Business Sale Legal Basics – Term Sheets.

Are you in the process of buying or selling a business?

For anyone who is going through or about to go through with a sale or purchase of a business, a Term Sheet or Heads of Agreement is a common way to confirm the negotiated terms of the transaction. Although it is not legally required, it often arises when one or both parties want to formalise the transaction or to show their commitment in the sale or purchase.

What is a Term Sheet?

The Term Sheet can often detail the main agreed terms of the sale of the business. This may include anything that may also be included in the final Sale of Business Agreement, including:

• Purchase Price
• Asset value
• Training periods
• Employees
• Goodwill
• Restraint of Trade
• Warranties
• Indemnities

Although the terms and conditions of the sale can be outlined in the Term Sheet, it is more commonly used as a guide for the drafting of the formal Sale of Business Agreement. When a portion of the sale is already agreed upon and written down incrementally in the Term sheet, it reduces the time and costs involved in finalising the transaction. It is important to note that a Term Sheet can be legally binding if both parties agree to be bound by the agreement. However, it is often not legally binding, unless carefully worded and agreed to be so. The Term Sheet, when not agreed to be binding upon both parties, often includes a timetable for completion of the sale.

Conclusion

For both the vendor and purchaser, the Term Sheet is a good way to move the sale forward and show your commitment. Our contract lawyers at LegalVision specialise in business sale transactions and can assist you in drafting or reviewing a Term Sheet as well as advising you of when it would be necessary for your particular business sale.