. The trial court granted summary judgment for the defendants, finding among other things that no joint venture agreement was ever signed. The Oklahoma Court of Civil Appeals reversed. It said that “an agreement to agree to more specific terms at some time in the future may nevertheless form an enforceable contract,” held that leaving terms for later didn’t defeat the letter under the statute of frauds, and sent the case back because whether a joint venture existed was a disputed question of fact. Because the Court of Civil Appeals released the opinion for publication without Oklahoma Supreme Court approval, it’s persuasive authority, not binding precedent.

In Lewis v. Pilot Corp., decided in 2002, the federal Tenth Circuit Court of Appeals applied Oklahoma law to a letter of intent from Pilot Corporation to buy a gas station that the owner ran on leased land in eastern Oklahoma. The owner signed it, then sued after Pilot bought the land, including his site, from the landowner instead. The letter said, in plain terms, that neither side would be bound until both signed a contract, made the price and closing subject to a mutually acceptable agreement, and required approval by Pilot’s accountants, attorneys, and board. The court held that the letter “was no more than an offer to enter into further negotiations.” The decision is unpublished, so it isn’t binding precedent, but it shows how much work clear nonbinding language does.

Neither case involved a typical small business sale, and each turned on its facts. The practical point: what the letter says about being bound, and what the parties do afterward, can decide whether there’s a contract.

The Terms That Usually Are Binding

Even a nonbinding LOI usually carries a short list of binding provisions. The NC SBTDC guide notes that LOI terms are almost always nonbinding but that an LOI may include binding provisions such as a nondisclosure term and an exclusivity or no shop period. Here’s what usually goes on the list.

Exclusivity Is the Seller’s Biggest Concession

While exclusivity runs, the seller can’t use other offers to hold the buyer to its price. Sellers should keep the period as short as the real timeline allows, make extensions depend on visible progress, such as a lender commitment, and consider ending exclusivity early if the buyer tries to lower the price. Buyers need enough time to finish diligence and financing without being outbid.

Confidentiality

Diligence means handing over tax returns, customer lists, pricing, and payroll. If the parties already signed a nondisclosure agreement, the LOI should say whether it still controls; if not, it should cover who sees what, contact with employees and customers, and what happens to the information if the deal dies. Our guide to structuring an NDA covers the main choices.

Promises to Negotiate in Good Faith

Some LOIs include a binding promise to negotiate in good faith, and it can matter more than it sounds. In SIGA Technologies, Inc. v. PharmAthene, Inc., the Delaware Supreme Court upheld a finding that SIGA breached an express obligation to negotiate in good faith toward a license term sheet whose pages were marked nonbinding. The court held that expectation damages, meaning the value of the lost deal, can be recovered when the trial court finds the parties would have reached an agreement but for the bad faith. The duty in that case came from signed loan and merger agreements, not from the term sheet alone. Whether to include, leave out, or narrow a good faith promise is a judgment call for counsel, and the governing law you pick can change how it’s enforced.

The Business Terms to Settle in the LOI

These terms usually aren’t binding, but they frame the purchase agreement. A term left vague in the LOI gets resolved during exclusivity, when the seller has less leverage.

Price and How It’s Paid

A headline price means little without the mix: cash at closing, a seller note, an earnout, equity the seller rolls into the buyer, or debt the buyer assumes. The LOI should say how much comes at closing and what’s deferred. If the price is based on earnings, name the period and how earnings are measured.

Asset or Equity Purchase

In an asset purchase, the buyer chooses the assets it takes and the liabilities it assumes. In a stock or membership interest purchase, the buyer steps into the entity with its history. The IRS’s page on the sale of a business explains that when a business’s assets are sold, each asset is generally treated as sold separately for figuring gain or loss, and that buyer and seller use the residual method to figure how much of the price is for goodwill and other intangibles. A sale of stock or membership interests is taxed differently. In an asset sale, both sides report that allocation on Form 8594, so agree on the approach early. See our guides to asset vs. stock purchases and, for C corporation sellers, personal goodwill and the double tax.

