Drafting a Terms Sheet? Here's What You Need To Know

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Drafting a terms sheet is an essential part of any business transaction and understanding what it entails is vital for entrepreneurs, lawyers, and investors. A terms sheet is a legally binding document that outlines the agreement between two parties, serving as a roadmap for the deal - detailing rights and responsibilities of each side and payment terms. It is important to have this in place to ensure both parties are aware of their interest being protected and that all expectations are clear.

The Genie AI team understand the importance of having a clear and legally binding terms sheet before engaging in any business transaction. They provide access to millions of datapoints that can help teach AI what a market-standard terms sheet looks like as well as their community template library so anyone can draft high quality legal documents without having to pay a lawyer.

Using Genie AI’s guide does not require an account; they just want to help you through drafting your own terms sheets by providing step-by-step guidance on how best go about it. Once you have accessed their template library, you will be able to customize and create high quality documents in no time! So why wait? Read on below for more information on how to access our template library today!

Definitions (feel free to skip)

Establishing the Parties: The first step in creating a terms sheet is to identify the people or organizations involved in the agreement. This includes noting their contact information, location, and roles in the agreement.
Outlining the Scope of the Agreement: The second step is to outline the purpose, rights, and obligations of the agreement. This includes what is expected of each party and any limitations or restrictions on the agreement.
Financial Considerations: The third step is to outline the payment terms and any other financial obligations. This includes the amount and frequency of payments, currency, and any associated deadlines.
Representations & Warranties: The fourth step is to list any promises made by each party. This is a legally binding statement outlining any performance or accuracy of information each party is promising.
Confidentiality & Non-Disclosure: The fifth step is to describe any information that must be kept confidential and any restrictions on how it can be used or shared.
Indemnification: The sixth step is to establish each party’s responsibility to reimburse the other for any losses or damages incurred in connection with the agreement.
Dispute Resolution: The seventh step is to outline the process for resolving disputes between the parties. This includes methods such as mediation, arbitration, or litigation.
Governing Law: The eighth step is to specify which laws will govern the agreement. This is based on the location of each party.
Dispute Arbitration: The ninth step is to establish the process for arbitration of any disputes. This includes details such as the selection of the arbitrator and the venue.
Signatures: The final step is to obtain signatures from both parties to make the agreement legally binding.

Contents

• Establishing the Parties
• Outlining who is involved in the agreement and their roles
• Outlining the Scope of the Agreement
• Describing the specific purpose of the agreement and the parties’ rights and obligations
• Financial Considerations
• Outlining the terms of payment and any other financial obligations of each party
• Representations & Warranties
• Listing the representations and warranties made by each party
• Confidentiality & Non-Disclosure
• Describing the confidentiality and non-disclosure obligations of each party
• Indemnification
• Establishing each party’s responsibility to indemnify the other for any losses or damages incurred in connection with the agreement
• Dispute Resolution
• Outlining the resolution process for any disputes that may arise between the parties
• Governing Law
• Specifying which laws will govern the terms of the agreement
• Dispute Arbitration
• Establishing the process for arbitration of any disputes
• Signatures
• Obtaining signatures from both parties to validate the agreement

Get started

Establishing the Parties

• Identify all parties involved in the agreement
• Determine the roles each party will take in the agreement
• Note any other parties that may be involved in the agreement
• Include contact information for all of the parties in the agreement
• Once all parties have been identified and their roles have been outlined, you can move on to the next step.

Outlining who is involved in the agreement and their roles

• Identify each party and their specific role in the agreement, such as the buyer, seller, lender, and/or guarantor.
• Make sure that all parties involved in the agreement are legally capable and competent to enter into a contract.
• Outline the legal names, addresses, and contact information for each involved party, including any legal representatives.
• You know you can check this off your list and move on to the next step once you have identified all parties involved in the agreement and their specific roles, and outlined the legal names, addresses, and contact information for each involved party.

