People naturally want their contracts to become effective when signing them. But some contracts are the initial negotiation results, such as letter of intent (LOI), memorandum of understanding (MOU) and term sheet. There will be formal contracts after LOI, MOU and term sheet have been signed. Are the initial documents binding on the parties? They may and may not. It depends on what the parties need and how the document has been drafted. Usually, the terms regarding the transaction, such as price, payment terms, closing conditions, etc., should be included in the formal contract; and these terms are often not binding. Other terms, such as confidentiality, expenses, due diligence, no shop, etc. would be binding. Signing initial documents is just like an engagement. Once you find the right one, engage first. Whether or not the marriage will occur will depend on whether the conditions are satisfied. Closing a transaction is like getting married.