Working Capital

Most buyers expect the business to come with enough working capital, such as receivables and inventory net of payables, to run normally on day one. Purchase agreements often set a target and adjust the price after closing if the actual amount comes in above or below it. The NC SBTDC guide lists the net working capital target and adjustment among the common reasons deals fall through after an LOI.

Escrow or Holdback

An escrow sets aside part of the price with a neutral third party, usually a bank, to cover indemnification claims or price adjustments after closing. A holdback serves the same purpose, but the buyer keeps the money. SRS Acquiom, an M&A services company whose deal data comes mostly from transactions far larger than a typical small business sale, says a holdback of 10 percent or more of the purchase price is common but negotiable, and that 12 to 18 months is a common duration. Treat those figures as a reference point, not a norm for smaller deals. The LOI should settle the amount, the length, and who holds the money.

Seller Financing

If the seller is carrying part of the price, the LOI should cover the amount, interest, term, collateral, any personal guaranty, and whether the note sits behind the bank’s loan. In an SBA financed deal, SBA rules limit how much of the buyer’s required equity a seller note can supply and can restrict when it’s paid; see our post on the new SBA acquisition rules. A note also changes the seller’s tax timing: IRS Publication 537 explains that inventory sales can’t use the installment method and that depreciation recapture is reported in the year of sale even when payments come later.

Earnouts

An earnout pays part of the price later if the business hits agreed targets, which can bridge a valuation gap. The NC SBTDC guide cautions that earnout payments usually rest on accounting calculations that put both parties at risk, and that the seller may need to stay involved to help hit the targets. The LOI should at least name the metric, the period, the maximum, and who controls the business while it runs. Our guide to earnouts in M&A transactions covers the design choices.

Employment, Transition, and Noncompete

Most buyers of an owner run business need the owner’s help after closing. The LOI should say whether the seller will stay as an employee or a consultant, for how long, for what pay, and whether that pay is part of the price. A buyer paying for goodwill will also expect a noncompete; name who’s bound, the territory, and the length. Oklahoma allows these within limits tied to the sale of goodwill, which the Oklahoma section explains.

Conditions and the Diligence Period

List the conditions that let the buyer walk away: satisfactory diligence, financing, the landlord’s consent to a lease assignment, key customer or supplier consents, license transfers, and franchisor approval for a franchise. NerdWallet notes that a buyer can add a financing contingency; sellers should ask for a deadline on it. Our commercial lease review guide explains why assignment terms can make or break a closing.

What Buyers and Sellers Each Push For

Every LOI is a trade. Here’s where the two sides usually pull, so you can decide which points to win now.

What Happens After the LOI Is Signed

Signing starts the most expensive part of the deal, and most of these steps run at the same time:

• Diligence. The NC SBTDC guide describes it as the buyer’s review of documents and interviews to verify the LOI’s assumptions, validate the valuation, and find obstacles to closing.
• Financing. The lender reviews the LOI and the financials. The SBA 7(a) program lists changes of ownership among its permitted uses; our guide to SBA 7(a) loans covers how they work.
• Drafting. The buyer’s attorney customarily drafts the first version of the purchase agreement, the NC SBTDC guide notes, though the parties can agree otherwise.
• Consents and side documents. Landlord consents, contract assignments, employment or consulting agreements, the noncompete, the escrow agreement, and any seller note documents.
• Signing and closing. In small business sales, the guide says, signing and closing typically happen at the same time.

For the full process, see our guides to buying a business in Oklahoma and selling a business in Oklahoma.

What Changes in the Purchase Agreement

The LOI is the outline; the purchase agreement is the deal. The NC SBTDC guide lists what a purchase agreement commonly covers, including payment terms, representations and warranties, the seller’s covenants, conditions to closing, and remedies if the sale fails. The big additions over an LOI are representations and warranties about the business, disclosure schedules listing the exceptions, indemnification (what the seller owes if a statement proves false, how much, and for how long), working capital mechanics, and closing deliveries.

