Funding Term Sheet Template for England and Wales

A Funding Term Sheet is a crucial preliminary document that outlines the key commercial and legal terms of an investment between investors and your company. Under England and Wales law, this document serves as the foundation for drafting comprehensive investment agreements and shareholders' agreements, helping prevent costly misunderstandings and disputes during the fundraising process.

When do you need this document?

You need a Funding Term Sheet when seeking external investment for your company, whether from angel investors, venture capital funds, or institutional investors. The document is essential during Series A, B, or later funding rounds, as well as for convertible loan arrangements that may convert to equity. It's particularly important when multiple investors are involved or when complex investor rights need to be established. The term sheet becomes crucial before engaging lawyers to draft full investment documentation, as it defines the commercial framework and prevents expensive renegotiation of fundamental terms later in the process.

Key legal considerations

Your term sheet must clearly specify the investment amount, pre-money valuation, and type of securities being issued, whether ordinary shares, preference shares, or convertible instruments. Investor protection provisions require careful consideration, including anti-dilution rights, drag-along and tag-along rights, and information rights. Board composition and voting arrangements must comply with the Companies Act 2006, particularly regarding directors' duties and shareholder rights. Pre-emption rights under the Companies Act 2006 may need to be disapplied for new share issuances. You should also address liquidation preferences, founder vesting arrangements, and any restrictive covenants on the company's operations. Employee share option pool provisions must align with tax-efficient schemes like EMI options.

Legal requirements in England and Wales

Under the Companies Act 2006, any new share issuance requires board approval and may trigger pre-emption rights for existing shareholders unless properly disapplied. The Financial Services and Markets Act 2000 imposes restrictions on financial promotions, requiring careful consideration of how investment opportunities are marketed to potential investors. Your company must ensure compliance with the prospectus regime for public offers of securities, though private placements typically benefit from exemptions. Directors must consider their fiduciary duties under the Companies Act 2006 when recommending investment terms to shareholders. The term sheet should specify conditions precedent including legal due diligence, board approvals, and shareholder consents required under your company's articles of association. Any investor rights must be consistent with UK corporate governance principles and may require amendments to your articles of association to be legally enforceable.