A term sheet is a non-binding working document in which parties lay down terms and conditions for an investment agreement. The term sheet will be used to further negotiate these terms and conditions and will eventually lead to a binding final contract.

Similar to letter of intent

A term sheet is similar to a letter of intent. It is a brief summary of the basic terms of an agreement which serves as a framework for the future draft agreement. While it is not legally binding, it does reflect the intentions of parties. This is relevant in negotiations as agreed key principles in a term sheet may be hard to renegotiate.

The use of a term sheet is important as it is the initial step to a final agreement and provides a framework for parties to further modify. It is usually a couple of pages long.