Letter of intent (LOI) for buying a business

When do you use a letter of intent?

The letter of intent (LOI; in Danish «hensigtserklæring») usually follows once the buyer has signed a non-disclosure agreement, read the sales presentation and met the seller a few times. The parties broadly agree on price and structure, but the buyer wants to examine the business before committing. The LOI records what you have agreed and gives the buyer the comfort to spend money on accountants and lawyers during due diligence.

It makes less sense for very small and simple deals, such as selling a domain or a small website, where due diligence takes a few days. There you can often go straight to the asset purchase agreement. Nor does it replace the purchase agreement: a letter of intent transfers nothing.

What the template contains

• Parties and nature of the letter: who the buyers and sellers are, and which sections are binding and which are not.
• The business and the form of transaction: what is being bought, and whether it is an asset deal or a purchase of shares in an ApS or A/S (Danish private and public limited companies).
• Provisional price and payment: cash on completion, earn-out and/or seller financing, and the assumptions the price is based on.
• Conditions and due diligence: for example financing, a satisfactory review, the landlord’s consent and what the seller must make available.
• Timetable: dates for due diligence, the draft purchase agreement, signing and completion.
• Exclusivity, confidentiality, costs and termination (binding): the seller does not negotiate with others for a period, each party pays its own advisers, and when the LOI lapses.
• Management, employees and transition: the seller’s involvement after completion and how staff are informed.
• Governing law and venue (binding): Danish law and the Danish courts.

Points to watch

Binding or not. A letter of intent is generally not a binding agreement to buy, but that depends on the wording. If it is very detailed and does not clearly mark what is non-binding, a Danish court could in the worst case treat it as a real contract under the Contracts Act (aftaleloven). The template therefore separates the commercial terms (non-binding) from exclusivity, confidentiality, costs and governing law (binding).

Negotiating in good faith. Even though the price is not binding, the parties are expected to negotiate fairly. A party who keeps talks going without real interest, or breaks them off in a disloyal way, may in exceptional cases be liable for the other side’s costs (culpa in contrahendo). This is the exception, but state clearly when either party may walk away.

• Exclusivity: keep the period short and tie it to the timetable. As seller, avoid automatic extension and keep the right to end exclusivity if the buyer misses the deadlines.
• Price assumptions: state whether the price is debt-free, whether stock and receivables are included, and whether a certain level of working capital is expected. This is where most later price disputes start.
• Earn-out: link it to something measurable that the buyer does not control alone, such as revenue or gross profit, and agree how the figure is calculated and documented.
• Seller financing: agree term, interest and security now. An unsecured vendor loan is a real risk for the seller.
• Asset or share deal: the choice has major tax consequences for both parties under Danish rules. Speak to an accountant before signing; see asset or share sale.

Online and physical businesses

For an online shop, SaaS product or app, the conditions often concern traffic, subscribers and platforms: that revenue holds up until completion, that accounts with payment providers and app stores can be transferred, and that key suppliers accept a new owner.

For a shop, restaurant or trade business, the lease is often the key condition: the landlord must accept the buyer, or a new commercial lease must be signed. Licences, stock counted at completion and the transfer of staff under the Danish Transfer of Undertakings Act (virksomhedsoverdragelsesloven) also belong here. See physical businesses.

How to use the template on Sitavo

The letter of intent is available to you if you have an active or pending listing or an ongoing deal on Sitavo. Otherwise you can read the first sections on this page. You fill it in with the editor in your account, where parties, business and price can be taken from the listing or deal, edit the wording directly and download it in Word or PDF. The agreement text itself is in Danish, as the deal is governed by Danish law. A bid on Sitavo and an LOI work well together: the bid sets out the price, the LOI the other terms.

After the LOI come the due diligence checklist and then the purchase agreement for an asset deal or a share deal. The seller’s guide chapter on negotiation and the letter of intent goes into the negotiation in depth, and the valuation gives you a basis for the price before you put figures on paper.