A non binding agreement consisting terms & conditions for the
investment is known as Investment Term Sheet. An Investment Term Sheet is a non
binding document except clauses related to confidentiality and governing law. It
is a type of principle agreement which consist valuation. It mainly consist
discussions on which parties have agreed informally. After preparation of terms
sheet, a due diligence process shall be carried out. Eventually parties will
sign the agreement. No contractual obligation has been created by the term
sheet on investor to make investment and on the company as well as to issue
shares to the investor. Under this, details of the investors are given,
valuation of the company, and the amount of investment.
Every type of investment requires proper negotiations for which such type
of document is required. Investment Term Sheet is a non
binding document under which terms & conditions are defined which are
mutually agreed between the parties in relation to investment. Terms sheet is a
non binding document thus do not have legal value and it cannot be enforced. It
is drafted in a manner that no misunderstanding will occur in future. It will
be treated as a reference document for drafting of legally binding contract.
Now let’s understand some
of the features of term sheet.
1.
Ample time is there for
parties for better negotiations.
2.
It helps in eliminating
the possibility of misunderstanding among the parties involved.
3.
It gives the clear
description of the major aspects of the deal.
4.
It helps in removing the possibility of
unnecessary disputes between the parties.
5.
A term sheet helps in ensuring that the
expenses of legal charges which are involved under the drafting of legally binding
contract have not incurred in the initial stage.
6.
It enables the parties to focus on business
issues involved in transaction at the initial stage.
7.
In long run of the company it is always
beneficial to invest time and resource in drafting term sheet for the company.
Elements
of Term Sheet
1.
Details of the investor and the entity
under which the investment is being made shall be mentioned under term sheet.
2.
Details of the mode of investment and the time
period as decided.
3.
Details of Voting Right of parties
4.
Maintain proportionate ownership
5.
Draft Share purchase agreement, if required.
6.
Warranties & Representations,
7.
Terms related to Non-Competition & Non-Disclosure,
8.
Other Provisions
Above mentioned terms may be included in
terms sheet as per requirement of transaction as well as on the basis of
requirement of the parties.
Things
to be considered by the parties in term sheet
An investment term
sheet gives a base to future formation of legally binding agreements. At
the time of making term sheet each & every clause and required provisions
must be carefully analyzed, and proper discussion and negotiation should take
place while preparing this. Every aspect and future impact should be considered
while making.
While making investment terms sheet and during
negotiations, professionals may be hired or consulted for experience outlook
and also for unbiased approach. By this, an unambiguous and exhaustive document
can be made. You
can contact us for the preparation of Investment term sheet as we have a team
of professionals and we can assist you accordingly.
Source
url - http://enterslice.over-blog.com/2018/08/all-about-investment-term-sheet-for-startups.html