Term Sheets

by Practical Law Corporate & Securities

A Practice Note discussing the use of term sheets, also known as letters of intent or memoranda of understanding, to outline the key terms of a transaction. This Practice Note explores the advantages and disadvantages of using these preliminary agreements in a variety of transactions, including private mergers and acquisitions, joint ventures, and private placements. It explains which provisions are usually binding, such as exclusivity or confidentiality, and which provisions are typically non-binding. This resource also addresses significant legal risks, including the possibility of unintentionally creating a legally binding commitment or a duty to negotiate in good faith, which could limit a party's ability to terminate negotiations. Furthermore, this Practice Note reviews the potential for a term sheet to create disclosure obligations for public companies under applicable securities laws, and outlines the information commonly included in term sheets for different types of deals.