Outlining the Scope of the Agreement

• Identify the key elements of the agreement, including the start and end dates, the scope of services, the duties and responsibilities of each party, and any financials associated with the agreement.
• Make sure all of the elements are clearly defined and understood by all parties.
• Identify any contingencies or future events that could affect the agreement.
• Ensure that the scope of the agreement is specific and limited to what is outlined in the terms sheet.

When you have outlined the scope of the agreement and all parties have come to an agreement, then you can check this off your list and move on to the next step.

Describing the specific purpose of the agreement and the parties’ rights and obligations

• Identify who the parties are and the specific purpose of the agreement
• Describe each party’s respective rights and obligations
• List any conditions that must be met before the agreement can be enforced
• Make sure all information is accurate and clear
• Check for any legal language that needs to be included
• Make sure all parties understand the terms

You can check this off your list when you have ensured that all parties understand the agreement and its specific purpose, and that all information is accurate and clear.

Financial Considerations

• Decide on the consideration for the agreement (e.g. money, services, or a combination of both)
• Specify the terms of payment, including the payment method, payment deadlines, and any other financial obligations of each party
• Include details on any applicable taxes, interest, and fees
• Agree on any security measures that may be necessary, such as liens or guarantees
• Determine if any party will have an ownership interest in the outcome of the agreement

You’ll know you can move on to the next step when you have all the financial considerations of the agreement outlined in the terms sheet.

Outlining the terms of payment and any other financial obligations of each party

• Clearly define the payment terms for each party
• Ensure that the payment terms are legally binding
• Specify the currency of payment, as well as the due dates and any applicable fees
• Outline any other financial obligations that may be imposed on either party
• Check for accuracy and completeness of all information before signing the terms sheet
• You can check this off your list when the payment terms and any other financial obligations have been agreed upon and included in the terms sheet.

Representations & Warranties

• Understand different types of representations & warranties: Representations and warranties are statements that one party makes to the other in a contract, which will be legally bound by. Different types of representations and warranties you may want to consider include:
• Non-infringement of intellectual property
• No violation of law
• Ownership of the assets
• Financial statements
• Negotiate and define the scope of representations & warranties: Once you’ve identified the types of representations and warranties that you need, it’s time to negotiate and define their scope. Consider the following:
• What is the time frame for the warranties?
• What is the liability for any breach of the warranties?
• Are the warranties transferable?
• Draft the representations & warranties: Once you’ve agreed on the scope of the warranties, you can draft the actual language that will be included in the contract. It’s important to be as specific as possible and to use legal language that will be clear and enforceable.
• Check off this step: When you’ve agreed on the scope of the warranties and have finished drafting the language, you can check this step off your list and move on to the next step.

Listing the representations and warranties made by each party

• Identify the representations and warranties made by each party in the agreement.
• Draft the representations and warranties that each party is making in the agreement.
• Include the information required in each of the representations and warranties, such as the date as of which the representations and warranties are made or any exceptions.
• Make sure that each representation and warranty is accurate and up-to-date.
• Confirm that each representation and warranty is consistent with the other provisions of the agreement.
• Once all the representations and warranties are listed, the agreement is ready to be signed.

Confidentiality & Non-Disclosure

• Identify the purpose of the confidentiality and non-disclosure obligations
• Draft a clause that states the confidential information that needs to be protected
• Draft a clause that explains the duties and obligations of the parties with respect to the confidential information
• Draft a clause that describes the exceptions to the confidentiality and non-disclosure obligations
• Draft a clause that explains the consequences of any breach of the confidentiality and non-disclosure obligations
• Check that the confidentiality and non-disclosure obligations are consistent with the other clauses in the agreement

You can check this step off your list and move on to the next step once you have reviewed the confidentiality and non-disclosure obligations and ensured that they are consistent with the other clauses in the agreement.

Describing the confidentiality and non-disclosure obligations of each party

• Identify the parties that need to be bound by the confidentiality and non-disclosure obligations
• Specify the confidential information that will be subject to the non-disclosure obligations
• Define the period of time during which the confidentiality obligations will apply
• Outline the circumstances under which the parties may use or disclose confidential information
• Set out any exceptions to the confidentiality and non-disclosure obligations
• Detail the consequences of a breach of the confidentiality and non-disclosure obligations
• Include a provision allowing the parties to update the confidentiality and non-disclosure obligations

You can check this off your list and move on to the next step when you have included the details outlined above in your terms sheet.