Two changes deserve attention. First, the price can move. If diligence turns up something the LOI didn’t account for, a buyer may try to lower the price, often called a retrade. A seller’s best protection is an LOI that states the assumptions behind the price. Second, the purchase agreement usually says it’s the entire agreement, so a point the LOI settled but the purchase agreement leaves out may not survive. Our post on whether you need a lawyer to sell your business covers the seller’s side of this stage.

How Long From LOI to Closing

There’s no standard timeline, and the LOI’s target closing date is a goal, not a promise. Financing often sets the pace. NerdWallet reports that standard SBA 7(a) loans can take 30 days to a few months to fund, and the NC SBTDC guide warns that a deal with third party financing may be delayed while the lender does its own diligence.

Time cuts both ways. The NC SBTDC guide advises sellers to move quickly when possible and names the passage of time affecting valuation among the common reasons deals fall apart. Set exclusivity and the target closing date to match the real work.

Broker Prepared LOIs and Offer Forms

When a business broker is involved, the broker often supplies the LOI or an offer form. These forms can be a reasonable starting point, but they aren’t neutral, and they aren’t legal advice for either side.

• Know who the broker works for. A broker is often hired by the seller, so a buyer shouldn’t assume the form protects it.
• Check whether it’s an LOI or an offer. Live Oak Bank describes an offer to purchase as falling between an LOI and a purchase agreement, with some elements that are legally binding.
• Read the deposit terms. Who holds it, when it becomes nonrefundable, and what happens to it if financing or diligence fails.
• Look for what’s missing. Standard forms often leave out working capital, escrow, the noncompete, or the seller’s transition role.

Mistakes That Cost Leverage

1. Signing exclusivity before the hard terms are settled. Every open point becomes a negotiation against a clock.
2. Leaving the payment mix vague. A price that’s half seller note and earnout isn’t the same as cash at closing.
3. Ignoring working capital. It’s a common reason a price changes or a deal dies after the LOI.
4. Treating nonbinding as meaning no consequences. The binding provisions bind, and loose drafting or conduct can bind more.
5. Skipping structure and tax. Talk through asset or equity, the allocation, and any personal goodwill with your CPA before you sign.
6. No outside date. An LOI without an end date can keep a business off the market indefinitely.
7. Bringing in counsel after signing. The LOI is where the key decisions get made, so it’s the cheapest place to get them right.

Oklahoma Specific Considerations

Oklahoma contract law shapes how these letters are read, Oklahoma statutes control noncompetes in a sale, and a few state issues are worth flagging before you sign. Our Oklahoma City mergers and acquisitions attorneys review and negotiate LOIs for buyers and sellers across the metro.

Good Faith and the Binding Terms

The Oklahoma Supreme Court said in Wathor v. Mutual Assurance Administrators, Inc. that every contract in Oklahoma contains an implied duty of good faith and fair dealing. The binding parts of an LOI, such as exclusivity and confidentiality, are contract terms read with that duty in mind. An express promise to negotiate in good faith is a separate choice, and as SIGA shows, breaking one can carry real damages in some states. If an out of state buyer proposes Delaware law or its home state’s law, understand how that state treats these promises before agreeing.

Noncompetes Tied to the Sale of Goodwill

Under Oklahoma law, a contract that restrains someone from a lawful business is generally void to that extent, with narrow exceptions. One covers business sales: a person who sells the goodwill of a business may agree with the buyer not to carry on a similar business within a specified county and the counties next to it, or a specified city or town, for as long as the buyer, or someone who takes the goodwill from the buyer, carries on a like business there. For a business based in Oklahoma County, that could mean Oklahoma County and neighbors such as Canadian, Cleveland, and Logan. An agreement that reaches too far may be upheld only within the county where the business was primarily conducted and the counties next to it.

