An Australian Letter of Intent for Business Purchase (LOI) is a non-binding written document in which a prospective buyer expresses its intention to acquire a business from a seller and sets out the key proposed terms for the acquisition — including the indicative purchase price, the proposed acquisition structure, the due diligence scope and timeline, the conditions precedent, and the long stop date — without creating any binding obligation to complete the acquisition.

The LOI bridges the gap between preliminary discussions and the execution of the formal, comprehensive Business Sale Agreement (or Share Sale Agreement). It records the commercial understanding reached in principle, establishes a framework for due diligence and further negotiation, and provides legal protections for both parties during the acquisition process — most importantly through binding exclusivity and confidentiality provisions.

The legal status of a Letter of Intent for Business Purchase in Australia is governed by the principles in Masters v Cameron (1955) 91 CLR 353. The typical LOI for a business acquisition falls within the third category identified in that case — the parties do not intend to be legally bound until the formal Business Sale Agreement is executed. However, binding ancillary provisions (exclusivity, confidentiality, costs) are routinely included and are enforceable as contractual obligations regardless of whether the acquisition proceeds.

An LOI for business purchase is used across all types of business acquisitions in Australia, from small local businesses to large commercial enterprises. It is a practical and commercially essential first step in any acquisition process, as it: records the key commercial terms agreed in principle; commits both parties to a defined due diligence and negotiation timeline; protects the seller's confidential financial and business information disclosed during due diligence; prevents the seller from entertaining competing offers during the exclusivity period; and provides a clear framework within which the formal Business Sale Agreement will be prepared and negotiated.

An LOI for Business Purchase is appropriate at the point in the acquisition process when the buyer and seller have had preliminary discussions, reviewed the seller's information memorandum or financial summaries, and reached broad agreement in principle on the key commercial terms — but before the buyer has conducted detailed due diligence or instructed its solicitors to prepare the formal Business Sale Agreement.

You should use an LOI for Business Purchase when: you are a buyer who has identified a business you wish to acquire and want to record your intention to proceed and the key proposed terms before committing to the cost of comprehensive due diligence and legal advice; you are a seller who has received a serious indication of interest from a prospective buyer and want to document the proposed terms and secure the buyer's commitment to an exclusivity period before disclosing sensitive financial and operational information; you are engaging a business broker or intermediary who requires a written statement of intent before facilitating the exchange of detailed financial and business information; the acquisition is of sufficient size and complexity that the parties require a structured process — including due diligence, conditions precedent, and a defined timeline — rather than a direct negotiation to contract; or you need to commit the seller to an exclusivity period to prevent the seller from entertaining competing offers while you invest time and resources in due diligence and the preparation of the formal agreement.

An LOI is particularly important in Australian business acquisitions where the due diligence process is likely to be extensive — for example, where the business operates under licences or permits that must be transferred, has a significant employee base with accrued entitlements, or has complex commercial contracts that require legal review. In these situations, the exclusivity period in the LOI is critical to protect the buyer's investment in the due diligence process.

A well-drafted Australian Letter of Intent for Business Purchase should contain the following key elements.

Identification of the Business and Proposed Acquisition Structure — The LOI should clearly describe the business being acquired (including its trading name, operations, and location) and specify the proposed acquisition structure — asset sale, share sale, or a mixed arrangement. The distinction between an asset sale and a share sale is commercially and legally significant in Australia, affecting the allocation of liabilities, the GST treatment of the transaction (including the potential application of the going concern exemption under s 38-325 of the GST Act), and the Capital Gains Tax position of the seller.

Indicative Purchase Price and Basis — The LOI should state the indicative purchase price clearly (in AUD) and explain the valuation methodology on which it is based (for example, a multiple of EBITDA, a net asset value, or a revenue multiple). The LOI should make clear that the Indicative Price is non-binding and subject to adjustment following due diligence. The proposed payment structure — including any deposit, balance payable at completion, working capital adjustments, earn-out provisions, and vendor finance arrangements — should also be set out.

Due Diligence Scope and Period — The LOI should specify the duration of the due diligence period and the key areas of investigation: financial due diligence, legal due diligence, operational due diligence, employment due diligence, and (where relevant) environmental due diligence. The seller's obligation to provide access to information and personnel should be clearly stated.

Conditions Precedent — The LOI should list the key conditions that must be satisfied before the formal Business Sale Agreement is executed, such as satisfactory due diligence, board approval, landlord consent to assignment of premises, transfer of licences and permits, and no material adverse change.

Exclusivity Clause — A binding exclusivity clause prevents the seller from engaging with other prospective buyers during the defined exclusivity period. This is one of the most commercially important provisions in the LOI and should clearly state that it is legally binding.

Confidentiality Clause — A binding confidentiality clause protects the financial, operational, and customer information disclosed by the seller during due diligence. It should clearly define Confidential Information, restrict its use to evaluation of the acquisition, and provide for return or destruction if the acquisition does not proceed.

GST Acknowledgment — The LOI should acknowledge the potential application of the GST going concern exemption and confirm that GST treatment will be addressed in the formal agreement, with the input of qualified tax advisers.