UK Term Sheet Template: Key Terms, What to Include & Example

If you’re raising investment, bringing in a strategic partner, or negotiating a major commercial deal, you’ll often hear one phrase early on: “Let’s put a term sheet in place.”

And it makes sense. A term sheet helps you and the other side agree the headline deal points before anyone spends time (and money) drafting the long-form contracts.

But here’s the catch: a “quick” term sheet can create real risk if it’s unclear, inconsistent, or accidentally makes the whole deal binding before you’re ready.

In this guide, we’ll walk you through a practical approach to using a term sheet template in the UK for small businesses - what it should include, the key terms that matter most, and a workable term sheet example you can adapt as a starting point (with legal input where needed).

What Is A Term Sheet (And When Do You Actually Need One)?

A term sheet is a short document that summarises the main terms of a proposed deal. It’s often used:

• Before investment (e.g. angel investors or seed funding)
• Before a share subscription (e.g. issuing new shares to an investor)
• For joint ventures or strategic partnerships
• For acquisitions (heads of terms for a business sale)
• For major commercial arrangements where the parties want to lock in key points early

In plain English, a term sheet is your “deal sketch”. It keeps negotiations focused and helps your solicitor draft the final documents without having to guess what you agreed.

Depending on the transaction, you might also hear term sheets called:

• heads of terms
• heads of agreement
• letter of intent
• memorandum of understanding

These documents overlap, but the most important thing isn’t what you call it - it’s whether it’s intended to be legally binding, and which parts are binding.

If you’re unsure whether your document has created a binding contract (even unintentionally), it’s worth sanity-checking the basics of legally binding contracts before you circulate anything.

Is A Term Sheet Legally Binding In The UK?

Sometimes yes, sometimes no - and sometimes it’s a bit of both.

Many term sheets are intended to be non-binding on the “commercial deal” (like valuation, price, or completion date), but binding on a few specific clauses. Whether those clauses are actually binding depends on how the term sheet is drafted, the wording used, and the surrounding circumstances (including emails and conduct).

• Confidentiality (keeping information and negotiations private)
• Exclusivity / no-shop (you don’t negotiate with other parties for a set time)
• Costs (who pays legal/accounting fees)
• Governing law and jurisdiction (usually England & Wales, or Scotland if relevant)

The risk for small businesses is that an “informal” document can become binding if it:

• reads like a final agreement (rather than a summary)
• includes strong commitment language (“will”, “shall”, “agree to”) without qualifiers
• has enough certainty around the key terms
• shows an intention to create legal relations (including by the surrounding emails)

So if you want a term sheet to be non-binding, you generally need to say that clearly, and draft it consistently (often including “subject to contract” where appropriate).

Also keep in mind: even a “non-binding” term sheet can still create practical pressure. If you sign something that looks like you’ve agreed the valuation or price, it can be hard to walk it back later without damaging the relationship.

What Should A UK Term Sheet Template Include? (A Practical Checklist)

A good UK term sheet template is clear, structured, and tailored to the kind of deal you’re doing. Below is a practical checklist you can use as a starting point.

1) Parties And Deal Overview

• Full legal names of the parties (including company numbers if relevant)
• What the deal is (investment, acquisition, JV, subscription, etc.)
• A short description of the business (useful context, not marketing)

2) Deal Structure

This is where you set the “shape” of the deal. For an investment term sheet, that might include:

• equity investment (subscription for new shares) vs secondary sale (buying existing shares)
• single investor vs syndicated round
• whether it’s an SPV or direct investor

For acquisitions, the structure might cover share sale vs asset sale, and what’s included in the sale.

3) Economics: Valuation, Price, And Investment Amount

This is usually the headline negotiation point. Common terms include:

• Investment amount (how much money is going in)
• Pre-money valuation and/or post-money valuation
• Price per share and number/class of shares issued
• Use of funds (optional, but can be important if the investor wants focus)

If you’re using different share classes (e.g. preferences), the term sheet should outline what makes them different (even if the full detail comes later).

4) Key Investor Protections And Control Terms

These clauses matter because they affect how much control you keep after the money lands.

• Board composition (who gets a board seat, observer rights, voting)
• Reserved matters (decisions requiring investor consent)
• Information rights (management accounts, budgets, reporting)
• Pre-emption rights (right to participate in future funding rounds)
• Anti-dilution (protection if you raise later at a lower valuation)

In many UK deals, these concepts end up being implemented through a Shareholders Agreement and updated company constitutional documents (if needed).

