What is a Term Sheet ? Definition – Finance

Whenever we talk about an investment, we talk about term sheet. So, what exactly is a term sheet ?

A term sheet is a document that outlines the key terms and conditions of a proposed business deal or transaction. It is a non-binding agreement that sets forth the basic terms and conditions of a proposed investment, merger, or acquisition. It’s a summary of the main points of an agreement, and it’s used as a starting point for further negotiations.

Term sheets typically include information such as the purchase price, payment terms, closing conditions, and the responsibilities of each party involved. They also include information about the rights and obligations of the parties, as well as any contingencies that need to be met before the deal can be completed.

Term sheets are typically used in situations where one company is looking to invest in or acquire another company, or when a company is looking to raise money from investors. They are also used in venture capital and private equity transactions.

In simple terms, a term sheet is a document that outlines the main points of an agreement, it is a non-binding agreement that sets forth the basic terms and conditions of a proposed investment, merger, or acquisition, it’s used as a starting point for further negotiations and it includes information such as the purchase price, payment terms, closing conditions, and the responsibilities of each party involved.

It’s important to note that a term sheet is not a legally binding document, but it is a document that is legally binding when a company signs it. The final agreement is usually a legal binding document, that’s why it’s essential to consult with a lawyer to ensure that all the necessary legal and financial terms are included in the term sheet.

Key points that a term sheet must usually include:

1. Purchase price: The amount of money that will be paid to acquire the company or asset being purchased.
2. Payment terms: The terms of payment, including any down payment, financing, or other contingencies that need to be met before the deal can be completed.
3. Closing conditions: The conditions that must be met before the deal can be closed, such as the completion of due diligence, the receipt of regulatory approvals, or the satisfaction of other contingencies.
4. Representations and warranties: Statements made by the seller regarding the condition of the company or asset being sold, such as the accuracy of financial statements or the absence of any known liabilities.
5. Covenants: Promises made by one or both parties to take certain actions, or to refrain from taking certain actions, in order to complete the deal.
6. Restrictions: Any restrictions on the buyer’s ability to operate the business or use the assets being purchased, such as non-compete clauses or restrictions on the ability to hire certain employees.
7. Indemnification: The process by which one party agrees to compensate the other party for any losses or damages that may occur as a result of the deal.
8. Governing law and jurisdiction: The law and jurisdiction that will govern the term sheet and the deal itself.
9. Exclusivity: A provision that prevents either party from entering into similar agreements with other parties during the negotiation period.
10. Termination: The terms under which either party can terminate the agreement, such as if the closing conditions are not met.

These are some of the most common key points that should be mentioned in a term sheet, the content may vary depending on the type of deal and the specific needs of the parties involved. It’s important to consult with a lawyer to ensure that all the necessary legal and financial terms are included in the term sheet.