Oklahoma Items to Flag in the LOI

Sales tax and successor permits. Under Oklahoma Tax Commission rules, a change in ownership generally means the new owner must apply for its own sales tax permit. For a corporation, a new permit is required only if the business is transferred to a different corporation or other owner, so a sale of shares alone may not trigger one. The rule doesn’t address LLC interests directly, so confirm how it applies to your deal. A related rule on successors says a buyer that takes over a business, or substantially all of its assets or inventory, won’t be issued a permit to continue the business until the seller’s sales tax liability is paid or satisfactory arrangements are made with the Commission. That’s a reason to address tax clearance, and possibly an escrow, in the LOI.

Liens on business assets. Oklahoma’s UCC central filing office is in the offices of the Oklahoma County Clerk, which handles most UCC filings for the state. A buyer’s diligence should include a lien search, and the LOI should say which debts the seller will pay off at closing.

Choice of law and courts. Whether the business is in Oklahoma, Canadian, Cleveland, or Logan County, the same state law applies, and a forum clause in the LOI can control where a dispute over a binding provision is heard. Oklahoma law and courts are the natural fit for most metro deals between Oklahoma parties, but make that choice deliberately.

Frequently Asked Questions

• Is a letter of intent legally binding?

  Usually not on price and deal terms, but usually yes on a few named provisions: confidentiality, exclusivity, expenses, governing law, and any deposit. Loose drafting, or conduct that treats the deal as done, can make more of it binding.

• Can I back out of a signed letter of intent?

  Generally yes, as to the deal itself, if the letter is clearly nonbinding on those terms. You’re still bound by its binding provisions, and a deposit may be at risk depending on the letter.

• What is an LOI exclusivity period?

  It’s the time when the seller agrees not to market the business or negotiate with other buyers while the buyer does diligence and lines up financing. It’s usually the seller’s biggest concession.

• How long should exclusivity last?

  Long enough for diligence, financing, and drafting, and no longer. Sellers often tie extensions to visible progress, like a lender commitment or a first draft of the purchase agreement.

• What happens after an LOI is signed?

  Diligence, financing, and drafting of the purchase agreement, usually all at once, plus landlord and other consents. In small business sales, signing and closing often happen together.

• How long does it take to close after an LOI?

  There’s no standard timeline. Financing often sets the pace, and standard SBA 7(a) loans can take 30 days to a few months to fund.

• Can the price change after the LOI?

  Yes, if the price terms aren’t binding. An LOI that states the assumptions behind the price makes it harder to change without a real diligence finding.

• Does a broker’s LOI form protect me?

  Not necessarily. The broker is often hired by the seller, and some forms are offers that bind more than a typical LOI. Have counsel review it first.

• Is a noncompete in a business sale enforceable in Oklahoma?

  It can be. Oklahoma allows a seller of goodwill to agree not to compete within a specified county and the counties next to it, or a specified city or town, while the buyer carries on a like business there.

• Do I need a lawyer before signing an LOI?

  It’s the best time to bring one in. The LOI sets the price mechanics, structure, and leverage for everything that follows.

Sign the LOI You Mean

A letter of intent is mostly nonbinding by design, but its binding provisions are real, and loose drafting and conduct can make it bind more. For most buyers and sellers, the bigger risk is signing exclusivity with the terms that drive value still open. Settle those first, and make sure the letter says exactly which provisions bind.

Disclaimer: This article provides general information about letters of intent in the purchase and sale of Oklahoma businesses and is not legal or tax advice. Case law, tax rules, and lending rules change, and every deal turns on its own facts and documents. For guidance on your specific situation, consult qualified Oklahoma counsel and a CPA or other tax advisor.

About Cantrell Law Firm: We are an Oklahoma City and Edmond business, estate, and oil and gas law firm. As former entrepreneurs and business owners, we help owners start, scale, buy, and sell businesses, including letters of intent, purchase agreements, and the documents that go with them. Learn more about our mergers and acquisitions practice. Contact us to discuss your deal.