Business Lawyers in Columbus, Ohio
By - May 28, 2026 - Uncategorized
Whether you’re involved in an acquisition, investment, partnership, or other business transaction, it’s crucial to make sure all parties understand the key components of the deal before it’s finalized. Term sheets and letters of intent are two common ways to keep everyone on the same page. While these tools are similar, they’re not identical. Let’s take a look at when to use a term sheet versus a letter of intent.
A term sheet is a document that outlines the key business terms and conditions of a proposed transaction. It’s not usually legally binding, but rather gives the buyer and seller a roadmap of what the deal would look like before they officially agree to a legally binding contract.
The document typically includes:
Term sheets are often used in venture capital deals, private equity deals, and other financial matters, but can be used in other business deals as well. They’re written to clearly and efficiently highlight the key aspects of the deal to make negotiations easier and faster.
One of the main benefits of using a term sheet is how simple it is. By focusing on key components rather than deep diving into every little detail, a term sheet helps each party quickly understand the most important parts of the proposed deal. This can also make it easy to share a summary of the deal with stakeholders before moving forward.
Since the term sheet is typically non-binding, it also provides flexibility by allowing parties to explore potential deal structures without having to commit to anything specific just yet. Additionally, a term sheet helps set expectations early on in the transaction. This makes it easier to identify areas of disagreement that can be negotiated later, as well as help prevent misunderstandings down the road.
A term sheet is great for when participants want to establish preliminary terms before officially committing to the deal. This allows them to quickly and efficiently create a framework for the transaction and help keep everyone on the same page.
When it comes to venture capital or angel investing, these sheets serve as a starting point where investors can outline proposed terms (such as valuation, ownership, and key rights) and founders can compare offers and negotiate those terms.
A term sheet can be helpful when:
However, when deals are highly complex and require more detailed documents from the start, a term sheet may not be the appropriate choice.
A letter of intent (LOI) is a document in which one party expresses their intent to enter into a business transaction. It also includes key terms and conditions and serves as the foundation for the future final agreement. This document is more formal and more detailed than a term sheet and is often used in business transactions like mergers and acquisitions.
An LOI typically includes:
Even though the letter of intent is still a preliminary document, it’s used when parties are serious about moving forward with the transaction. Some of the provisions in an LOI can even be legally enforceable.
One of the main benefits of a letter of intent is that it creates a structured and detailed framework for the transaction. This helps keep details clear and organized while providing parties with the information they need to understand the transaction’s next steps.
An LOI also signals that each party is serious about moving forward in good faith. This can build trust and encourage cooperation. Addressing concerns up front also helps prevent bigger disputes down the road. Additionally, LOIs often include binding clauses like confidentiality and no-shop provisions, which help protect sensitive information while terms are being negotiated.
An LOI is typically a better option than a term sheet when the transaction is complex, high in value, or when parties are further into the negotiation process.
LOIs are typically used in:
In these deals, LOIs provide the necessary framework to guide the transaction, especially when multiple stakeholders are involved. LOIs are also beneficial when parties want to set binding obligations early on, such as when one party wants to conduct due diligence without competing with other potential buyers.
Term sheets and LOIs both typically have a combination of binding (legally enforceable) and non-binding provisions. Most terms in a term sheet are non-binding, such as investment amount, valuation, and governance rights. These terms are meant to inform the other party without requiring them to complete the business transaction. Binding clauses, on the other hand, may include confidentiality clauses, no-shop clauses, or expense clauses.
In a letter of intent, core terms like structure and purchase price are typically non-binding. When it comes to binding provisions, these often include clauses regarding confidentiality, exclusivity, governing law and jurisdiction, and termination.
When writing a term sheet or letter of intent, it’s important to clearly state which causes are binding and which are non-binding.
Whether you’re torn between using a term sheet vs LOI or you want a legal expert to review an agreement, Stevens Law Firm can help. Consulting an attorney can help ensure you’re using the best document for your needs, your interests are protected, and the language in the agreement is clear and accurate. We can also help you identify potential risks and provide guidance on best practices during business transactions.
Want to learn more? Contact us today to book your free consultation.
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