Before getting into the due diligence process and other key components of entering a purchase agreement, the buyer will typically provide you with a term sheet or letter of intent. In this document, the buyer will express his or her interest in entering the transaction and will outline the legal and commercial terms, including the price and structure of the purchase. A term sheet or LOI can guide the purchase process by focusing negotiations on the key terms and identifying deal breakers.
After receiving the term sheet, you can negotiate with the buyer to agree upon terms that are amenable to both of you. Once you are both satisfied with the term sheet, you should sign the document and move forward with the purchase process. There is no set structure for a term sheet, so long as it sets out key terms such as:
- Important dates
- Assets to be included
- Payment method
- Transition terms
- Any contingencies
The overall term sheet typically is not legally binding, but some individual provisions may be binding, such as confidentiality or exclusivity. Make sure your term sheet clearly identifies which provisions are legally binding before you sign it.