Letter of Intent or Offer to Purchase: What Are the Differences?

The acquisition of a business is a complex process that requires rigour and careful planning, from drafting a letter of intent ("LOI") to entering into the purchase and sale agreement, which constitutes the definitive contract. This article aims to clarify the main distinctions between a letter of intent and an offer to purchase by highlighting their respective roles in the sale and acquisition of a corporation.

In practice, a transaction generally begins with either a letter of intent or an offer to purchase. However, an offer to purchase is rarely systematically preceded by a letter of intent. In most cases, one of these documents serves as the starting point for the transaction process and ultimately leads to the negotiation and execution of a purchase and sale agreement.

What Is a Letter of Intent?

A letter of intent, commonly referred to as an "LOI," is generally a preliminary document or negotiation instrument used to demonstrate the Buyer's interest in completing a transaction or submitting a formal offer. Its purpose is to initiate pre-contractual discussions, and it does not constitute a legally binding offer¹. It serves to confirm the substance of the discussions between the Seller and the Buyer. The letter essentially outlines the principles under which the parties would be prepared to complete the transaction. At this stage, it is not equivalent to a definitive agreement, since a substantial portion of the contractual obligations remains to be negotiated. However, certain provisions are always binding, including confidentiality and exclusivity clauses.²

The parties' primary obligation is to conduct negotiations in good faith with a view to facilitating the successful completion of the steps leading to the definitive agreement³. In other words, although freedom of contract may include the right to terminate negotiations, this right must not be exercised abusively⁴. Similarly, the Court of Appeal has emphasized that the omission of information or silence regarding an element that is essential to the valuation of a corporation during pre-contractual discussions—in this case, the status of certain credits—may vitiate the purchaser's consent and give rise to a claim for damages based on misrepresentation.⁵

What Is the Purpose of a Letter of Intent?

The purpose of such a letter is to express an intention to move forward, ideally shared by both parties, and to initiate negotiations. At this stage, the prospective purchaser is primarily seeking to open a dialogue through this exchange of correspondence⁶. When the proposed agreement between the parties is significant, particularly in the context of the sale or acquisition of a business, it is prudent for them to first engage in preliminary discussions to jointly identify their objectives and needs. The letter therefore primarily aims to structure and facilitate the negotiation of the definitive terms of the transaction. It also reassures the Seller regarding the purchaser's intentions and provides the Seller, from the outset, with the essential information required to formulate a more precise offer or negotiate a conditional agreement. It also allows the parties to conduct due diligence, which may lead to the execution of a definitive agreement.

What Does a Letter of Intent Contain?

The LOI sets out the essential components of a proposed transaction and demonstrates an intention to proceed without constituting a firm commitment, since it may remain conditional upon the fulfilment of certain conditions. In other words, it outlines the various parameters of a potential transaction⁷. Consequently, a letter of intent is generally not binding on the parties unless they expressly choose to make certain terms and conditions of the proposed transaction legally binding. However, it may contain specific binding provisions that impose obligations or restrictions on the parties until a definitive agreement is reached.⁸

For the Buyer, this includes setting out the representations and warranties they wish to obtain from the Seller. By establishing this list, the Buyer provides a detailed account of their understanding of the corporation's circumstances.⁹

For reference, a letter of intent commonly includes the following elements:

• A proposed transaction structure, such as an asset sale or share sale.

• An estimated acquisition price, which may be adjusted following due diligence.

• An exclusivity clause establishing a period during which the Seller agrees not to solicit or consider other offers without notifying the Buyer, along with penalties for non-compliance.¹⁰

• A due diligence clause allowing the Buyer and their representatives to conduct any reviews they consider appropriate regarding the business.

The transaction's closing conditions, including the anticipated closing date, subject to customary closing conditions.¹¹

Representations and warranties intended to protect the Buyer, such as obtaining government authorizations or third-party consents, completing due diligence to the Buyer's satisfaction and entering into a definitive agreement requiring the parties to complete the transaction.¹²

Although a letter of intent is commonly used in business acquisition transactions, it is neither an essential nor mandatory prerequisite for completing a transaction. When the transaction's main parameters are already sufficiently defined or when the parties wish to accelerate the process, the Buyer may prefer to submit an offer to purchase directly rather than go through the intermediate letter of intent stage.

What Is an Offer to Purchase?

An offer to purchase formalizes the parties' mutual commitment to sell and purchase a business on a specified date. Once signed by the Seller, it becomes binding on both parties. The obligation to complete the transaction is nevertheless subject to certain conditions, including confirmation that the corporation corresponds to the Seller's representations and warranties and that the Seller has fulfilled all the commitments set out in the offer¹³. The offer therefore becomes binding and creates an agreement between the parties. This agreement will serve as the foundation for negotiating and drafting the definitive purchase and sale agreement.

