State the purpose of the document
Explain whether the term sheet records an investment, acquisition or founder arrangement and what must happen before definitive documents are signed. Avoid a general non-binding label followed by language that appears to create an immediate obligation to complete.
Identify binding and non-binding provisions
Commercial terms such as indicative valuation, structure and timetable are often non-binding. Confidentiality, exclusivity, costs, governing law, jurisdiction and access to information are frequently intended to bind immediately. Mark them clearly.
Price and structure
Define whether valuation is pre-money or post-money, whether the transaction uses new shares, existing shares or both, and which assumptions affect price. In an acquisition, record the intended price mechanism and treatment of cash, debt and working capital.
Control and investor rights
Consider board rights, reserved matters, information rights, dilution protection, liquidation preference and exit rights together. An attractive headline valuation may be offset by a control or economic package that is too broad.
Conditions and due diligence
List material conditions such as satisfactory diligence, investment committee approval, financing, regulatory consent and agreed documents. Avoid conditions entirely within one party’s discretion where the other party is giving lengthy exclusivity.
Exclusivity
Set the scope, duration, permitted discussions, response obligations and consequences of breach. The exclusivity period should match a credible diligence and documentation timetable.
Confidentiality and announcements
Address the existence of negotiations, information exchange, permitted recipients and public statements. Existing NDAs should be identified so the documents do not conflict.
Costs, law and disputes
State who bears adviser costs and whether any break fee applies. Select governing law and the forum for disputes arising from binding provisions, especially in cross-border projects.
Use the term sheet to make decisions early
Resolve the points that will shape the transaction documents: economics, governance, liability framework, process and exit. A vague term sheet often transfers the hardest negotiation to a later and more expensive stage.
How the issue appears in practice
Hypothetical example: a non-binding document with a binding lock-up
A seller signs a “non-binding” term sheet containing a three-month exclusivity clause. The buyer has no firm completion obligation and moves slowly, while the seller cannot approach another investor.
Matters to determine or verify before proceeding
- State the purpose of the document
- Identify binding and non-binding provisions
- Price and structure
- Control and investor rights
- Conditions and due diligence
- Exclusivity
- Confidentiality and announcements
Key issues at a glance
| Issue | Key information |
|---|---|
| State the purpose of the document | Explain whether the term sheet records an investment, acquisition or founder arrangement and what must happen before definitive documents are signed. |
| Identify binding and non-binding provisions | Commercial terms such as indicative valuation, structure and timetable are often non-binding. |
| Price and structure | Define whether valuation is pre-money or post-money, whether the transaction uses new shares, existing shares or both, and which assumptions affect price. |
| Control and investor rights | Consider board rights, reserved matters, information rights, dilution protection, liquidation preference and exit rights together. |
| Conditions and due diligence | List material conditions such as satisfactory diligence, investment committee approval, financing, regulatory consent and agreed documents. |
Legal basis
- Polish Commercial Companies Code of 15 September 2000
- Polish Civil Code of 23 April 1964
- Polish Entrepreneurs' Law of 6 March 2018
- Polish Act of 6 March 2018 on participation of foreign entrepreneurs and other foreign persons in economic activity in Poland
This article provides general information and does not constitute legal advice for a specific matter. The appropriate solution depends on the facts, documents and business objective.
Summary
A useful term sheet separates binding process protections from non-binding transaction headlines and records the economic and governance choices that will drive the final documents.