Indemnification

• Outline the details of how each party will indemnify each other
• This should include:
• When the indemnification will take effect
• Which damages or losses are covered
• How costs will be allocated
• Any limitations of the indemnification
• Confirm that all details of the indemnification have been agreed upon by both parties
• When you have a clear understanding of the indemnification details, you can check this off your list and move on to the next step.

Establishing each party’s responsibility to indemnify the other for any losses or damages incurred in connection with the agreement

• Clearly define which party will be indemnified in the event of any losses or damages
• Outline the scope of the losses or damages that the indemnified party must be held harmless from
• Determine the limits of the losses or damages that the indemnifying party must cover
• Establish the timeline for when the indemnifying party must cover any losses or damages
• Determine how the indemnifying party will cover any losses or damages (i.e. monetary amount, provision of new goods or services, etc.)

You can check this off your list and move on to the next step once you have outlined all of the details for establishing a party’s responsibility to indemnify the other for any losses or damages incurred in connection with the agreement.

Dispute Resolution

• Outline a fair dispute resolution process that is acceptable to both parties
• Decide which type of dispute resolution will be used, such as arbitration or mediation
• Specify who will be responsible for the costs associated with the dispute resolution process
• Set a timeline for when the dispute resolution process must be completed
• Identify any other details that may be relevant to the dispute resolution process

Once the terms of the dispute resolution process have been agreed upon and documented, the parties can move on to the next step in the terms sheet drafting process.

Outlining the resolution process for any disputes that may arise between the parties

• Decide on the dispute resolution process that is most suitable for the agreement. This could include arbitration, mediation, or litigation.
• Make sure to include the details of the process in the agreement, such as the name of the arbitrator or mediator, the location of the proceedings, and the governing law.
• Also include the fees and costs associated with the process, as well as how these fees and costs will be split between the parties.
• Once you’ve outlined the dispute resolution process in the agreement, you can move on to the next step.

Governing Law

• Research the governing law and jurisdiction that is the most appropriate for the terms
• Determine which law will be the governing law for this agreement
• Include a clause that clearly states the governing law and jurisdiction in the agreement
• Once you have determined the governing law and jurisdiction and included this in the agreement, you can check this off your list and move on to the next step - Specifying which laws will govern the terms of the agreement.

Specifying which laws will govern the terms of the agreement

• Determine which state law will govern the terms of the agreement
• Be sure to include a clause in the terms sheet that specifies which state’s laws will govern the terms of the agreement
• This clause should also specify that any disputes arising out of the agreement must be brought in the courts of the governing state
• Once you’ve included this clause, you can check it off your list and move onto the next step of the guide, dispute arbitration

Dispute Arbitration

• Specify in the terms sheet which arbitration entity will handle any disputes should they arise
• Identify the particular rules of procedure that the parties agree to utilize for the arbitration
• Include the agreement to pay any fees required to initiate and maintain the arbitration process
• Decide which laws will apply to the arbitration hearings
• Establish the process for the selection of the arbiter or arbitration panel

How you’ll know when you can check this off your list and move on to the next step: Once you have included all the required information regarding dispute arbitration in your terms sheet, you can move on to the next step.

Establishing the process for arbitration of any disputes

• Identify a venue for the arbitration and understand the local rules and regulations
• Agree on the language of the arbitration clause and specify whether the arbitration is binding or non-binding
• Draft the language of the arbitration provision to be included in the terms sheet
• When you are satisfied with the language, you can move forward with the terms sheet and the next step.

Signatures

• Ensure that both parties have properly executed the term sheet
• Confirm that all parties have included their signature and title
• Confirm that all parties have included their address and email address
• Ensure that all parties have included their date of execution
• Check that all parties have completed all the necessary fields
• Once all parties have signed and completed all the necessary fields, you have successfully completed this step and can move on to the next step.

