Term Sheet: Advantages and Disadvantages

A term sheet is a letter of intent in which investors and financiers state their general expectations before reaching a legal agreement. A business term sheet is not a legal basis; that is, a document that is valid in court; there may be exceptional circumstances, and it is usually created by the financier and presented to the investor. 

Although it is not the main document formalizing the agreement, it can be used by the shareholder to make their agreements more profitable. Our team of Turkish business and commercial lawyers, who are experts in their field, offer legal advice to ensure that you can make the most profitable deal for your side on the term sheet.

Uses of a Term Sheet

Investment is a type of money flow that usually involves a financier making a material investment in a developing company and becoming a shareholder. A proposal report prepared by a large company before investing in a small company that provides funds can be called a term sheet. In short, a term sheet is a preliminary information report that can be used in all kinds of agreements where investment-type actions will take place.

Obtaining legal advice to ensure the preparation of a term sheet or the acceptance of term sheet clauses allows you to identify the most advantageous options for your company without wasting time because the term sheet agreement prepared by the parties who do not have legal knowledge causes financial losses or disputes for one or both of the parties.

Advantages of Term Sheets

The issue should not be treated as any legal document when considering the term sheet. Because the term sheet is not a compact document. Therefore, the term sheet is a document that is open to negotiation and compromise. In short, if the document presented to you does not meet your requests, you can add-drop on the term sheet to the agreed one.

Since the term sheet is not a written agreement, it is a document that allows the parties to see each other's intentions more clearly and do detailed planning regarding the offer. Thanks to these advantages, the term sheet ensures that the foundations of a contract that does not contain any deception. It also prepares the way of agreement.

Disadvantages of Term Sheets

Although the term sheet is advantageous as it leaves room for flexibility since there is no contract signed between the parties, a lot of time is spent on unnecessary points in the term sheet examples that are examined without legal advisors, in addition, critical situations can also be ignored accidentally. This is the biggest disadvantage of the term sheet. Other disadvantages that can be mentioned about the term sheet are:

  • Creating a waste of time in case of extension
  • Having a document that is not taken seriously by the parties
  • Causing negative profit due to insufficient examination

Briefly, the term sheet can often cause the legally incompetent party to be financially exploited in the long term. However, to prevent this situation and other disadvantages, it is enough to work with lawyers who are experts in Turkish business law. You can avoid these problems by contacting us. 

What's Included in a Term Sheet?

The issues contained in the term sheet include the material dimension of the agreement and at the same time the details of what rights the financier party has in the company in which it invests. For example, the financier company may want to carry the right to vote that will take place in the company in which it provides investment. 

In short, it is possible to say that in addition to the shares sold, it constitutes the general of the articles contained in the term sheet in which the financier company will be a shareholder in which areas.

Tips for Writing a Term Sheet

When preparing the term sheet, the parties must state their intentions clearly. At the same time, non-negotiable issues should not be included in the term sheet in general. The term sheet containing the general expectations from the contract to be made should be prepared based on an accommodationist attitude.

Similar Documents

LOI and MOU documents are documents that have similarities with the term sheet, but, of course, have various nuances. The letter of intent(LOI) is similar to the term sheet and is usually presented by the financier. There is a general document related to the purpose of the agreement rather than reconciliation in the articles of agreement.

MOU, which stands for Memorandums of Understanding, means that companies submit a declaration of actions they will mutually perform. The function of this document can also be summarised as the opening of situations that will require mutual compromise to be discussed.

Example of a Term Sheet

You can constantly come across term sheet examples, especially in financial terms. Nevertheless, the parts contained in a term sheet document can be listed as follows:

  • Issuer
  • Offering
  • Type of Security
  • Offering size & Issue price
  • Commission
  • Capitalization and Divisions
  • Preferential Liquidation Rights
  • Definition of Liquidation Event
  • Anti-Dilution
  • Closing conditions, closing date, etc.

It is possible to amend the articles contained in this draft. The parts and issues that should be included in a term sheet in terms of being an example are listed above.

You can read our previous article at https://istanbullawyerfirm.com/blog/renters-rights-in-turkey