What Does an Offer to Purchase Contain?

The period between the acceptance of the offer and the scheduled closing date is commonly referred to as the "interim period." The principal commitments assumed by the offeror under the offer to purchase generally relate to paying the agreed-upon price and providing the required guarantees. The findings of the due diligence process influence both the feasibility of the transaction and the scope of the representations and warranties. Issues identified during this process may lead the Buyer to adjust the contractual protections required to account for the identified risks.¹⁴

An offer to purchase may include the following clauses¹⁵:

The main elements addressed in an offer to purchase are similar to those found in an LOI, particularly regarding the parameters of the proposed transaction. The fundamental distinction, however, lies in their binding nature. While a letter of intent is generally non-binding, except for certain specific clauses, the definitive agreement creates legally binding obligations for the parties.

What Is the Difference Between a Letter of Intent and an Offer to Purchase?

In summary, a letter of intent and an offer to purchase differ because the former does not constitute a formal commitment and only defines the general terms of the transaction, while the latter is a contract that, once signed, commits the parties to completing the transaction, subject to certain validations.

On the one hand, the primary purpose of a letter of intent is to structure negotiations by setting out the fundamental parameters of the proposed transaction, such as its structure, timeline and principal conditions. This allows the parties to continue their discussions on a shared basis. On the other hand, an offer to purchase represents a more advanced and formal step. More importantly, it is legally binding because it specifies the essential terms of the transaction.¹⁶ Signing an offer to purchase reflects the parties' legal commitment: the Buyer agrees to purchase the business, and the Seller agrees to sell it in accordance with the agreed-upon terms.¹⁷

For more information or to benefit from our expertise in business purchase and sale transactions, we invite you to contact Mallette.

Written by Florence Marchand.

^{1. Robillard, Y. (2013). Le contentieux de l'offre. In Développements récents en droit des affaires (2013) (Vol. 371). Cowansville, Quebec: Yvon Blais.}

^{2. Boucher, V., & Méthot, C. (2015). La vente d'entreprise. Lavery. Retrieved from CAIJ.}

^{3. Tchotourian, I. (2023). Droit des sociétés et des groupes : sociétés par actions, sociétés contractuelles et groupes de sociétés : guide pour le praticien et l'étudiant. Montreal, Quebec: Éditions Yvon Blais, p. 1064.}

^{4. Ibid., p. 1065.}

^{5. Soft Informatique inc. v. Gestion Gérald Bluteau inc., 2014 QCCA 2330.}

^{6. Guillemard, S. (1993). De la phase préalable à la formation de certains contrats. Revue générale de droit, 24(2), p. 171.}

^{7. Daniel Picotte (2025). Chapitre X – La cession d'entreprise. In Entreprises et sociétés (Vol. 10). Collection de droit, Montreal, QC: CAIJ.}

^{8. Robert Yalden, & Hugo Pierre Gagnon. (2025). Fusion et acquisition d'une société ayant fait appel au public (Fascicule 17). In JCQ Droit des affaires – Droit des sociétés. Montreal, QC: LexisNexis Canada. Updated October 3, 2025, p. 4.}

^{9. Daniel Picotte (2025). Chapitre X – La cession d'entreprise. In Entreprises et sociétés (Vol. 10). Montreal, QC: CAIJ.}

^{10. Daniel Picotte (2025). Chapitre X – La cession d'entreprise. In Entreprises et sociétés (Vol. 10). Montreal, QC: CAIJ.}

^{11. Including obtaining the required approvals, exemptions and consents from regulatory and government authorities; approval from the boards of directors and shareholders of the Seller, the Buyer and the corporation; confirmation that the relevant shares are free of any charge or security; confirmation that the corporation has paid or been released from its debts; and confirmation that the Buyer is satisfied with the results of its due diligence.}

^{12. Robert Yalden, & Hugo Pierre Gagnon. (2025). Fusion et acquisition d'une société ayant fait appel au public (Fascicule 17). In JCQ Droit des affaires – Droit des sociétés. Montreal, QC: LexisNexis Canada. Updated October 3, 2025, p. 4.}

^{13. Périnet, L., & Panker, J. (2005). Démythification et variante des transactions sur les actions : aspects civils et fiscaux. In Cours de perfectionnement du notariat (Vol. 2005-1). Montreal: Éditions Yvon Blais.}

^{14. Daniel Picotte (2025). Chapitre X – La cession d'entreprise. In Entreprises et sociétés (Vol. 10). Collection de droit, Montreal, QC: CAIJ.}

^{15. This list is not exhaustive and provides only a brief overview of the content.}

^{16. Guillemard, S. (1993). De la phase préalable à la formation de certains contrats. Revue générale de droit, 24(2), p. 163.}

^{17. Articles 1396 and 1590 of the Civil Code of Québec.}