02 Jul 2018
When the Term Sheets needed to be Binding?
“Do what you can,
with what you have,
where you are”
A term sheet implies the conditions of a business transaction, as proposed by a party. It can be either legally binding or non-binding. Term sheets are similar to LOI (Letter of Intent) and MOU (Memorandum of Understanding). In practice they are mostly non-binding documents. A term sheet may be still in the form of a proposal, not an agreed document.
Within the context of Venture Capital Financing a term sheet typically includes condition for financing a startup company. A term sheet is also used for a variety of business transactions such as business negotiations, mergers and acquisitions, lending agreement, joint ventures and joint operations.
A term sheet can be binding or non-binding for all parties. A non-binding term sheet will have a very weak if it is not supported by the legal agreements soon. Even it is not a non-binding agreement, but as the parties may put some ‘binding’ terms in a substantially non-binding term sheet.
Below is some suggested ‘binding’ terms that can be considered to be put or insert in the non-binding term sheet:
1. Exclusive period:
A prospective buyer (VC) wants an exclusivity period during the seller (founder) cannot offer to another buyer / party.
2. Price per share
To make sure the price is fixed upon the transaction happened.
3. Conduct of the business as usual
A business is being purchased will not be going to be worthed if founder decides to be non-active and not run the business as usual.
It should be clearly mentioned in the term sheet which are binding and which are not, in order to avoid misunderstanding in the future.
Agung Tjahjady SH, CLA, CPA, MM, BKP (Managing Partner)
Registered Tax Consultant, Advocate
+62 816 825 348
BVD Oriana User
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