A term sheet is a preliminary, non-binding document that outlines the key terms of a proposed investment or transaction. It is widely used in startup investments, M&A deals, and venture capital funding. While a term sheet is not legally enforceable in its entirety, it creates a crucial framework for future binding agreements.
In the Turkish legal system, the role of the term sheet has grown significantly in recent years, especially with the emergence of the startup ecosystem, angel investor networks, and foreign VCs entering Turkish markets. Our Turkish Law Firm provides strategic guidance on drafting, negotiating, and interpreting term sheets in accordance with Turkish Commercial Law, Contract Law, and sector-specific regulations.
Legal Nature of Term Sheets in Turkey
Under Turkish Code of Obligations (TBK), a term sheet is considered a declaration of intent unless explicitly agreed otherwise. Most clauses are non-binding, except for specific provisions like:
- Confidentiality
- Exclusivity
- Governing law and jurisdiction
- Termination mechanism of negotiations
Our English Speaking Turkish Lawyers ensure that your term sheet reflects your legal strategy, limits liability exposure, and prepares for smooth transition to binding contracts such as Shareholders Agreements (SHA) or Subscription Agreements (SSA).
Why Use a Term Sheet?
Term sheets are widely used in early-stage funding rounds and M&A negotiations to:
- Define the structure of the deal
- Summarize proposed rights and obligations
- Prevent misunderstandings
- Accelerate negotiation of binding documents
- Test commercial alignment before drafting long-form agreements
In Turkey, term sheets help align local founders and foreign investors who may be unfamiliar with Turkish commercial law.
Key Clauses in a Term Sheet
Our firm regularly drafts term sheets for angel, seed, Series A, and buyout deals in compliance with Turkish legal standards. Important clauses include:
- Valuation: Pre-money and post-money calculations
- Investment amount: Total capital committed
- Equity stake: Percentage of shares offered
- Voting rights: Board seat allocations, veto powers
- Liquidation preference: Return order in exit scenarios
- Anti-dilution protection: Full ratchet vs weighted average
- Founder vesting: Milestone-based share retention
- Exit clauses: Drag-along, tag-along, ROFR, ROFO
Advantages of Using a Term Sheet
There are several strategic advantages to using a well-drafted term sheet during early deal stages:
- Clarity: Parties agree on core terms before spending legal resources
- Speed: Helps accelerate the timeline toward deal closing
- Risk control: Reduces disputes due to miscommunication
- Investor comfort: Especially helpful in multi-round capital raising
- Negotiation leverage: Useful for testing redlines without binding commitments
Our Turkish Law Firm structures term sheets to create a tactical advantage during later-stage contract negotiations.
Disadvantages and Legal Risks of Term Sheets
Despite their benefits, term sheets can create legal and commercial risks, especially if misused:
- Perceived binding nature: Courts may interpret ambiguous term sheets as binding contracts if performance has begun
- Negotiation fatigue: Parties may spend excessive time negotiating non-binding terms
- Disputes over exclusivity: Breach of exclusivity clauses can lead to liability
- Legal uncertainty: Unclear drafting may confuse shareholders or third parties
We mitigate these risks by carefully identifying which clauses are binding, and by expressly stating the legal status of the document under Turkish law.
Are Term Sheets Legally Binding in Turkey?
Generally, no. But parts of a term sheet can become legally enforceable if:
- The clause expressly states it is binding
- Parties act as if the term sheet is a contract (implied acceptance)
- The agreement satisfies the conditions under TBK Articles 2–26 (offer, acceptance, mutual intent, good faith)
Therefore, a poorly drafted term sheet may expose you to liability for breach of negotiation duty. Our English Speaking Turkish Lawyers draft term sheets with clear disclaimers and defined scopes.
Term Sheet vs Shareholders Agreement
| Feature | Term Sheet | Shareholders Agreement |
|---|---|---|
| Legal Binding | Mostly non-binding | Fully binding |
| Purpose | Summarize deal terms | Create enforceable rights and obligations |
| Content | High-level principles | Detailed corporate governance structure |
| When Used | Early-stage negotiation | Post-agreement execution |
Internal Legal Resources
- Shareholders Agreement in Turkey
- Venture Capital Law in Turkey
- Company Formation in Turkey
- Investor Due Diligence in Turkey
- Startup Exit Strategies
FAQ: Term Sheets in Turkish Law
- Q1: Is a term sheet enforceable in Turkish courts?
No, unless specific clauses are made binding and followed by mutual performance. - Q2: Can I include a penalty clause in a term sheet?
Technically yes, but it’s unusual. Penalty clauses are more common in binding contracts. - Q3: Should founders always sign a term sheet?
Yes, but only after legal review. It frames critical investment terms and may restrict future flexibility. - Q4: What happens if a party breaches the exclusivity clause?
They may be liable for damages, especially if explicitly stated as binding. - Q5: Can foreign law govern a Turkish term sheet?
Yes, if the parties agree — but enforcement will follow Turkish procedural law. - Q6: Are oral term sheets valid?
No. Term sheets must be in writing to have any legal or practical effect. - Q7: How long is a term sheet valid?
Usually 30–90 days, depending on negotiation timelines. - Q8: Can a term sheet be used for real estate deals?
Yes. Although more common in investment deals, they’re used to outline real estate transaction terms as well. - Q9: Do I need legal counsel to draft a term sheet?
Absolutely. Poorly drafted term sheets may lead to major legal disputes or failed funding rounds. - Q10: How do I convert a term sheet into a binding contract?
Through proper drafting of a Shareholders Agreement or Subscription Agreement aligned with term sheet terms.
Legal Advisory on Term Sheets by a Turkish Law Firm
Whether you are a startup founder seeking funding or an investor planning entry into a Turkish company, a properly structured term sheet is essential to mitigate legal risk and set a clear framework for negotiation. At ER&GUN&ER Law Firm, we draft, review, and negotiate term sheets with precision and strategic clarity.
Our English Speaking Turkish Lawyers assist clients in venture capital deals, tech investments, shareholder exits, and cross-border M&A — ensuring that each term sheet aligns with Turkish law and international best practices.