The letter of intent: what your LOI should contain

What is a letter of intent (LOI)?

A letter of intent (LOI), or memorandum of understanding, is a document that formalises a buyer's serious interest in a business for sale. It occurs after initial negotiations and before the final sale agreement.

In Switzerland, the sale LOI has an important legal characteristic: certain clauses are binding (exclusivity, confidentiality), others remain indicative (price, conditions). It does not formally commit the parties to complete the transaction, but structures the negotiation process.

This document differs from the final sale agreement by its preparatory nature. It secures discussions during the in-depth due diligence phase, as detailed in our guide on the 8 steps to a successful business acquisition.

When to draft an LOI?

The optimal timing to draft a Swiss letter of intent is after initial discussions and agreement in principle on the main points, but before incurring significant due diligence costs.

Several signals indicate it is time to formalise: agreement on a price range, mutual willingness to proceed, need to protect sensitive information shared, and the buyer's wish to secure a negotiation exclusivity period.

This stage fits into the overall sale process, between initial valuation and the in-depth due diligence phase. Our guide how to sell your business in Switzerland details this timeline.

Essential elements of an LOI

A well-structured Swiss letter of intent comprises several standardised sections that protect both parties' interests.

These elements form the skeleton of any professional purchase letter of intent: identification of parties, description of sale scope, financial conditions, protection clauses, and timeline.

Each section has a specific function and must be carefully drafted to avoid legal ambiguities. The following subsections detail the expected content for each.

Identification of parties

This section must mention for each party: full company name, legal form (SA, Sàrl, etc.), IDE number, registered office, and legal representatives authorised to sign.

Example wording: "Between ABC SA, a Swiss limited company, IDE CHE-123.456.789, with its registered office in Geneva, represented by Mr Jean Dupont, sole director..."

Precision is essential to guarantee the document's legal validity and avoid any subsequent dispute over the signatories' identity.

Description of the business and sale scope

Clearly define what is being sold: sale of shares (share deal) or assets (asset deal), subsidiaries included or excluded, real estate included or separate, inventory, intellectual property.

Also specify what is not included: personal bank accounts, private vehicles, specific receivables. This clarity avoids costly misunderstandings during final negotiation.

A vague scope is one of the most common errors that slows negotiations and generates tension between parties.

Indicative purchase price and payment terms

Indicate a fixed amount or price range: "Indicative price of CHF 2,500,000, adjustable according to due diligence results". Specify payment structure: cash at closing, deferred payment, or earn-out based on future performance.

Mention possible adjustment mechanisms: working capital variation, final net debt, due diligence discoveries. Our business valuation tool helps establish a realistic negotiation basis.

Conditions precedent

Conditions precedent are binding and condition the transaction's completion. List them explicitly: satisfactory due diligence results, obtaining bank financing, necessary regulatory approvals, shareholder general meeting approval.

In Switzerland, certain regulated activities (finance, health) require specific authorisations. Each condition must be verifiable and accompanied by a specific deadline.

Example: "Subject to obtaining bank financing of CHF 1,800,000 before 30 June 2025."

Exclusivity clause

This negotiation exclusivity clause, binding, commits the seller not to negotiate with other buyers during a defined period, generally 30 to 90 days.

It protects the buyer who invests time and money in due diligence. The seller must suspend all active marketing efforts and immediately inform the buyer of any spontaneous approach.

Provide for consequences in case of breach: fixed indemnity or reimbursement of costs incurred. Find a balance: exclusivity that is too long penalises the seller.

Timeline and deadlines

Establish a realistic timeline with specific milestones: duration of exclusivity period (e.g. 60 days), due diligence phase (e.g. 45 days), target date for signing final agreement, planned closing date.

Example: "Due diligence from 15 March to 30 April 2025, sale agreement signature on 31 May 2025, closing on 30 June 2025."

These dates remain indicative but structure the process. Provide for a clause allowing deadline extensions by mutual agreement if necessary.

Confidentiality

The confidentiality clause, binding, commits both parties not to disclose information exchanged during negotiations. It generally applies for 2 to 5 years after signature.

Define exceptions: information already public, legal disclosure obligations, professional advisers bound by secrecy (lawyers, fiduciaries). This clause often complements an NDA signed upstream.

