Funding Term Sheet Template for the United Arab Emirates
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What is a Funding Term Sheet?
The Funding Term Sheet is a crucial document in the UAE investment landscape, serving as a preliminary agreement that outlines the key commercial and legal terms of a proposed investment. It is typically used during the initial stages of investment negotiations, whether for venture capital, private equity, or angel investments, and forms the basis for more detailed definitive agreements. The document must comply with UAE federal laws, including the Companies Law and relevant financial regulations, while also considering specific requirements of free zones such as DIFC and ADGM where applicable. The term sheet captures essential elements such as investment amount, valuation, investor rights, and governance structures, tailored to the UAE's unique business environment which combines international best practices with local regulatory requirements.
About the Funding Term Sheet
A Funding Term Sheet is a preliminary legal document that outlines the essential terms and conditions of a proposed investment transaction in the United Arab Emirates. This non-binding agreement serves as the foundation for subsequent detailed investment documentation and helps establish clear expectations between investors and companies seeking capital.
When do you need this document?
You need a Funding Term Sheet when initiating investment discussions for venture capital, private equity, or angel funding rounds. It's essential during Series A, B, or C funding rounds where institutional investors are considering equity investments in UAE companies. The document is particularly crucial when dealing with complex investment structures involving convertible instruments, preferred shares, or multiple investor classes. You'll also require this document when foreign investors are investing in UAE mainland companies or free zone entities, as it helps clarify compliance requirements with UAE ownership laws and foreign investment regulations.
Key legal considerations
The term sheet must address several critical legal elements to ensure enforceability under UAE law. Investment amount and valuation terms require precise definition to avoid disputes during due diligence and closing. Investor rights provisions must comply with UAE Companies Law requirements regarding minority shareholder protections and board representation. Anti-dilution protections and liquidation preferences need careful drafting to align with UAE corporate governance principles. The document should include clear conversion mechanisms if using convertible instruments, ensuring compliance with UAE Capital Markets Law. Additionally, you must address drag-along and tag-along rights, pre-emption rights, and information rights while respecting UAE commercial law principles governing shareholder agreements.
Legal requirements in United Arab Emirates
UAE Federal Law No. 32 of 2021 (Companies Law) governs the fundamental structure of investment transactions, particularly regarding foreign ownership limitations and share capital requirements. For mainland companies, foreign ownership restrictions may apply depending on the business activity, requiring careful structuring of investment instruments. UAE Federal Decree-Law No. 14 of 2018 (Central Bank Law) regulates financial institutions and may impact funding arrangements involving banks or licensed financial entities. The UAE Capital Markets Law applies to securities transactions and must be considered when structuring equity investments or convertible instruments. Free zone regulations in DIFC and ADGM provide alternative frameworks with enhanced foreign ownership rights and may offer more flexible investment structures. The term sheet must also comply with UAE Civil Code principles governing contract formation and validity, ensuring all material terms are sufficiently detailed to create binding obligations for subsequent definitive agreements.
GOVERNING LAW
Applicable law
This Funding Term Sheet is drafted to comply with United Arab Emirates law. Key legislation includes:
UAE Federal Decree-Law No. 14 of 2018 (Central Bank Law): Regulates financial institutions and banking activities, relevant for funding arrangements and financial transactions
UAE Federal Law No. 4 of 2000 (Capital Markets Law): Governs securities markets and investment activities, important for equity investments and convertible instruments
UAE Civil Code (Federal Law No. 5 of 1985): Contains general principles of contract law and obligations that apply to commercial agreements including term sheets
UAE Commercial Transactions Law (Federal Law No. 18 of 1993): Regulates commercial transactions and business activities, including provisions relevant to funding arrangements
UAE Federal Decree-Law No. 33 of 2021 (Commercial Companies Law): Contains regulations about company structures, shareholding arrangements, and corporate governance
DIFC Law No. 1 of 2004 (if applicable for DIFC entities): Specific regulations for companies operating in Dubai International Financial Centre, relevant if any party is DIFC-based
ADGM Regulations (if applicable for ADGM entities): Specific regulations for companies operating in Abu Dhabi Global Market, relevant if any party is ADGM-based
UAE Federal Decree-Law No. 8 of 2017 (VAT Law): Relevant for tax implications of funding arrangements and associated transactions
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