Letters of Intent in Nevada M&A Deals: What to Include and What to Avoid

A letter of intent (LOI) is often the first substantial document exchanged when a buyer and seller are negotiating a Nevada business acquisition. It establishes the basic framework for the proposed transaction before the parties spend significant time and money on due diligence and definitive agreements. Because the LOI can shape the entire negotiation, working with a Mergers & Acquisitions Attorney (Nevada) before signing can help ensure that the document reflects the deal the parties actually intend to pursue without creating unintended obligations.

An LOI typically summarizes the proposed purchase price, transaction structure, due diligence process, timing, and other major business terms. In many transactions, the parties intend most of these provisions to remain non-binding while making selected provisions, such as confidentiality or exclusivity, legally binding. Nevada case law has recognized an LOI as a non-binding “agreement to agree” in appropriate circumstances, but the title of the document alone does not determine its legal effect.

What Is a Letter of Intent in an M&A Transaction?

A letter of intent is a preliminary document that records the principal terms that a buyer and seller have discussed. It is generally used before the definitive purchase agreement, giving both sides a framework for deciding whether to proceed with detailed diligence and negotiations.

An LOI can be particularly useful because it forces the parties to confront major economic issues early. Rather than discovering after weeks of diligence that the buyer and seller have completely different expectations about price, structure, financing, or timing, those issues can be addressed at the beginning of the process.

However, an LOI is not the definitive purchase agreement. It generally does not contain every representation, warranty, indemnification provision, closing condition, and operational covenant required to complete an acquisition. Its purpose is to establish the commercial framework while leaving the detailed legal terms for the definitive documents.

Clearly State Which Provisions Are Binding

One of the most important drafting decisions is stating which provisions are intended to be legally binding and which are not. A well-drafted LOI should not leave the parties guessing about whether they have committed themselves to complete the transaction.

If the parties intend the proposed purchase itself to remain subject to a definitive agreement, the LOI should say so clearly. At the same time, provisions concerning confidentiality, exclusivity, access to information, expenses, governing law, dispute resolution, or similar matters may intentionally be binding even though the underlying acquisition remains subject to further documentation.

Nevada’s Supreme Court has addressed an LOI that was treated as a non-binding agreement to agree, illustrating why the substance and circumstances surrounding the document matter. Nevada authorities also recognize that a document can create contractual obligations when the parties demonstrate the necessary intent and contractual elements.

Identify the Transaction Structure

The LOI should describe whether the proposed deal is an asset purchase, stock purchase, membership-interest purchase, merger, or another structure. This is not merely technical terminology. The structure affects which assets are transferred, which liabilities remain with the seller, how contracts and licenses are handled, and what approvals may be required.

For example, an asset purchase may identify particular assets and liabilities that will be acquired, while an ownership-interest purchase generally involves acquiring the entity that already owns and operates the business. If the transaction is expected to involve a statutory merger or exchange, Nevada’s corporate and entity statutes may impose additional requirements concerning approvals and transaction documents. NRS Chapter 92A addresses mergers, conversions, and exchanges involving Nevada entities.

The LOI does not need to contain the entire definitive agreement, but it should make the intended transaction structure sufficiently clear that both parties understand what they are negotiating.

Establish the Purchase Price and Payment Terms

Purchase price is usually one of the central provisions of an LOI. The document should identify the proposed purchase price or valuation framework and explain whether the amount is subject to adjustments.

The parties should address whether the transaction is based on cash at closing, seller financing, an earn-out, an escrow, a working-capital adjustment, assumed debt, or some combination of these arrangements. A headline purchase price can be misleading if the parties have different assumptions about debt, cash, inventory, working capital, or post-closing payments.

An LOI should also clarify whether the stated amount represents enterprise value, equity value, or consideration for specific assets. These distinctions can become significant when the definitive purchase agreement is negotiated.

Define the Due Diligence Process

The LOI should establish the buyer’s right to conduct due diligence before becoming obligated to close. The scope can include financial records, tax documents, contracts, litigation, employees, intellectual property, real estate, licenses, insurance, debt, and other business records.

The document can also establish a general diligence timeline and describe the seller’s obligation to provide reasonable access to information. This helps prevent disagreements about whether the buyer has received sufficient information to make an informed decision.

Due diligence provisions should not imply that the buyer has completed its investigation merely because the parties have signed the LOI. The buyer should preserve the right to investigate the business and determine whether the information provided supports the proposed transaction.

Include Confidentiality and Information Protections

Confidentiality is often one of the most important binding provisions in an LOI. During an acquisition, the seller may disclose financial records, customer information, pricing, employee information, trade secrets, business plans, and other sensitive material.

The LOI should specify how confidential information will be handled and, where appropriate, incorporate an existing confidentiality agreement. It should also address permitted disclosures, such as disclosures to attorneys, accountants, lenders, financial advisers, or other transaction professionals.

If a confidentiality agreement already exists, the LOI should make clear how the documents interact. Inconsistencies between the LOI and an existing confidentiality agreement can create unnecessary disputes during the transaction.

