A term sheet is a non-binding document that outlines the basic terms and conditions of a potential business agreement, establishing the basis for future negotiations between a seller and buyer. It is usually the first documented evidence of a possible acquisition and may be either binding or non-binding. After a term sheet has been "executed", it guides legal counsel in the preparation of a proposed "definitive agreement". It then guides, but is not necessarily binding, as the signatories negotiate, usually with legal counsel, the final terms of their agreement.

Term sheets are used in a variety of business transactions, including mergers, acquisitions, and long-term debt. They are also used in venture capital financing, where they lay out the financial terms of the investment, how much the startup will be worth, who will control it, and who will profit the most if the company is sold or goes public.

A term sheet is usually the first time an investor will formally declare their interest in investing in a company. It is followed by more detailed legal paperwork if the deal is pursued. The term sheet is usually non-binding, but may require an upfront good faith deposit or other indicator of evidence that both parties intend to carry out an executed full agreement.

The contents and clauses of a term sheet vary from transaction to transaction, but in general, it must outline the economic transaction agreed to by the parties. These transactions may range from mergers, acquisitions, loans, joint ventures, or commercial real estate transactions. The format of each term sheet must be tailored to each specific type of instrument.

In summary, a term sheet is a preliminary, non-binding document that outlines the proposed terms and conditions of a business agreement. It serves as a template and basis for more detailed, legally binding agreements and guides legal counsel in the preparation of a proposed definitive agreement.