Term Sheet
A term sheet is a short document recording the commercial shape of a deal — price, structure, conditions, timetable — before anybody spends money on definitive contracts. Most of it is deliberately not binding; a few clauses in it always are.
Also called: heads of terms · LOI
A term sheet sets out what the parties think they have agreed, in two or three pages, so that lawyers drafting the definitive agreement are working from the same understanding. In a licensed-entity acquisition it will usually cover the purchase price and how it is paid, whether the deal is a share purchase or an asset purchase, what the buyer is relying on, the conditions to closing, an exclusivity period, and a target timetable.
The convention is that a term sheet is not a contract to buy anything. It is a statement of intent, and either side can walk away. But two or three clauses in it almost always are binding and are worded to say so: confidentiality, exclusivity or a no-shop undertaking, and who bears costs if the deal collapses. Reading a term sheet as uniformly non-binding is how a seller finds they have given away ninety days of market exposure for nothing.
In a transaction involving a regulated entity the term sheet earns its keep by naming the regulatory condition explicitly. A deal that transfers ownership of a licensed firm generally needs the regulator’s prior approval, and whether completion is conditional on that approval — and what happens to the deposit if it is refused — is a commercial term, not a legal detail to be settled later.
In practice
Signing a term sheet does not buy the company, and in a regulated transaction it cannot: the transfer still turns on a change of control approval that neither party controls. Treat the exclusivity clause as the real consideration you are giving, because in practice it usually is.
Example
A buyer signs a term sheet for a licensed EMI with a 90-day exclusivity period and a non-binding price. Due diligence surfaces an open supervisory finding, the price is renegotiated downward and the deal still closes — exactly what the document is for. The seller, meanwhile, could not talk to anyone else for those 90 days, and that clause was binding from the day it was signed.
Commonly confused with
| Term | How it differs |
|---|---|
| Letter of intent / heads of terms | Usually the same document under a different name. The label carries no legal weight — what matters is which clauses are expressed to be binding. |
| Share purchase agreement | The definitive contract that actually transfers ownership, with warranties and indemnities. The term sheet is the sketch it is drawn from. |
| Due Diligence Pack | The term sheet records the agreed terms; the pack is the evidence the buyer tests them against. |
See also
- Due Diligence PackA due diligence pack is the set of documents a seller assembles so a buyer can verify what a licensed entity actually is — its corporate record, its permission, its compliance programme and its money. It is evidence, not marketing, and how good it is tells a buyer most of what they need to know.
- Change of ControlA change of control is a transaction that shifts ownership or control of a licensed entity past a regulatory threshold. It must be cleared with the regulator before completion, by approval in some regimes and by the regulator not objecting within a set assessment window in others. What is assessed is the incoming owners, not the deal.
- Control PersonAn individual or entity whose ownership stake in, or authority over, a licensee is large enough to require regulatory disclosure, fingerprinting and background checks. Control usually arises from a threshold ownership percentage or from holding an officer or director position.