How is a letter of intent different from an offer to purchase a business?

A letter of intent and an offer to purchase can look alike on paper, but BDC separates them. It says a letter of intent does not usually obligate the buyer as a formal purchase offer does. The letter sets out the main terms for negotiating the final agreement. This page compares the two using BDC’s descriptions and, for Quebec, the Civil Code’s definition of an offer. Check your own province’s rules with a lawyer.

How BDC describes a letter of intent

BDC describes it as a document between a seller and a prospective buyer that establishes the main terms and conditions of a proposed transaction, to direct and facilitate the negotiation of the final terms. BDC also quotes its senior counsel, who says a letter of intent usually consists of just a few pages, but can be so detailed that it is difficult to tell it from a formal purchase offer. Length and detail alone do not tell you which document you hold.

Why the label does not settle it

BDC says the letter is not intended to create a contractual obligation to close a deal, but that this does not preclude it from having legal weight. Where the letter so provides, it creates binding obligations on one party or the other, particularly on confidentiality and exclusivity. In its steps to buying a business, BDC says the letter, although not a binding offer, anchors the transaction terms to some degree. In its guide for sellers, BDC calls the letter stage a non-binding offer outlining the proposed purchase price, key terms and exclusivity period. Read the wording, not the title.

What an offer means in Quebec

The Civil Code of Québec defines an offer to contract as a proposal which contains all the essential elements of the proposed contract and in which the offeror signifies his willingness to be bound if it is accepted. Under article 1390, where a term for acceptance is attached, the offer may not be revoked before the term expires. If none is attached, it may be revoked at any time before acceptance is received by the offeror. Article 1391 adds that where the offeree receives a revocation before the offer, the offer lapses even though a term is attached. The Code does not say whether a particular letter of intent is an offer. For the revocation detail, see how long an offer to buy a business stays open.

Which document to ask about

Ask your lawyer which kind of document you are being handed and which clauses bind. For the letter against the final signed agreement, see letter of intent vs purchase agreement. For an offer that carries conditions, see what a conditional offer is.