Corporate agreements

Investment Term Sheet for Equity Round

An Investment Term Sheet records the principal commercial terms on which an investor proposes to subscribe to the equity shares of an Indian company. It serves as a blueprint for the definitive transaction documents, aligning the parties on valuation, investment amount, and key rights before incurring the cost of detailed drafting and due diligence.

This document is a pre-transaction instrument and is not filed in any court. It is governed by the Indian Contract Act, 1872, and the proposed share issuance must comply with the Companies Act, 2013, specifically the provisions for private placement under Section 42 or further issue of shares under Section 62.

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Governing law
Companies Act, 2013 + Indian Contract Act, 1872
Sections
s. 42s. 62

When this is the right filing

  • When an investor and a company have agreed on the headline commercial terms of an equity investment and wish to record them in writing before commencing full-scale due diligence.
  • When the parties need a clear, written framework to instruct their respective legal counsel for drafting the definitive Share Subscription Agreement and Shareholders' Agreement.
  • When the investor requires an exclusivity period to be contractually binding on the company to prevent the founders from soliciting other offers.
  • When the parties intend to create a non-binding expression of intent, with only the clauses on Exclusivity, Confidentiality, Costs, and Governing Law being legally enforceable.
  • Do not use this document as the final, definitive agreement for the investment. It is not a substitute for the Share Subscription Agreement, Shareholders' Agreement, or amended Articles of Association.

What the court looks for

  • An unambiguous and explicit split between the non-binding commercial terms and the binding provisions, as ambiguity on this point is the most common source of litigation.
  • Clear identification of the parties, the proposed investment amount, the pre-money and post-money valuation, and the instrument being issued.
  • A defined scope for the binding exclusivity and confidentiality obligations, including their duration.
  • An express statement that the commercial terms are 'subject to contract', satisfactory due diligence, and all applicable regulatory approvals.
  • Compliance with the pricing guidelines under FEMA for a non-resident investor, with a flag for mandatory FC-GPR reporting to the RBI within the stipulated time.

The structure the court expects

The components of the filed format, in the order they appear. LexPilot fills every one of them from your facts and papers.

  1. 1Key terms
  2. 2Binding provisions
How it opens
This Term Sheet sets out the principal terms on which [investor name] (the "Investor") proposes to invest in the Company. Except for the clauses marked BINDING below, this Term Sheet is non-binding, is an expression of intent only, and is subject to (i) satisfactory completion of due diligence, (ii) execution of definitive agreements, and (iii) all applicable corporate, regulatory and statutory approvals.

Bracketed items are filled from your case.

Frequently asked questions

Which clauses in a term sheet are typically made legally binding?

To avoid the entire document being construed as a binding contract, only specific clauses are made binding. These typically include Exclusivity (no-shop), Confidentiality, Costs of the transaction, and the Governing Law and dispute resolution clause. All other commercial terms remain non-binding and are an expression of intent only.

What is the legal effect of a non-binding term sheet?

A non-binding term sheet is an agreement to agree and does not create a legally enforceable obligation to complete the investment. Its primary purpose is to serve as evidence of the parties' preliminary understanding and as a mandate for drafting definitive agreements. The transaction is only binding upon the execution of the Share Subscription Agreement and Shareholders' Agreement.

What regulatory approvals are required if the investor is a non-resident?

The issue of shares to a non-resident investor must comply with the pricing guidelines under FEMA, which require the shares to be issued at a price not less than the fair market value determined by an internationally accepted methodology. Post-allotment, the company must file Form FC-GPR with the Reserve Bank of India within 30 days of allotment.

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