Specify consequences of breach: damages, interim measures. Confidentiality protects the company's reputation and sensitive commercial relationships.

Costs and fees

Clarify from the LOI the allocation of costs: each party bears its own advisory costs (lawyers, accountants, M&A advisers), unless otherwise agreed.

Typical allocation in Switzerland: the buyer pays for due diligence, seller and buyer share notary fees and commercial register registration costs (often 50/50).

Provide for the case of transaction failure: who bears costs incurred? A clear clause avoids disputes. Our network of experts can support you.

Legal nature of commitments

This section is crucial to avoid any legal ambiguity. Explicitly specify which clauses are binding (exclusivity, confidentiality, costs, applicable law) and which remain indicative (price, payment conditions, timeline).

Standard wording: "This letter of intent is not binding regarding completion of the transaction, except for clauses relating to exclusivity, confidentiality and allocation of costs, which fully bind the parties."

This clarification protects both parties and facilitates resolution of any disputes.

Optional clauses to consider

Depending on your situation, certain additional clauses can strengthen your letter of intent: seller's preliminary non-compete commitment (duration, geographical scope, sectors), agreement in principle on transition period and post-sale support.

Add a dispute resolution mechanism: mediation before arbitration, choice of mediator. In Switzerland, specify applicable law (Swiss law) and competent jurisdiction (specific cantonal court), important in a federal country with 26 jurisdictions.

These optional clauses adapt the LOI to your specific context without unnecessarily weighing down the document.

Annotated LOI template

Letter of intent (LOI) template, Switzerland

[Place], [date]

Between:
[Seller: company name, legal form, IDE, registered office, representative]
And:
[Buyer: company name, legal form, IDE, registered office, representative]

Subject: Letter of intent for the acquisition of [target company name]

1. Scope: Acquisition of [x]% of shares in [target company], including [assets/subsidiaries], excluding [excluded items].

2. Indicative price: CHF [amount], adjustable according to due diligence, payable [terms].

3. Conditions precedent: [list of conditions with deadlines].

4. Exclusivity: [x] days from signature, the seller commits not to negotiate with other buyers.

5. Confidentiality: The parties commit to [duration and terms].

6. Costs: Each party bears its own advisory costs. [Allocation of notary fees].

7. Legal nature: Non-binding document except clauses 4, 5, 6.

8. Applicable law: Swiss law, jurisdiction of [canton].

This template is provided for information purposes. Consult a specialist lawyer to adapt it to your situation. Our network of partners can connect you with legal experts.

Common errors to avoid

Vague scope: Not precisely defining what is being sold generates conflicts during the final agreement. Explicitly list included and excluded assets.

Absence of clear conditions precedent: Without verifiable criteria and specific deadlines, impossible to determine whether conditions are met.

Exclusivity too long: More than 90 days penalises the seller without guarantee of success. Negotiate a reasonable duration with possibility of extension.

Ambiguous legal nature: The most costly error. Explicitly specify which clauses legally bind the parties.

Omission of costs clause: In case of failure, who pays? Define this from the LOI to avoid disputes.

After signing the LOI

Signing the letter of intent marks the start of the intensive due diligence phase. The buyer accesses detailed information (accounting, contracts, human resources, legal aspects) to validate their interest.

In parallel, both parties' lawyers begin drafting the final sale agreement, considerably more detailed than the LOI. Tax aspects must be anticipated: our guide on tax optimisation helps you prepare for this stage.

The LOI is only an intermediate stage. The process continues until closing, the moment of actual transfer of ownership and payment.

The letter of intent represents a decisive milestone in the business sale process. It structures the parties' intentions, establishes the legal and financial foundations of the transaction, and allows confident progress towards due diligence and the final sale deed.

A well-drafted LOI protects everyone's interests: it clarifies the seller's expectations, secures the buyer's investment in time and resources, and considerably reduces the risks of misunderstandings or disputes. Exclusivity, confidentiality clauses and conditions precedent constitute indispensable safeguards.

Drafting an LOI requires specialist legal expertise, particularly in the Swiss context where cantonal specificities can influence certain aspects of the transaction. Do not hesitate to surround yourself with specialist experts to secure this crucial stage. Consult our network of partners to be supported by professionals experienced in business transfers.