5) Founder/Team Commitments (Common In Early-Stage Deals)

Smaller businesses and startups often overlook these until the last minute. Term sheets commonly include:

• Founder vesting (especially if one founder might leave)
• Non-compete / non-solicit expectations (usually handled carefully under UK enforceability rules)
• Employment or service arrangements for key people

If the deal assumes founders will continue working in the business, you’ll usually want the key terms reflected in an Employment Contract or director service agreement later on.

6) Conditions Precedent (What Must Happen Before Completion)

Conditions precedent are the “to-do list” before the deal completes. Typical items include:

• satisfactory due diligence (legal, financial, commercial)
• board and shareholder approvals
• final legal documents agreed and signed
• any regulatory approvals (rare for small deals, but not impossible)
• IP assignments signed (if founders created IP personally)

This section is also where you stop the deal from drifting. If the other side says “we’ll invest once we’re comfortable”, this is where you define what “comfortable” actually means.

7) Timetable And Process

• target dates for due diligence and documentation
• target completion date
• who is responsible for drafting

This sounds administrative, but it can save you weeks of delays.

8) Confidentiality, Exclusivity, Costs, And Legal Boilerplate

This is where term sheets most often become partially binding if they’re drafted to be. Common clauses include:

• Confidentiality (or a separate NDA)
• Exclusivity period (if any)
• Costs and fee responsibility
• Governing law and jurisdiction
• Non-binding statement (except specified clauses)

If you’re including confidentiality obligations, make sure they match how you want information handled in practice - especially if sensitive data is involved.

Key Terms To Pay Extra Attention To (Common Pitfalls For Small Businesses)

You can use any terms sheet template you like, but certain clauses tend to cause the biggest surprises later. These are worth focusing on upfront.

Valuation Language (Pre-Money vs Post-Money)

“£2m valuation” can mean different things depending on whether it’s pre-money or post-money. If it’s unclear, you might end up giving away more equity than you expected.

Make sure your term sheet template clearly states:

• whether the valuation is pre-money or post-money
• whether an option pool is included, and whether it’s carved out pre- or post-investment

Liquidation Preference

If the investor is receiving preference shares, they may ask for a liquidation preference (meaning they get paid out first on a sale or winding up).

This isn’t automatically “bad”, but it changes the risk/return profile for founders - especially if there’s a low exit.

Reserved Matters And Veto Rights

Reserved matters can range from sensible (e.g. issuing new shares) to restrictive (e.g. spending over £5,000 without consent).

As a small business owner, you want investor protection without losing day-to-day agility. It’s a balancing act.

Exclusivity (No-Shop) Clauses

Exclusivity can be reasonable, but it can also trap you if the investor moves slowly or keeps changing the goalposts.

If you agree exclusivity, consider:

• keeping it short (and extend only if progress is real)
• defining what “progress” looks like (e.g. first draft docs by X date)
• allowing exceptions (e.g. inbound approaches you didn’t solicit)

“Subject To Contract” And Non-Binding Drafting

If your intention is that the core deal terms are not binding, you need to reflect that clearly and consistently throughout the document - not just in one sentence at the end.

And if you’re using the term sheet as a launchpad for formal documents (rather than as an agreement itself), it’s often better to treat it as a stepping stone into the proper Term Sheet and transaction documentation process, rather than a DIY shortcut.

A Practical Term Sheet Example (Simple UK Investment Term Sheet Template)

Below is a simplified term sheet example for an early-stage equity investment into a UK private limited company. It’s not designed to fit every scenario (and shouldn’t be copy-pasted without legal input), but it shows the level of detail and structure you’re aiming for.

Example Term Sheet (Investment)

1. Parties
Company: Ltd (Company No. [●]) (the “Company”)
Investor: of (the “Investor”)
Founders: (together, the “Founders”)

2. Transaction
The Investor proposes to subscribe for new shares in the Company (the “Subscription”) on the terms set out in this term sheet.

3. Investment Amount
£[●] to be invested by the Investor at Completion.

4. Valuation
Pre-money valuation: £[●]
Post-money valuation: £[●]
Price per share: £[●]

5. Shares
The Investor will subscribe for [●] shares representing [●]% of the fully diluted share capital of the Company immediately following Completion.

