Letter of Intent (LOI)

A Letter of Intent (LOI), Memorandum of Understanding (MOU), or Term Sheet is the bridge document that captures the commercial intent of a transaction before the long-form agreement is drafted. By 2026, in Indian deal practice, LOIs are routinely used for M&A buy-side and sell-side, joint ventures, real estate purchases, large vendor / customer onboarding, fundraising (alongside the term sheet), and franchise agreements. Done correctly, an LOI locks the parties into a commercial framework, gives both sides confidence to invest in due diligence, and keeps the transaction on track. Done badly, the LOI either creates unintended binding obligations (party committed to a deal they can't deliver) or fails to bind the parts that actually need binding (exclusivity, cost-sharing, confidentiality).

The legal architecture: Indian Contract Act 1872 baseline — an LOI is a contract if there is offer, acceptance, consideration, and intention to create legal relations. The dichotomy of binding vs non-binding clauses is the central design question. Most LOIs are structured with commercial terms (price, structure, scope) as non-binding and certain protective provisions (exclusivity, confidentiality, cost-sharing on DD, governing law) as binding. Without this clarity, LOIs become litigation bait — the Supreme Court in Karnataka Power Transmission Corporation v. Ashok Iron Works (2009) and subsequent cases has emphasised intention of parties as the determining test.

We draft LOIs / MOUs / Term Sheets end-to-end — for M&A, JV, real estate, fundraising, vendor / customer agreements, franchise — designed to bind what should bind and not bind what should remain open.

What a Real LOI Settles

• Commercial Terms (Typically Non-Binding):: Transaction structure (asset / share / merger), price / valuation methodology, payment terms, key conditions, expected timeline. Subject to long-form agreement and DD.

• Exclusivity / No-Shop (Binding):: Period during which the seller cannot solicit or accept other offers; typically 30-90 days; breach attracts liquidated damages or right to specific performance.

• Confidentiality (Binding):: Bilateral confidentiality of deal information and DD findings; survives termination of LOI.

• Cost-Sharing on DD (Binding):: Each side bears own DD costs; or a defined cost-sharing arrangement for shared work (technical / environmental / legal).

• Conditions Precedent / Outline:: Major CPs that the long-form will detail — corporate approvals, regulatory clearances, third-party consents.

• Governing Law & Dispute Resolution (Binding):: Indian law typically; arbitration seat (often Mumbai / Delhi); LOI disputes (usually around exclusivity / confidentiality breach).

• Termination & Effect (Mixed):: Long-stop date for execution of long-form; what survives termination (confidentiality, return of materials, surviving obligations).

LOI vs MOU vs Term Sheet

LOI: Most general; used in M&A, JV, real estate, vendor agreements; mixes binding and non-binding provisions.

MOU: Often used for non-commercial / institutional collaborations, MoUs between governments, MoU for academic / research partnerships; can be binding or non-binding depending on intent.

Term Sheet: Standard in fundraising (Series A / B / C); captures equity round commercial terms; mostly non-binding except confidentiality, exclusivity, and certain process commitments.

Common Failure Modes

Binding / non-binding distinction not clear — accidental binding on price or structure. Exclusivity period too long — seller stuck if buyer drags. Confidentiality clause too narrow — deal information leaks. Cost-sharing absent — disputes at DD termination. We design every LOI with these failure modes mapped.