Stock Purchase Letter of Intent Template

Buying a stake in a company rarely happens in a single handshake. Before anyone drafts a long contract, the buyer and seller usually want proof they agree on the big items – price, shares, and timing. That is where a short letter comes in.

What Is a Stock Purchase Letter of Intent?

A stock purchase letter of intent (LOI) is a written outline of a proposed deal in which one party buys shares of a company from a current owner. It lists the key terms both sides have agreed to so far and signals that they plan to negotiate a full stock purchase agreement.

Think of it as a road map rather than the final contract. Because it's short and mostly non-binding, it lets both parties test whether a deal makes sense before either side spends heavily on legal fees, accounting reviews, and due diligence.

Stock Purchase vs. Asset Purchase

Before drafting the letter, it helps to confirm that a stock deal is what you want. In a stock purchase, the buyer steps into the seller's shoes as an owner of the company. The business stays the same legal entity, so its contracts, licenses, debts, and any pending lawsuits stay with it.

In an asset purchase, the buyer picks specific assets – equipment, inventory, customer lists – and usually leaves most liabilities behind. Sellers often prefer stock sales because they can exit cleanly, while buyers may favor asset deals for the extra protection. The right choice depends on the company and the goals of both sides.

One more detail: if the company is an LLC, its owners hold membership interests rather than stock, so the letter may need different wording.

What to Include in Your LOI

Most letters follow a similar structure. At a minimum, yours will likely cover:

• Buyer and seller details – full legal names, addresses, and, for businesses, the type of entity.
• The company – its legal name, the state where it was formed, and its main office address.
• The shares – how many, which class (such as common or preferred), and what percentage of the company they represent.
• Price and payment – the total price and how it will be paid, whether in cash at closing, in installments through a promissory note, or a mix.
• Deposit – whether the buyer pays anything upfront and whether it's refundable.
• Due diligence – how long the buyer has to review company records and what the seller must share.
• Timeline – target dates for signing the final agreement and for closing.
• Exclusivity – a period during which the seller agrees not to negotiate with other buyers.
• Confidentiality – a promise to keep deal details and company information private.
• Governing law – which state's laws apply to the letter.
• Signatures and dates for both parties.

Our template walks you through each of these sections, so you can fill in the blanks instead of starting from scratch.

Which Terms Are Binding?

This is the part many people get wrong. Most of an LOI – the price, share count, and timeline – is usually non-binding. That means either party can typically walk away before the final agreement is signed without owing the other side anything.

A few clauses, however, are normally written to be binding from the day both parties sign. These often include confidentiality, exclusivity, who pays which expenses, and governing law. The letter should state clearly which sections bind the parties and which don't. Vague wording can lead a court to treat more of the letter as enforceable than either side intended.

Points to Check Before You Sign

A little homework up front can keep a deal from falling apart later. Before signing, both sides may want to look into the following:

• Transfer limits – The company's bylaws or shareholder agreement may give other owners a right of first refusal or require board approval before shares change hands.
• Securities rules – Shares in private companies are often "restricted," which limits when and how the buyer can resell them. The SEC's guide to selling restricted securities explains the basics.
• Tax impact – A seller who makes a profit on the shares will usually owe tax on the gain. The IRS overview of capital gains and losses covers how these gains are typically taxed.
• Signing rules – An LOI usually doesn't need a notary, but signing requirements for the final agreement can vary by state, so check your state's rules.

What Happens After Signing

Once the letter is signed, the buyer typically begins due diligence – reviewing financial statements, tax returns, contracts, corporate records, and any legal claims against the company. What turns up may change the price or other terms.

Meanwhile, the parties or their attorneys draft the stock purchase agreement. This longer contract adds detailed promises about the company's condition, known as representations and warranties, plus rules for who covers losses if those promises prove false. If talks stall and the exclusivity period ends, the seller can generally explore other offers.

A clear letter keeps both sides aligned and makes the final contract faster to negotiate. Use ConsumerShield's template to put your terms on paper. Planning a different kind of deal? Explore more letter of intent templates from ConsumerShield.