SOP 44: Handshake vs. LOI vs. Asset Purchase Agreement

SOP 44: Handshake vs. LOI vs. Asset Purchase Agreement

Three levels of commitment. Using the wrong one wastes weeks or loses protection.

— Handshake (email agreement): use only to confirm interest and rough price before you spend on diligence. Non-binding. Never wire against it.
— Letter of Intent (LOI): use once price and structure are agreed. It sets purchase price, what is included, an exclusivity window (typically 14–30 days), and that diligence must confirm claims. Mostly non-binding except exclusivity and confidentiality.
— Asset Purchase Agreement (APA): the binding contract. Use to close. It lists every transferred asset, reps and warranties, indemnification, and the transfer mechanics.
— Sequence rule: never skip the LOI on deals over $10k — the exclusivity clause stops the seller shopping your offer.

Pass criterion: exclusivity locked before you pay for any third-party audit.

Save this — run it every deal.