Funding Term Sheet Template for Indonesia
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What is a Funding Term Sheet?
The Funding Term Sheet is a critical document in Indonesian investment practice that precedes formal investment agreements. It is typically used when investors and companies have reached preliminary agreement on key investment terms but before conducting detailed due diligence and drafting definitive agreements. The document captures essential aspects of the proposed investment including valuation, investment structure, governance rights, and investor protections, while ensuring compliance with Indonesian investment regulations and corporate law requirements. The term sheet serves multiple purposes: it demonstrates serious intent from both parties, provides a framework for legal documentation, and helps identify potential issues early in the negotiation process. While most provisions are non-binding, certain clauses such as confidentiality and exclusivity are typically binding, reflecting common practice in Indonesian business transactions.
About the Funding Term Sheet
A Funding Term Sheet is your roadmap to securing investment in Indonesia, serving as the crucial bridge between initial discussions and formal investment agreements. Under Indonesian law, this document outlines the fundamental terms of your proposed investment while ensuring compliance with corporate governance requirements and investment regulations.
When do you need this document?
You need a Funding Term Sheet when you're raising capital for your Indonesian company and have identified serious investors ready to proceed with detailed negotiations. This document becomes essential when you've moved beyond initial pitch meetings and need to formalize preliminary agreement on key investment terms. It's particularly important in Indonesia's regulatory environment where foreign investment restrictions under Presidential Regulation No. 44 of 2016 may affect deal structure. You'll also need this document when preparing for due diligence processes, as it provides the framework for more detailed legal documentation and helps establish investor expectations regarding governance rights and company valuation.
Key legal considerations
Your Funding Term Sheet must address several critical legal elements to protect both parties' interests. Valuation clauses require careful structuring to comply with Indonesian accounting standards and tax implications. Investment terms must specify the type of securities being issued, whether ordinary shares, preferred shares, or convertible instruments, all of which have different implications under Law No. 40 of 2007. Governance provisions need particular attention, as they must balance investor protection rights with Indonesian corporate law requirements for director duties and shareholder meetings. Anti-dilution clauses, liquidation preferences, and drag-along rights must be structured to comply with Indonesian company law while providing adequate investor protections. Additionally, you must ensure that any foreign investment compliance requirements are addressed early, including sector restrictions and minimum investment thresholds.
Legal requirements in Indonesia
Indonesian law imposes specific requirements that affect your Funding Term Sheet structure and content. Under Law No. 25 of 2007 on Investment, foreign investors must comply with the negative investment list and may face minimum capital requirements depending on the business sector. OJK Regulation No. 30/POJK.05/2014 applies additional governance requirements if venture capital firms are involved in the investment. Your term sheet must also consider Indonesian tax implications, including withholding taxes on dividends and capital gains treatment for different investor types. Company law requirements under Law No. 40 of 2007 affect how governance rights can be structured, particularly regarding board composition, shareholder voting rights, and approval thresholds for major corporate decisions. Additionally, if your company operates in a regulated sector, you may need to address specific licensing or regulatory approval requirements that could affect the investment timeline and structure.
GOVERNING LAW
Applicable law
This Funding Term Sheet is drafted to comply with Indonesia law. Key legislation includes:
Law No. 25 of 2007 on Investment: Regulates both foreign and domestic investment in Indonesia, including investment restrictions, requirements, and facilities
OJK Regulation No. 30/POJK.05/2014: Regulates good corporate governance for venture capital companies, relevant for startup funding and investment structures
Presidential Regulation No. 44 of 2016: Details the negative investment list (DNI) specifying business fields that are closed or conditionally open to foreign investment
Law No. 21 of 2011 on Financial Services Authority: Establishes OJK's authority and oversight over financial services sector, including investment activities
Bank Indonesia Regulation No. 17/3/PBI/2015: Regulates mandatory use of Indonesian Rupiah for transactions in Indonesia, affecting payment terms in funding agreements
Law No. 24 of 2009 on National Flag, Language, Emblem and Anthem: Requires agreements involving Indonesian parties to be drafted in Indonesian language alongside any foreign language version
Government Regulation No. 24 of 2018: Covers electronic integrated business licensing services (OSS), relevant for business activities and investment implementation
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