StarForge Advisors

LOI · stock purchase

Stock purchase LOI

Use this when the target has non-transferable assets that must stay with the legal entity — specific licenses, government contracts, certain regulated franchises, or insurance program agreements that can't be assigned. The buyer steps into the existing entity rather than acquiring its assets.

Download DOCX LOI - Stock Purchase.docx

When to use this template

Stock (or membership-interest) purchase is the second-most-common LOI structure for self-funded acquisitions. The decision usually comes down to one or two non-transferable assets the seller has built up: a state license, a key government contract with assignment restrictions, a carrier appointment in insurance, a franchisor relationship, or inventory-tied import licenses. If those assets cannot survive an asset-purchase assignment, the buyer takes the whole legal entity.

The tradeoffs vs. asset purchase

  • No step-up in basis. Buyer inherits the seller's depreciated tax basis. Multi-year impact on tax depreciation expense, which the buyer should price into a discount on the LOI.
  • Inherited liabilities. Buyer takes on every historical liability of the entity unless explicitly indemnified. Reps and warranties + indemnification + escrow become much more important.
  • Continuity of contracts. Most contracts survive a stock purchase without consent (unless they have an explicit change-of-control clause). This is the structural advantage you're paying for.
  • SBA 7(a) is fine with it. SBA-financed change-of-ownership works for stock purchases, but the underwriting checklist is longer. Lenders look harder at historical liabilities.

Web preview

LETTER OF INTENT

Stock Purchase — [TARGET COMPANY NAME]

Date: [DATE]
Buyer: [BUYER ENTITY NAME] ("Buyer")
Seller(s): [ALL EQUITY HOLDERS] (collectively, "Sellers")
Target: [TARGET LEGAL ENTITY NAME], a [STATE] [ENTITY TYPE] (the "Company")

This Letter of Intent ("LOI") sets forth the principal terms under which Buyer proposes to acquire 100% of the issued and outstanding equity of the Company from Sellers (the "Transaction"). Except as expressly set forth in Section 11 below, this LOI is not legally binding on either party.

1. Transaction structure

Buyer will acquire 100% of the equity interests of the Company from Sellers. The Company will retain all of its assets, liabilities, contracts, licenses, and operating relationships, subject to the representations, warranties, and indemnification provisions in the definitive Stock Purchase Agreement ("SPA").

2. Purchase price

The aggregate purchase price for 100% of the Company's equity ("Purchase Price") will be [$0,000,000], paid as follows at closing:

  • Cash at closing: [$0,000,000] (financed in part through an SBA 7(a) loan)
  • Buyer equity injection: [$0,000,000]
  • Seller financing (if applicable): [$0,000,000]

Purchase Price is on a cash-free, debt-free basis. Sellers will cause the Company to extract all cash and pay off all indebtedness for borrowed money prior to or at closing.

3. Working-capital peg

Same as Asset Purchase: Purchase Price assumes delivery at a normalized working capital target of [$000,000], with dollar-for-dollar adjustment up or down at closing.

4. Earnest money

Buyer will deposit [$00,000] in escrow within five (5) business days of LOI signing, refundable to Buyer if the Transaction does not close for any reason other than a material breach by Buyer.

5. Due diligence period

Buyer will have ninety (90) days from LOI signing to complete due diligence. Stock-purchase diligence is broader than asset-purchase diligence; in particular Buyer will conduct (a) a Quality of Earnings analysis, (b) a legal-and-litigation review of the Company, (c) a tax review including state tax exposure for the past seven years, (d) employment and HR diligence, and (e) IP and customer-contract review.

6. Exclusivity

Same as Asset Purchase, with a 120-day Exclusivity Period to accommodate the longer diligence runway.

7. Representations, warranties, and indemnification

The SPA will contain customary representations and warranties appropriate for a stock purchase, including specific reps regarding (a) absence of undisclosed liabilities, (b) compliance with law, (c) tax matters, (d) ERISA and benefit-plan compliance, (e) environmental matters, and (f) absence of material undisclosed contracts. Indemnification will be backed by an escrow holdback of [10–15%] of the Purchase Price for a period of [18–24] months, with customary survival periods, deductibles, and caps.

8. Closing conditions

Closing will be conditioned on:

  • Buyer's receipt of an SBA 7(a) loan commitment on terms reasonably acceptable to Buyer
  • Completion of due diligence to Buyer's reasonable satisfaction
  • Receipt of all required third-party consents, including any change-of-control consents
  • No material adverse change in the Business
  • Execution of definitive SPA, employment or transition agreements with key personnel, and customary escrow and disclosure schedules

9. Confidentiality

Each party agrees to keep confidential the existence and terms of this LOI and all information exchanged in connection with the Transaction, except as required by law, lender, or professional advisors. This Section is binding.

10. Binding provisions

Sections 4 (Earnest Money), 6 (Exclusivity), 9 (Confidentiality), 11 (Expenses), and 13 (Governing Law) are legally binding on the parties upon signature. All other provisions are non-binding statements of intent.

11. Expenses

Each party will bear its own legal, accounting, and advisory fees, whether or not the Transaction closes.

12. Public announcements

Neither party will make any public announcement regarding the Transaction without the prior written consent of the other party, except as required by law.

13. Governing law

This LOI is governed by the laws of the State of [STATE].

Accepted and agreed:

BUYER: [BUYER ENTITY NAME]
By: ______________________________
Name: [NAME]
Title: [TITLE]

SELLERS:
[Each equity holder signs separately]

Negotiation notes

  • Escrow holdback. 10–15% for 18–24 months is standard at this size. Sellers will push for less; refuse to go below 10% on a stock deal — the historical-liability risk justifies it.
  • Tax exposure review. State sales tax nexus and unfiled-return exposure are the most common surprises in stock-deal diligence. Budget for a state-by-state tax review if the Company has multi-state revenue.
  • Multiple sellers. Each equity holder signs the LOI separately. Joint-and-several indemnification language at the SPA stage is critical; spread liability across sellers in proportion to ownership.
  • Change-of-control consents. Identify these in the LOI period — they're often the gating item to closing.