Letter of Intent (LOI) for Buying/Selling a Business in Sri Lanka: Template + Key Clauses

A Letter of Intent (LOI) is one of the most useful tools in a Sri Lankan business sale—if you use it properly.

It helps a buyer and seller align on the deal (price, structure, timelines, conditions) before spending weeks on meetings, due diligence, lawyers, landlord discussions, and uncertainty.

But many Sri Lankan deals go wrong because people treat an LOI as:

• a casual email,

• a “promise” with no structure,

• or a final agreement (it isn’t).

This guide explains:

• what an LOI is (and isn’t) in Sri Lanka,

• what parts can be binding vs non-binding,

• the key clauses you should include,

• common mistakes,

• and a practical LOI template you can adapt.

Short disclaimer: This is general information only, not legal or tax advice. Always consult a qualified lawyer and/or tax professional before signing.

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What an LOI really is (and isn’t)

What an LOI is

An LOI is a written roadmap that captures the main deal points, such as:

• who is buying and who is selling,

• what is being bought (assets vs shares),

• the indicative price and payment structure,

• conditions that must be met (due diligence, landlord consent, licence transferability),

• timelines and process,

• confidentiality and exclusivity (if agreed).

It’s meant to reduce “surprise renegotiations” later.

What an LOI is not

An LOI is usually not the final legal contract that transfers ownership (that comes later via a Sale Agreement and related documents).

And if the deal involves land/immovable property, Sri Lanka has formal legal requirements for valid sale/disposition agreements—so an LOI should not pretend to be a land sale contract. Sri Lanka Law+1

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Where the LOI fits in the sale process

A common Sri Lankan SME deal flow looks like this:

1. Initial discussions (high level)

2. Basic overview shared (often after NDA)

3. Indicative price conversation

4. LOI signed (align on structure and process)

5. Due diligence (financial, operational, legal, lease, licences)

6. Final negotiation based on findings

7. Sale Agreement + closing documents

8. Completion + handover

Why skipping the LOI causes chaos

Without an LOI, deals often drift into:

• endless questions without commitment,

• price arguments that restart every week,

• landlord/licence issues discovered too late,

• “I thought stock was included” disputes,

• sudden buyer withdrawal after you reveal sensitive details.

An LOI doesn’t guarantee completion—but it dramatically improves clarity.

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Is an LOI legally binding in Sri Lanka?

In plain English: an LOI can be partly binding, partly non-binding—depending on intention and wording.

Sri Lankan contract principles emphasize intention to create legal relations as a core requirement for enforceability. CA Sri Lanka+1

So, if your LOI clearly says:

• “This entire LOI is binding,” or

• “Only clauses X, Y, Z are binding,”

…courts and lawyers will treat it very differently than an LOI that says:

• “This is non-binding and for discussion only.”

Typical LOI structure (best practice)

Most LOIs are drafted with two buckets:

A) Binding clauses (commonly binding):

• confidentiality (or reference to NDA),

• exclusivity/no-shop (if agreed),

• costs and expenses,

• governing law and dispute handling,

• sometimes: return/destruction of documents.

B) Non-binding commercial terms (usually non-binding):

• price,

• structure (asset vs share),

• payment terms (deposit, instalments),

• timelines.

Your LOI should explicitly separate these.

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Why both buyers and sellers should care about the LOI

Buyer perspective

A buyer uses an LOI to:

• lock in the main commercial deal before paying for diligence and lawyers,

• reduce the risk of the seller shopping the deal elsewhere during diligence,

• clarify scope before sensitive information is shared.

Seller perspective

A seller uses an LOI to:

• filter unserious buyers,

• force clarity on structure and funding early,

• reduce renegotiation drama later,

• set timelines so the deal doesn’t drag for months.

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Key clauses every Sri Lankan LOI should cover

1) Parties to the transaction

State clearly:

• full name of seller(s),

• full name of buyer(s),

• NIC/passport/company registration number (where relevant),

• address,

• whether the buyer is an individual or a company.

Important in Sri Lanka: many deals get messy because the buyer later says:

• “My brother will buy,”

• “My company will buy,”

• “An investor will join.”

Your LOI should say whether substitution is allowed (and on what terms).

2) Transaction structure (asset sale vs share sale)

State whether the deal is intended as:

• Asset Sale (buy assets + goodwill), or

• Share Sale (buy shares of the company).

If you genuinely don’t know yet, you can write:

• “The parties intend an asset sale, unless due diligence/legal advice supports a share sale as more appropriate.”

