Investment term sheet: ordinary shares
Term sheet for the investment in a company for ordinary shares
What is an investment term sheet?
An investment term sheet is a document setting out the agreed terms for a potential investment in a company. The purpose of a term sheet is to agree the structure and material terms of the proposed investment prior to the preparation and negotiation of the full form investment documents.
A term sheet will usually not be legally binding, except in relation to:
- if agreed, exclusivity of negotiations
What are ordinary shares?
Ordinary shares are, generally speaking:
- voting shares
- shares which entitle the holder to receive a proportionate share of the income from a company in the form of dividends
- shares which entitle the holder to receive a proportionate share of returns of capital by the company
If an investor invests in a company in return for ordinary shares, this means that the investor will usually receive the same class of shares as the founders and other shareholders in the company.
What are preferred shares?
Preferred (or preference) shares are shares which have certain preferred rights in priority to the ordinary shares in the company. To reflect the investor’s investment risk, the investor may require that it receives preferred shares rather than ordinary shares. Typical rights of preferred shares include:
- priority rights to dividends
- protection from dilution by future shares issues at a lower valuation
- priority rights on a sale of the company or other return of capital
- specific matters which require the preferred shareholder’s consent
About this term sheet
This term sheet is for the investment for ordinary shares in a private limited company.
- summary of investment terms, including pre-investment valuation and capital and number of new shares and price per share
- summary of investment process and principal investment documents
- exclusivity provisions
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Alternative investment term sheet
For an investment term sheet for preferred shares, see Investment term sheet: preferred shares.
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