A term-sheet is a non-binding agreement that sets forth the common conditions and terms by which the company gets funding from an investor.
It works as a template that develops a much more detailed document that would be used legally for the investment deal. As soon as the parties involved in the deal reach an agreement for the main details used in the term-sheet, a contract or a binding agreement that outlines the details is then created.
In short, the term-sheet works as a foundation that makes sure the parties in the transaction for the business agree on as many main aspects of the deal possible. Hence, preventing any possibility for a misunderstanding and reducing the chances for any unnecessary disputes. The term-sheet also makes sure that the expensive legal charges involved in the creation of the contract or binding agreement are not incurred prematurely.
To be clear, the term-sheet is not deemed as a legal document, which is why it is considered unenforceable, in a legal sense. Based on this, the sheet is like a letter that would show the intentions in a working document to serve as a jumping-off point for more intensive negotiations, or action that are predominately one-sided, as in acquisitions.
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