Obtaining signatures from both parties to validate the agreement

• Obtain signatures from both parties on the same copy of the terms sheet
• Have the parties countersign the document to ensure that both parties agree to the same version of the document
• Keep a copy of the signed terms sheet for your records
• Once all parties have signed the terms sheet, you’ll know it has been validated and can move on to the next step.

FAQ:

Q: What should I do if I want to draft a terms sheet for a business in the UK?

Asked by Rose on April 10th 2022.
A: If you are looking to draft a terms sheet for a business in the UK, it is important to familiarise yourself with the applicable laws and regulations. Depending on the type of business and the nature of the transactions, you may need to consider different elements such as taxation and employment law. It is important to ensure that any terms sheet is tailored to the specific needs of the business, taking into account all relevant legal requirements. A good starting point is to consult with a lawyer who can provide advice on the legal aspects of the terms sheet and ensure that it is compliant with UK law.

Q: How can I best ensure that my terms sheet is compliant with EU law?

Asked by George on October 6th 2022.
A: Ensuring that your terms sheet is compliant with EU law can be a complex process, depending on the nature of your business as well as the specific elements of your terms sheet. It is important to take into account the applicable laws and regulations in each jurisdiction in which you are operating, including those related to competition law, consumer protection, data protection and privacy. It is also recommended that you seek advice from a lawyer who has expertise in EU law and can ensure that your terms sheet meets all applicable requirements.

Q: What are some of the key considerations when drafting a terms sheet for a SaaS company?

Asked by Emma on May 20th 2022.
A: When drafting a terms sheet for a SaaS (Software as a Service) company, there are many key considerations that need to be taken into account. These include provisions related to service levels, product features, pricing and payment options, customer support, data privacy and security measures, intellectual property rights, warranties and indemnities. It is important to ensure that any provisions included in the terms sheet are tailored to the specific needs of the company and comply with applicable laws and regulations. A good starting point is to consult with a lawyer who has experience in this area and can provide advice on how best to structure your terms sheet.

Q: What should I include in my terms sheet if I am providing services or goods internationally?

Asked by Matthew on December 22nd 2022.
A: If you are providing services or goods internationally, there are several additional considerations that need to be taken into account when drafting your terms sheet. These include provisions related to international delivery and shipping, payment methods and currency conversion rates, taxes or other import duties, language requirements and data protection regulations. Additionally, you may need to include clauses relating to dispute resolution or governing law if you are providing services or goods across multiple jurisdictions. It is important to seek advice from a lawyer who has experience in international transactions when drafting your terms sheet, so as to ensure that it meets all relevant legal requirements.

Q: What kind of dispute resolution clauses should I include in my terms sheet?

Asked by Noah on August 18th 2022.
A: Dispute resolution clauses should be included in any terms sheet as they provide an efficient mechanism for resolving disputes between parties without expensive and time-consuming litigation processes. The exact clause will depend on the nature of your business and its operations; however, generally speaking, you should consider including clauses related to mediation or arbitration processes which provide an opportunity for both parties to resolve their differences without resorting to court action. Additionally, you may want to include clauses related to governing law and jurisdiction so as to determine which laws apply if there is a dispute between parties operating across multiple jurisdictions. It is advisable to consult with an experienced lawyer when drafting these clauses so as to ensure that they meet all relevant legal requirements.

Example dispute

Suing Companies for Breach of Terms Sheet

• A plaintiff may raise a lawsuit against a company for breach of a terms sheet if the company has failed to uphold its contractual obligations.
• The plaintiff must prove that the company breached the terms of the contract by providing evidence of the contract’s terms and how the company failed to adhere to those terms.
• The plaintiff must also prove that they suffered damages as a result of the breach.
• The court may order the company to pay damages to the plaintiff if the breach resulted in financial losses, such as lost profits or business opportunities.
• The court may also consider other remedies, such as requiring the company to perform the obligations it agreed to under the terms sheet or to provide other compensation for damages.
• The court may also order the company to pay the plaintiff’s attorney’s fees and other costs associated with the lawsuit.

Templates available (free to use)

Terms Sheet

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