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| Certificate No | Class £ Ordinary | No of Shares |
Registered in , Number
This is to Certify that on (date)
of ,
is the Registered Holder of fully paid Ordinary shares of £ each in the above-named Company, subject to the Articles of Association of the said Company
Registered Office ,
This Term Sheet template covers:
lead investor details
conditions of investment
capital structure
liquidation preference
information rights
management rights
A Term Sheet lays the groundwork for a negotiation and ensures that the parties involved in the transaction agree on the most important aspects of the deal. By setting out the terms of the future agreement, the Term Sheet reduces the likelihood of disputes further down the line. Investors use a Term Sheet as a basis for drafting investment documents. For more information, read Term sheets.
A seed investment is an early-stage investment, which usually funds the first operations of a business, such as research and development. It's the invested capital that supports the business until it can generate cash or until it is ready for further investment. Seed investment is quite high-risk, so investors are often compensated for this type of funding with an equity stake in the business. For more information, read Startup funding.
The lead investor is the investor that contributes the largest portion of the investment. They play an important part in the development of a business, for it is usually they who sign the Term Sheet and engage in the seed investment.
Lead investors can be family members or friends of the business founder, high-net individuals (ie angel investors) or venture capital investors. Any other investors (ie those who contribute a smaller proportion of the investment than the lead investor) are referred to as ‘additional investors’ or simply ‘investors’.
For more information, read Funding your business and Startup funding.
Before deciding to invest, investors should consider factors such as:
information about the business (eg its business plan, management team, market position and competition)
the level of control they'll have over the business and over the investment itself
the ways they can get their money back in the event the company is sold or closes down
For more information, read Term sheets.
Employee share ownership (also known as an ‘employee share scheme’) enables employees to own shares in their company. An employee share option plan, or ESOP, is a plan that provides a company's employees with shares in the company. By offering employee ownership employees are incentivised as they share in the financial rewards resulting from the success of the company. For more information, read Employee share schemes.
The Term Sheet is not intended to be legally binding. However, there is an exception for certain clauses, commonly those dealing with confidentiality, exclusivity and sometimes costs. This is because a Term Sheet acts as evidence of serious intent, but does not form an agreement in itself.
Management rights provide an investor with advisory and consultative rights. Investors often request a management rights letter when investing in a company to satisfy their operational requirements. Management rights typically include the ability to advise and consult with the management of the company, attend board meetings and inspect the company's books and records.
If an investor is granted management rights under this Term Sheet, a management rights letter will be created.
For more information, read Term sheets.
Making a Term Sheet online is simple. Just answer a few questions and Rocket Lawyer will build your document for you. When you have all of the details prepared in advance, making your document is a quick and easy process.
To make your Term Sheet you will need the following information:
Investee company and founder details
What are the details of the investee company (ie the company raising funds)? This includes its name, address and registered number.
What are the details of the founder(s) of the investee (eg their names and numbers of shares held)?
What is the value of the investee company?
Is a percentage of the investee company held in an employee share option plan (ESOP)?
If so, what number of shares are contained in the ESOP?
Is the investee company seeking to qualify for tax relief under the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS)?
Lead investor details
What are the lead investor’s details (eg their legal structure, name and address)?
If the lead investor is a company, partnership or LLP, who will sign on its behalf?
How many shares in the investee company is the lead investor due to receive?
How much is the lead investor investing in the investee company?
Will the lead investor appoint a non-voting observer to attend board meetings?
Will the lead investor have management rights? If so, when is the management rights letter sent?
Will the lead investor be entitled to priority payment on exit?
Additional investor details
Are there any additional investors to this funding deal? If so:
What are their details (eg their legal structure, name and address)?
Vesting
Over how many years will founder shares be subject to reverse vesting?
Will any unvested shares become vested if a founder leaves the investee company after it is acquired?
Other provisions
For how many days do the investee company and its founder(s) agree to be exclusive once the term sheet is signed?
Do important decisions of the investee company require the consent of the lead investor or the investor majority?
Who will pay the investor's expenses in the transaction? What is the maximum amount of fees and expenses?
What is the closing date?
Jurisdiction
If any party is based in Scotland, will the Term Sheet be governed by the laws of England and Wales or the laws of Scotland?
Term Sheets outline the key financial terms and other terms of a proposed investment. As a result, this Term Sheet covers the following:
Summary of terms for sale of series seed shares
This table sets out a summary of the terms which form the Term Sheet. Examples of these terms include, but are not limited to:
company - providing the details of the investee company
founders - providing the details of the founders of the investee company
investors - providing the details of the investors, specifying who the lead investor is alongside any other investors
drag along - setting out when and how a majority shareholder can force the remaining minority shareholders to accept an offer to purchase the company
founder shares - outlining relevant reverse vesting provisions that relate to the shares owned by the founders
non-binding effect - setting out which of the terms set out in the summary of terms are and aren’t legally binding. It also clarifies which country’s laws govern the legally enforceable terms
Signatures
The signature section of the Term Sheet is where all relevant parties (ie the lead investor, any additional investors and all founders) need to sign.
Appendix A - capitalisation table
This table sets out the relevant parties (ie all founders, the lead investor and any additional investors) and provides details of:
the class of shares they hold or will hold (these will always be ordinary shares)
the number of shares they hold or will hold
their ownership share (ie a percentage based on how many shares they own out of all existing shares)
Management rights letter
If the lead investor has management rights, this management right letter will be relevant. It outlines the management rights and responsibilities that the lead investor is afforded under the Term Sheet. These include:
the lead investor’s general rights - this includes the right to consult with and advise the management of the company on significant business issues
examination of books and records - this is the right to examine the books and records of the company and to inspect its facilities
confidentiality - this covers the lead investor agreeing to maintain the confidentiality of any information they learn in connection with the Term Sheet
termination - this sets out that the management rights set out in this letter will come to an end when any sale of the company is completed. It also highlights that the confidentiality provisions will continue to remain in force even after the termination of the management rights
If you want your Term Sheet to include further or more detailed provisions, you can edit your document. However, if you do this, you may want a lawyer to review or change the Term Sheet for you, to make sure it complies with all relevant laws and meets your specific needs. Ask a lawyer for assistance.
Be aware of which clauses in the Term Sheet are and aren’t legally binding
As the Term Sheet provides the basic terms under which an investor will invest in a company, only certain provisions are legally binding. These legally binding provisions are those which relate to confidentiality and exclusivity and (potentially) costs. The remaining provisions of the Term Sheet are not legally binding.
For more information, see the FAQ ‘Is a Term Sheet legally binding?’.
Understand when to seek advice from a lawyer
Ask a lawyer for advice if:
you need to issue or sell shares of a class other than ordinary shares
this document doesn’t meet your needs
any of the parties are based outside of England, Wales and Scotland