But don’t leave it blank—structure affects:

• liability risk,

• tax treatment,

• documentation,

• landlord/licence complexity.

For share sales, remember: share transfers have statutory processes, and company registration/board procedures can matter. For example, Sri Lanka’s Companies Act framework includes requirements around proper instruments of transfer and mechanisms around refusal/notice in share transfer contexts. Parliament of Sri Lanka+2drc.gov.lk+2

3) Business description and scope of sale

This is where many Sri Lankan LOIs are dangerously vague.

Include:

• business name (and company name if different),

• business type and location (can be general early on),

• what is included:

  • equipment, furniture, machinery,

  • inventory/stock (or separately valued),

  • brand name and goodwill,

  • website, domain, social pages, phone numbers,

  • customer list (if relevant),

  • supplier relationships (if transferable),

  • licences/approvals (if applicable),

  • lease rights (subject to landlord consent).

• what is excluded:

  • cash in bank,

  • old receivables,

  • old payables,

  • owner’s personal assets.

If you do nothing else well in your LOI, do this well.

4) Indicative purchase price and what it means

State the indicative price and clarify whether:

• it includes stock or stock is separate,

• it assumes debt-free sale (common in asset sales),

• it will be adjusted after diligence.

Common Sri Lanka SME best practice is to define:

• Business price (goodwill + fixed assets)
  plus/minus

• Stock adjustment (valued at closing by an agreed method)

Even one line like:

• “Stock will be valued at cost on the day of completion and paid separately”

…prevents many disputes.

5) Payment structure (deposit, balance, instalments)

Even if non-binding, an LOI should clearly state:

• deposit amount and timing,

• balance payment method:

  • full cash at closing, or

  • instalments with timeline,

• any conditions on instalments (security, staged control).

If instalments are involved, the LOI should also state:

• whether ownership/control transfers fully at the start or in stages,

• what happens if instalments are missed (high level).

6) Conditions precedent (deal blockers that must be solved)

These are crucial in Sri Lanka.

Typical conditions precedent include:

• satisfactory due diligence,

• landlord consent / lease assignment or new lease,

• confirmation of licence transferability (where relevant),

• settlement/handling of outstanding loans (if applicable),

• partner approvals (if multiple owners),

• regulatory approvals (industry-dependent).

These conditions protect both sides by preventing “forced closing” when reality isn’t ready.

7) Due diligence scope and timeline

Spell out:

• what the buyer can review (high level),

• the timeline (e.g., “15 business days after LOI”),

• seller cooperation expectations,

• confidentiality handling.

This prevents open-ended fishing expeditions.

8) Exclusivity / no-shop clause

If a buyer is spending serious time/money on diligence, they may ask for exclusivity.

If a seller agrees, define:

• exclusivity period (e.g., 14–30 days for SMEs),

• what the seller can still do (e.g., run the business normally),

• what ends exclusivity (buyer delay, missed milestones).

Sellers should be cautious with long exclusivity unless the buyer proves seriousness (deposit, evidence of funds, diligence timeline).

9) Confidentiality

Ideally you already have an NDA.

LOI should either:

• incorporate the NDA by reference, or

• include a simple confidentiality clause.

Also include:

• return/destruction of documents if deal fails.

10) Costs and expenses

State who pays for:

• lawyers,

• accountants/advisors,

• valuations,

• due diligence costs.

Most commonly:

• each party pays their own costs.

But write it down.

11) Binding vs non-binding section

This should be explicit.

Example:

• “Clauses A, B, C are binding. All other clauses are non-binding and represent current intentions only.”

This is one of the most important parts of the LOI.

12) Governing law and jurisdiction

Usually:

• Sri Lankan law governs,

• disputes handled in Sri Lanka.

Even if you don’t want heavy dispute language, a simple statement helps.

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Common LOI mistakes in Sri Lanka

1. Treating the LOI as a casual email

2. Leaving out stock treatment

3. Leaving out conditions precedent (lease/licence)

4. Agreeing to long exclusivity too early

5. Using foreign templates without Sri Lanka realities (leases, licences, informal accounts)

6. Signing without understanding which parts are binding

7. Using LOI as a substitute for proper agreements

8. Allowing the LOI to become “permanent limbo” (no deadlines, no milestones)

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How detailed should an LOI be?

A good LOI is:

• not vague, and

• not a full sale agreement.

Think of it as:

• “enough detail to prevent surprise disputes”

• “enough flexibility to adjust after due diligence”

If your LOI is too short, it becomes meaningless.
If it’s too detailed, it becomes a poorly drafted sale agreement.

