Are you an entrepreneur or founder or investor? If yes then consider recording of proposed terms during discussion / negotiations with your vendor, supplier or any other stakeholder under terms of Term Sheet especially in case of large and complex deals.
Term Sheet: It is called by different names like letters of intent, memoranda of understanding, heads of terms,letters of potential interest, protocols and so on. Whatever the heading may be but serves same purpose.
What is Term Sheet? It is written document between the Parties which sets out the high level, important terms and conditions of the prospective deal. It summarises the main points of the agreed terms.Terms of a commercial transaction agreed in principle between parties are reflected in Term sheet.
Why Term Sheet is Used? It is often used in more complicated commercial transactions or large deals with view to have record of agreed principal terms. Term sheet always lists out the broader and key terms and acts as template/guide to draft the definitive and main agreement.
When Term Sheet is Singed? It is signed prior to signing of Agreement in scenarios such as M&A, Sale of Assets or any other large deals.
Whether Term Sheet is Binding or Non-Binding?It depends on intention of the parties whether they intend it to be legally binding or not and language used in the term sheet. Alternately the parties decide and make term sheet semi binding or partially binding based on the requirement.
What Term Sheet Contains? It contains key pointers and may contain illustrative clauses listed below:
- Confidentiality
- Consideration
- Price and Fees
- Payment terms
- Due diligence
- Closing conditions
- Governing law
- Non-compete
- Binding terms / Non-Binding
- Term & termination
What are Key Uses of Term Sheet?
- Helps in recording commercial transaction at early stage with regard to principle agreed terms
- Helps the parties to address any misunderstandings or problems or concerns
- Guide and framework to draft definitive and main Agreement
- Framework of terms and conditions which need to be satisfied before binding documentation can be entered into
- Aids to outline of the process with regard to due diligence
- Provide time frame for negotiation and completion of the transaction
- Outlines the binding / partially / non-binding nature of the commercial transaction which have been agreed between the parties
- Basis for future agreement
Inference & Suggestions
For number of reasons term sheet is important for large and complex commercial transactions. Take advice from legal professional to draft term sheet is better in order to have clear terms and avoid vagueness & uncertainties.
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* Write up by Team Purple Pursuits, for more details you can reach to us [email protected]
