Term Sheet Template

Understanding a Term Sheet

Term sheet templates are written documents that are exchanged between two business parties. It is based on the significant terms and conditions of the deal which the two parties will be carrying out. The document abridges the deal’s main points and the key aspects and details of the agreement. It is a “non-binding” contract that showcases the significant and integral facts among business parties, according to which the investment will be carried out. The term sheet allows the legal team to contemplate the in-house or external legal aspects for carrying out a safe and legally binding agreement on practical terms.

There can be a variation in the term sheet contents and clauses, depending on the business type, and the agreement varies as per the transactions. With our term sheet templates, you will find all the relevant documents that can be filled as per your needs and your business agreement.

Significant Benefits of a Term Sheet Template

The term sheet is aimed at covering the significant aspects of a business agreement. This is done to ensure that no minor contingency is made a part of the binding contract.

The main benefit of having a term sheet template is that it reduces the misunderstanding or preventable dispute between the business parties. Alongside that, the term sheet makes sure that the costly legal charges concerned with making a binding agreement or contract are effectively taken into consideration. Moreover, the term sheet contains financial data, such as both parties’ assets. This actual purchase price is composed of the contingencies that impact the price, the agreement’s time, and noticeable information.

Startups are significant users of the term sheets since they offer a viable solution and outlook for the investors, often venture capitalists. Company valuations, investment amounts, the percentage of stakes, and anti-dilutive provisions are mentioned in the term sheet.

A term sheet can act as a merger and acquisition process, benefiting the long-term business parties. The term sheet by Business-in-a-Box is one of the best ways to gain investors and potential partners because it details how the merger and partnership will happen. If you aim to get on board with potential investors or attract more venture capitalists, this is the right document for you.

Major Clauses and Considerations

You need to consider a few things while you complete the term sheet for your business. Fill in the data as per your company’s needs and make sure that you understand each part well and effectively fill in the relevant information.

Business:

Enter the details about the business in this section. You must address all the advisory and consulting services and its proprietary assets delivered to the customers. You must include all the products which are offered by the company in this section.

Role of Target:

Target will be effectively delivering all the licenses of the company’s products and services to the buyers or investors. These must be transferable easily without paying any additional royalties in import, lease, licensing, or distribution. Address the support contracts and vendor contracts and licenses as per the need of the venture capitalist or buyer with customers to the buyer.

Purchase Price:

Set the purchase price and the net capital, which will be at the closing date of the agreement alongside the deficit, to correctly adjust the purchase price. The payment terms must be addressed by specifying a percentage for the cash down payment on the purchase price.

You can add clauses like the earn-outs, which will be paid with no interest. You must address the payment concerns effectively.

Due Diligence:

The buyer must provide the target company with the option to carry out due diligence considering its business, proprietary aspects, projections of financials, legal contracts with customers, vendors, operational and quality processes, marketing strategy, taxation aspects, and human resource management. Due diligence aims to create a sense of satisfaction in the buyer’s board and senior management.

Liquidation Preference and Dividends:

In this section, you will address the downside protection, which will be given to the stock. The dividends, which are the stock percentages given to stakeholders for more returns, will be a part of this section.

Closing Conditions:

In this section, you must ensure that representations and warranties are valid until the specified closing date. All the parties must comply with laws and provisions.

Governing Law:

The term sheet must abide by all the governing laws of the area in which it is signed.

Fees and Expenses:

Ensure that both parties pay the legal, professional, due diligence, advisory support, negotiation, etc.

Non-Compete:

You can put the clause of a non-compete in the term sheet to ensure that the target company and its employees do not solicit any offer or transaction for a specific period from any company or buyer in a similar business.

Closing Date:

Address the closing date of the contract carefully while working effectively with the buyer or venture capitalists.

Binding Terms:

The binding terms make the target company bind not to solicit offers or send offers for sale to any other company other than the company binding in agreement with the target company. You must address this part to inform the buyer in writing about any such offer for a transaction as a buyer or target company.

Confidentiality:

Make sure that you address confidentiality in the term sheet. Both parties must agree that the term sheet is only used for the transaction between the target company and the vendor or buyer. The agreement must be signed by understanding that no party of the contract will disclose the payment or transactions to any third party throughout the agreement’s activation.

Termination:

The termination of the agreement can be done by any party regardless of the reason. You must make it a part of the term sheet.

Expiration Date:

Enter a precise expiration date for the term sheet to avoid confusion for both parties.

Headings of the Term Sheet Template

The term sheet template’s significant parts are reviewed here, ensuring you know the areas and what information you need to enter in those sections to create a practical term sheet.

Issuer:

You must list the corporation’s name that is making the offer to a buyer or a venture capitalist.

Nature of the Offering:

Write the offering’s name, whether it is brokered or non-brokered, and the shares’ offering.

Type of Security:

List the type of security for the agreement. The common shares are an instance that can be listed.

Offering Size:

List the details of the offering in terms of the monetary value in this section.

Issue Price:

You must address the price for individual issues, which can be the cost of each share.

Commission:

If there is commission owed, list it. Take the percentage of commission and to whom you owe and identify it here.

Capitalization:

List out the initial capital investments for the agreement in this section.

Dividends:

Provide your dividend policy in detail in this section. You must take legal counsel for this section while effectively addressing the preferential liquidation rights, liquidation event and conversion rights if applicable.

Voting Rights:

Make sure that you describe the voting rights in this section effectively.

Use of Proceeds:

Include the proceeds of the offer here for general corporate and working capital purposes for the business.

Closing Conditions:

As per the above section’s suggestions, ensure the completion of satisfactory due diligence is done, and the consent from any third parties is received.

Agent:

Name the agent for the entire business agreement.

Closing Date:

Enter the closing date of the contract effectively.

Disclaimer:

Address the disclaimer with the message that the term sheet is not a contract or a binding agreement between the buyer and the target company. There will not be any transaction in the process if both parties do not execute definitive agreements.

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