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LOI vs Sale Agreement: what changes later?

The LOI sets intention.
The Sale Agreement sets enforceable transfer mechanics.

The Sale Agreement will cover (in more detail):

• warranties and representations,

• indemnities,

• final asset schedules,

• closing deliverables,

• employee matters,

• non-compete/non-solicit,

• dispute resolution structure.

A strong LOI reduces renegotiation later—but diligence findings can still change terms.

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When to involve a lawyer

Recommended:

• before signing an LOI, especially if it includes exclusivity or deposits.

Strongly recommended if:

• instalments are involved,

• share sale is involved,

• land/buildings are involved (formal requirements apply), Sri Lanka Law+1

• multiple shareholders/partners are involved.

Trying to save legal cost early is one of the most expensive Sri Lankan deal habits.

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Simple LOI Template (Plain English)

You can copy/paste and edit this. Keep it clean. Keep it honest. Get legal review before signing.

LETTER OF INTENT (LOI) – BUSINESS PURCHASE / SALE (SRI LANKA)

Date: [DD Month YYYY]

1. Parties

Seller: [Full Name / Company Name], [NIC/BR No.], [Address]
Buyer: [Full Name / Company Name], [NIC/BR No.], [Address]

2. Business

This LOI relates to the proposed purchase and sale of:
Business name: [Name]
Business type: [Retail/Restaurant/Services/etc.]
Location: [General area only if confidentiality needed]

3. Proposed transaction structure (indicative)

The parties currently intend the transaction to be structured as:
☐ Asset sale ☐ Share sale ☐ To be confirmed after due diligence/legal advice

If asset sale: buyer will purchase the agreed business assets and goodwill.
If share sale: buyer will purchase [__]% of shares in [Company Name], subject to compliance with applicable company procedures.

4. Scope of sale (what is included / excluded)

Included (indicative):

• [Equipment / furniture / machinery list category]

• [Brand name / goodwill]

• [Domain / website / social pages / phone numbers]

• [Lease rights subject to landlord consent]

• [Other: ___]

Excluded (indicative):

• Cash in bank

• Old receivables and payables (unless agreed otherwise)

• Owner’s personal assets: [___]

Stock / inventory:
☐ Included in price ☐ Excluded ☐ Valued separately at closing
If separately valued: Stock will be valued at [cost / agreed basis] as at [closing date] and paid separately.

5. Indicative purchase price (non-binding)

Indicative business purchase price: LKR [____]
Any adjustments after due diligence: [brief statement, if applicable]

6. Payment structure (non-binding unless stated otherwise)

Deposit: LKR [] payable on [date/trigger] subject to signing of [LOI / agreement / NDA].
Balance:
☐ Full payment at completion
☐ Instalments: LKR [] per [month], for [__] months, starting [date], subject to final agreement and security/structure.

7. Conditions precedent (non-binding)

Completion is subject to:

• satisfactory due diligence by buyer

• landlord consent / lease assignment or new lease (if applicable)

• confirmation of transferability/renewal of key licences/approvals (if applicable)

• settlement/arrangement of identified liabilities: [___]

• any other approvals: [___]

8. Due diligence and timeline (non-binding)

Buyer shall complete due diligence within [__] business days from signing this LOI, subject to seller providing reasonable access to information.
Both parties will act in good faith to progress the transaction.

9. Exclusivity / no-shop (binding / non-binding – choose)

☐ Not applicable
☐ Binding exclusivity: Seller agrees not to negotiate or sell the business to third parties for [__] days from LOI date, provided the buyer proceeds according to the agreed timeline.

10. Confidentiality (binding)

All information exchanged remains confidential and shall not be disclosed except to professional advisors or as required by law. If a separate NDA exists, it is incorporated by reference.

11. Costs (binding)

Each party shall bear its own legal, advisory, and due diligence costs unless otherwise agreed in writing.

12. Binding vs non-binding statement (critical)

Binding clauses: [Confidentiality, Exclusivity (if checked), Costs, Governing law]
All other clauses are non-binding and represent current intentions only. No party is obligated to complete the transaction until definitive agreements are signed.

13. Governing law (binding)

This LOI shall be governed by the laws of Sri Lanka.

14. Signatures

Seller: ____________________ Date: ___________
Buyer: ____________________ Date: ___________

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Final thoughts

A good LOI doesn’t “close the deal.”

It does something more valuable in Sri Lanka’s SME environment:

• reduces confusion,

• reduces time-wasters,

• protects confidentiality,

• and forces early clarity on the issues that usually explode later (stock, leases, licences, payment structure, timelines).