Term Sheet in Business:
Many might have come across this word ‘Term Sheet‘ which is often used in major business agreements, documents etc. A term sheet is the first step towards business contracts wherein important terms and conditions are discussed at a base level before penning it down through a contract or an agreement.
So is Term Sheet legally binding: No. As mentioned above, its just the start up phase in a business union and not registered, it is not legally binding on either parties. It outlines the broader terms and conditions of an investment deal. Parties frequently use it as a template and starting point for the more detailed and legally binding documents that’ll come in the future. Further though the term sheet is non-binding, the parties may agree upon and come upon certain elements of the term sheet to be binding upon both parties.
When can term sheets be prepared:
There are various instances when a term sheet can be referred in by both parties before actual contract signing.
1. Mergers & Amalgamations
2. Taking loan from Banks/FI
3. Takeovers
4. Joint Ventures
5. Investments by Venture Capitalists in business, startups, companies etc.
Common Contents of Term Sheet:
The Term Sheet contains only the major portion of a business aspect which the parties intend to discuss on border concept. The term sheet does not go into every single details of investment deals. Common Elements a Term Sheet includes are:
1. Information of the Parties
2. Nature of business of Parties
3. Object for which the parties intend to invest in such deal
4. Consideration
5. Valuation
6. Profit sharing/ stake
7. Time period of completion of project
8. Distribution of work amongst the parties
9. Any other terms and conditions.
A terms sheet should also clearly state that it is a nonbinding agreement, giving both the Parties the ability to withdraw before legal paperwork is completed. Ones the term sheet is agreed and signed by both parties, next step is entering into a proper contract or agreement which includes the points of the term sheets discussed and agreed.
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The author can be reached at csprernahunagund@gmail.com
Disclaimer: This article is written merely for informational purposes and it should not be taken as a legal advice. The readers are advised to consult competent professionals before acting on the basis of any information provided here.
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