Address Exclusivity and the No-Shop Period

A buyer may request an exclusivity or “no-shop” provision preventing the seller from negotiating with competing buyers for a defined period. Sellers may accept exclusivity because it demonstrates commitment from the buyer, but the duration and scope should be negotiated carefully.

The provision should specify how long the exclusivity period lasts, what conduct is restricted, and what happens if the transaction does not proceed. A seller should understand that agreeing to exclusivity can prevent the business from pursuing another buyer even if the current transaction later encounters difficulties.

Similarly, buyers should consider whether exclusivity is long enough to complete meaningful due diligence and negotiate definitive documents. A period that is too short may provide little practical protection.

Set a Realistic Timeline and Closing Conditions

An LOI should provide a general roadmap for the transaction. Important milestones may include completion of due diligence, preparation of definitive agreements, financing approval, third-party consents, regulatory approvals, and the anticipated closing date.

The parties should also recognize that the proposed closing remains subject to conditions that will be negotiated in the definitive agreement. Those conditions may include satisfactory diligence, financing, required consents, accuracy of representations and warranties, absence of material adverse developments, and completion of agreed closing deliverables.

A timeline is useful when it establishes expectations without creating artificial pressure that could interfere with proper diligence. Acquisition transactions frequently become more complicated once the buyer gains access to the seller’s records, so the LOI should allow enough time to investigate material issues.

Avoid Overloading the LOI With Definitive Contract Terms

One common drafting mistake is attempting to turn an LOI into a complete purchase agreement. Including excessive legal detail can create ambiguity about whether the parties intended to be bound before the definitive agreement is signed.

The LOI should contain enough information to establish the commercial framework but generally should not attempt to resolve every representation, warranty, indemnification provision, closing condition, or post-closing covenant. Those provisions require detailed drafting and are often dependent on the results of due diligence.

The more an LOI looks and operates like a completed purchase agreement, the more carefully its binding status should be considered. The parties should not assume that a “non-binding” heading will automatically eliminate legal consequences if the rest of the document and their conduct point in another direction.

Avoid Vague or Contradictory Language

Ambiguity is particularly problematic in an LOI because the document is supposed to establish a common understanding before the definitive agreement is negotiated. Terms such as “approximately,” “subject to agreement,” or “to be determined” may be appropriate for matters genuinely left open, but they should not be used carelessly for critical economic terms.

The document should also avoid contradictions between its introductory language and individual provisions. For example, stating that the entire LOI is non-binding while later imposing specific obligations without identifying them clearly can create unnecessary uncertainty.

Nevada contract law recognizes the importance of the parties’ intent and the language used in determining contractual obligations. The Nevada Supreme Court has also emphasized that agreements should be read as a whole rather than interpreting isolated provisions without considering the rest of the document.

Do Not Ignore What Happens if the Deal Fails

A well-drafted LOI should address what happens if the transaction does not close. Depending on the deal, the parties may need to address the return or destruction of confidential information, expiration of exclusivity, allocation of transaction expenses, treatment of deposits, and continuing confidentiality obligations.

If the buyer has incurred significant diligence expenses, the parties may also negotiate specific provisions concerning those costs. Whether a break-up fee, deposit, reimbursement obligation, or similar provision is appropriate depends on the transaction and should be expressly documented rather than assumed.

The LOI should also make clear whether either party can walk away during the preliminary stage and under what circumstances. This is particularly important when the document contains both binding and non-binding provisions.

Have Nevada Counsel Review the LOI Before Signing

An LOI may look considerably simpler than a definitive acquisition agreement, but that does not mean it deserves less attention. It can establish the commercial terms around which the entire transaction is negotiated and can contain provisions that remain legally enforceable even when the acquisition itself does not proceed.

Nevada business transactions also need to be considered in light of the legal structure of the entities involved and any applicable statutory requirements. A transaction involving a merger, exchange, or other entity-level restructuring may require additional approvals and filings beyond the preliminary LOI stage.

Frequently Asked Questions

About Milan Chatterjee

Milan Chatterjee is a Nevada and California licensed attorney and the founder of Best Business Lawyer, the dedicated business law practice of Milan Legal. He earned his legal education at UCLA School of Law and studied as a visiting student at NYU School of Law. Before establishing his legal practice, he served as Associate Compliance Counsel at Las Vegas Sands Corporation. His practice focuses on providing practical legal guidance to Nevada businesses and their owners, including business transactions, contracts, business formation, disputes, and mergers and acquisitions.

Conclusion

A letter of intent can make a Nevada M&A transaction more efficient by establishing agreement on the most important commercial terms before the parties invest heavily in diligence and definitive documentation. Its usefulness, however, depends on careful drafting.

The LOI should clearly identify the transaction structure, purchase price, diligence process, timeline, confidentiality obligations, exclusivity provisions, and other material deal terms. Just as importantly, it should clearly distinguish provisions intended to be binding from those that remain subject to a definitive agreement.

The safest approach is to treat the LOI as an important legal document rather than a simple preliminary letter. Clear language, realistic expectations, and experienced legal review can help both buyers and sellers enter the next stage of an acquisition with a much better understanding of what has actually been agreed and what remains open for negotiation.