6. Use Of Funds (Optional)
The Company intends to use the investment primarily for: .

7. Board And Governance
7.1 Board: The board will comprise [●] directors. The Investor shall be entitled to appoint .
7.2 Reserved matters: The Company shall not, without Investor consent, do any of the following: .

8. Investor Rights
8.1 Information rights: Monthly management accounts and an annual budget to be provided to the Investor.
8.2 Pre-emption: The Investor shall have the right to participate pro-rata in future equity fundraising rounds.

9. Founder Matters
9.1 Service commitment: Each Founder will continue to devote substantially all of their working time to the Company (subject to agreed exceptions).
9.2 Leaver provisions: Good leaver/bad leaver terms to be included in the definitive documents.

10. Conditions Precedent
This transaction is conditional upon:
(a) completion of satisfactory legal and financial due diligence by the Investor;
(b) agreement and signing of definitive documents (including subscription agreement and shareholders agreement);
(c) board and shareholder approvals required to implement the Subscription.

11. Timetable
The parties intend to complete the transaction on or before , subject to due diligence and documentation.

12. Confidentiality
The parties agree to keep the existence and contents of this term sheet and all negotiations confidential, except as required by law or professional advisers.

13. Exclusivity (If Applicable)
For days from the date of this term sheet, the Company agrees not to solicit, negotiate, or enter discussions with any third party in relation to a competing equity investment, subject to exceptions agreed in writing.

14. Costs
Each party will bear its own costs, except that .

15. Non-Binding Nature
This term sheet is not intended to be legally binding, except for clauses 12 (Confidentiality), 13 (Exclusivity), 14 (Costs), and 16 (Governing Law).

16. Governing Law
This term sheet and any dispute arising from it shall be governed by the laws of England and Wales, and the courts of England and Wales shall have exclusive jurisdiction.

Signed
For and on behalf of Ltd: ____________________
Name: [●] Title: Director Date: [●]

Investor: ____________________
Name: [●] Date: [●]

This is a “clean” example term sheet, but in real life you’ll often need additional terms - especially if there are preference shares, convertible instruments, multiple investors, or an upcoming follow-on round.

And once you move from “headline terms” to legally enforceable rights, you’ll usually be documenting the deal through formal agreements, including a Share Subscription Agreement and a shareholders agreement.

How To Use A Term Sheet Template Without Creating Legal And Commercial Headaches

A term sheet should speed things up - not create new uncertainty. Here are practical ways to keep things smooth.

Keep The Term Sheet Short, But Not Vague

If the term sheet is too vague, the “real negotiation” simply gets pushed into the long-form documents, which can trigger delays or disagreements.

Aim to be clear on:

• money and valuation
• control and veto rights
• what success looks like for completion (conditions precedent)

Make It Obvious Which Clauses Are Binding

It’s common (and often sensible) to have a mixed approach: non-binding commercial terms, binding confidentiality/exclusivity/costs.

But you need to draft it so there’s no confusion. If you’re unsure, it’s better to get advice before signing - fixing it later is harder.

Think Ahead To The Final Documents

Ask yourself: “Where does this term end up?”

• Governance and investor rights usually flow into a shareholders agreement.
• Share issue mechanics flow into subscription documents.
• Any ongoing relationship terms might flow into service agreements.

If you already know you’ll need a certain structure, aligning the term sheet with the final document set avoids renegotiation halfway through.

Don’t Treat A Template As A One-Size-Fits-All Solution

Templates can be helpful to understand what’s typical, but the “right” term sheet depends on your business model, bargaining power, and risk profile.

For example, a SaaS startup raising seed funding and a family-run retail business bringing in a strategic investor might need very different protections and reporting obligations.

Key Takeaways

• A term sheet is a practical way to agree the headline terms of a deal before drafting the full legal documents.
• In the UK, a term sheet can be non-binding, binding, or partly binding - so you need to be clear about intention and drafting.
• A solid term sheet template usually covers parties, deal structure, economics (valuation/price), governance, investor rights, conditions precedent, and key boilerplate clauses.
• Watch out for common pressure points like valuation language (pre- vs post-money), reserved matters, liquidation preferences, and exclusivity clauses.
• A term sheet example is a useful starting point, but your final document should be tailored to your deal and should line up with the definitive agreements you’ll sign later.

This article is general information only and does not constitute legal, financial, tax, or investment advice. Term sheets (and whether any clause is binding) depend on the specific drafting and circumstances, so you should get professional advice on your specific transaction before signing.

If you’d like help putting together a term sheet (or reviewing one before you sign), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.