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A letter of intent (LOI) is a document where parties express their intention to agree to certain terms in the future, serving as a preliminary step towards a formal contract. Commonly misunderstood by many business clients, the LOI is not a binding contract but indicates that discussions are in progress. It can be viewed as a non-committal arrangement, akin to a substitute teacher discussing future quizzes without immediate action. Although not always necessary, it plays a crucial role in outlining the basic understanding and intentions of the parties involved before formal agreements are made.