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Reviewed by Jul 26, 2021| Updated on
A term sheet can be defined as a non-binding agreement that sets out the basic conditions for making an investment. It serves as a template for developing more detailed documents that are legally binding.
Once an agreement has been reached between the parties concerned on the details set out in the term sheet, an agreement or contract will be drawn up that conforms to the details of the term sheet.
In essence, a term sheet should cover the most important aspects of an agreement without going into any minor details and contingency covered by a binding contract.
It essentially sets out the groundwork for ensuring that the parties involved in a business transaction agree on most important aspects of the deal, thus precluding the possibility of misunderstanding and diminishing the likelihood of unnecessary litigation. It also ensures that there is no premature incurrence of expensive legal charges involved in drawing up a binding agreement or contract.
All term sheets should include certain basic elements, such as information on the identity of the parties involved, valuation, and preferred payments. It also includes information on all the properties involved, the initial purchase price, including contingencies that may impact that price, a response time period, and any other information that is considered relevant.
Few important conditions to keep in mind for a start-up term sheet:
A term sheet used as part of a merger or attempted takeover will typically contain information about the initial offer of the purchase price and preferred method of payment, as well as the properties included in the transaction. It may also contain information about what if anything is excluded from the contract or any things that either or both parties may regard as requirements.