Funding Term Sheet Template for Hong Kong

A Funding Term Sheet is your roadmap to securing investment in Hong Kong's competitive market. This preliminary document outlines the essential terms and conditions between your company and potential investors before committing to formal investment agreements. While largely non-binding, it establishes critical commercial parameters that will govern your investment relationship and forms the foundation for all subsequent legal documentation.

When do you need this document?

You need a Funding Term Sheet whenever you're raising capital from institutional investors, venture capital funds, or private equity firms in Hong Kong. This document becomes essential during Series A, B, or later funding rounds where complex terms like liquidation preferences, anti-dilution provisions, and board representation are negotiated. Startups seeking government co-investment through schemes like the Innovation and Technology Fund also require term sheets to structure their funding arrangements. Additionally, if you're conducting cross-border investments involving Hong Kong entities, a properly drafted term sheet helps navigate both local and international regulatory requirements.

Key legal considerations

Your term sheet must carefully balance investor protection with founder control while ensuring compliance with Hong Kong corporate law. Key provisions include pre-money and post-money valuations, which determine ownership percentages and dilution effects on existing shareholders. Liquidation preferences protect investor downside risk but can significantly impact founder returns in exit scenarios. Anti-dilution provisions, particularly weighted-average adjustments, require careful calculation to avoid unfair dilution in down rounds. Board composition and voting rights provisions must align with Companies Ordinance requirements for director duties and shareholder rights. Drag-along and tag-along rights ensure liquidity alignment but need proper structuring to avoid oppression of minority shareholders. Confidentiality and exclusivity clauses, while binding, must be reasonable in scope and duration to be enforceable under Hong Kong contract law.

Legal requirements in Hong Kong

Under the Companies Ordinance (Cap. 622), share issuances must comply with authorized capital limits and proper board resolutions. The Securities and Futures Ordinance (Cap. 571) requires compliance with professional investor definitions and may trigger disclosure obligations for substantial shareholdings. If your funding involves loan elements, the Money Lenders Ordinance (Cap. 163) may apply, requiring specific licensing and documentation. Anti-money laundering obligations under Cap. 615 mandate proper due diligence procedures and beneficial ownership identification. Your term sheet should reference these regulatory frameworks and include appropriate conditions precedent for legal compliance. Additionally, stamp duty implications under the Stamp Duty Ordinance must be considered for share transfers, and proper legal opinions may be required for complex investment structures involving offshore entities.