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LOIs resemble written Contract s, but are usually not binding upon the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as Non-disclosure Agreement s or Covenant s to negotiate in Good Faith . An LOI may also be interpreted as binding the parties if it too closely resembles a formal contract.

The purposes of an LOI may be:

  • to clarify the key points of a complex transaction for the convenience of the parties

  • to declare officially that the parties are currently negotiating, as in a Merger or Joint Venture proposal

  • to provide safeguards in case a deal collapses during negotiation


An LOI may also be referred to as a '' Memorandum Of Understanding '' (MOU), '' Term Sheet '' or '' Discussion Sheet ''.