Below are the 12 term sheet mistakes we see most often, grouped by where they occur, with a simple fix for each.
New to term sheets? Start with What Is a Term Sheet?
Mistakes in the essential terms
These affect the parts every term sheet needs. Get them wrong and the document can't do its job.
1. Naming a brand instead of the legal entity
The mistake: "Term sheet between Acme and Brightpath", using trading names, or naming a group holding company when a subsidiary will actually sign.
Why it matters: the final agreements must be signed by real legal entities. If the wrong one is named, the deal may need restructuring, and confidentiality or exclusivity may not bind the entity you actually care about.
The fix: use each party's full registered name, entity type, registration number and registered address. Check it against the company registry.
2. Describing the deal too vaguely
The mistake: "The Investor will invest in the business" or "the Buyer will acquire the business".
Why it matters: "the business" could mean new shares, existing shares, all the assets, or some of them. Each has very different legal and tax consequences.
The fix: state exactly what is being issued, sold, lent or provided, for example "newly issued preference shares in the Company", and set out the structure step by step: who does what, to whom, through which document.
3. Not saying what's binding
The mistake: the term sheet is silent on its legal effect, or just says "non-binding" at the top.
Why it matters: if a term sheet doesn't clearly say what binds, a court may decide more of it is binding than you intended, especially if it's detailed. You may also lose the protection of the terms you did want to bind, such as confidentiality.
The fix: include a legal effect clause that lists the binding paragraphs by name and says everything else is not binding. Is a Term Sheet Legally Binding? explains how.
4. A binding list that doesn't match the document
The mistake: exclusivity is deleted from a draft, but the legal effect clause still lists "Exclusivity" as binding, or a new binding clause is added but not listed.
Why it matters: the mismatch creates exactly the uncertainty the clause is meant to prevent.
The fix: every time you add or remove a binding clause, update the list. Treat it as the last check before sending.
5. No expiry or long-stop date
The mistake: the term sheet has no acceptance deadline, or no date on which it ends if the deal stalls.
Why it matters: an offer made in good conditions could be accepted months later when things have changed. Exclusivity and other binding terms could run on indefinitely.
The fix: set an acceptance deadline (often 14 days) and a long-stop date (often around three months), and make sure the long-stop date comes after the acceptance date.
6. A governing law that doesn't work
The mistake: "governed by the laws of the United States" or "the laws of Australia", or choosing the courts of one country with the law of another.
Why it matters: in federal countries such as the United States, Australia and Canada, contract law is largely set at state or province level, so "the laws of the United States" doesn't identify a usable body of contract law. Mismatched law and courts make disputes slower and more expensive.
The fix: name a state or province (for example New York, New South Wales or Ontario), and choose a forum that matches: those courts, or arbitration with a named institution and seat.
Mistakes in the commercial terms
These affect the optional terms. They're flexible, which makes them easy to get wrong.
7. Guessing numbers that haven't been agreed
The mistake: filling in a valuation, interest rate or price "as a placeholder" to make the term sheet look complete.
Why it matters: once a number is on paper, it becomes the starting point for negotiation, and the other side may treat it as agreed.
The fix: include only terms that have actually been agreed. A term sheet with just the essential terms is still a valid term sheet. If a key point is open, say "to be agreed between the parties".
8. Vague earn-outs and conditions
The mistake: "an extra payment if the business does well" or "subject to the Buyer being satisfied".
Why it matters: vague triggers lead to disputes. Nobody can tell whether "doing well" has happened.
The fix: use measurable targets (revenue, profit, a date, a specific event) and objective conditions (for example, "regulatory approval being obtained").
9. Exclusivity that's too long or has teeth nobody noticed
The mistake: agreeing six months of exclusivity, or exclusivity with a penalty for breach, without thinking about it.
Why it matters: exclusivity is usually binding. A long period stops the side giving it from talking to anyone else, even if the deal is going nowhere.
The fix: keep it proportionate (30 to 90 days is common), make it end if the other side withdraws or changes the terms, and take advice before agreeing to any penalty or fee.
10. Silence on intellectual property in a joint project
The mistake: a partnership or development term sheet that says nothing about who owns what is created.
Why it matters: IP ownership is one of the most common causes of partnership disputes, and it's much harder to agree after the work is done.
The fix: even at a high level, say that each party keeps its existing IP and that ownership of new IP will be agreed in the final agreements, or agree it now.
Mistakes in how the term sheet is used
11. Acting as if the deal is done
The mistake: paying money, transferring assets or starting to integrate businesses after signing the term sheet but before the final agreements.
Why it matters: conduct can suggest the parties intended to be bound, whatever the document says. It also leaves you exposed if the deal falls through.
The fix: treat the term sheet as a roadmap, not a contract. Wait for the final agreements before doing anything that's hard to reverse.
12. Assuming "non-binding" means "no obligations at all"
The mistake: assuming you can walk away from negotiations at any time, for any reason, with no consequences.
Why it matters: legal systems differ. In many civil-law countries, such as Germany and France, breaking off negotiations in bad faith can create liability even without a binding contract, and some US courts have held parties to a duty to negotiate in good faith under detailed term sheets. The binding terms, such as confidentiality, also still apply.
The fix: know which law governs your term sheet, act in good faith, and follow the binding terms until the term sheet ends.
Quick reference
| # | Mistake | Fix |
|---|---|---|
| 1 | Brand name instead of legal entity | Full registered name and number |
| 2 | Vague deal description | Exact subject matter and step-by-step structure |
| 3 | Not saying what's binding | A clear legal effect clause |
| 4 | Binding list out of date | Update it with every change |
| 5 | No expiry or long-stop date | Acceptance deadline plus long-stop date |
| 6 | Unusable governing law | Name a state or province; match the forum |
| 7 | Guessed numbers | Include only agreed terms |
| 8 | Vague earn-outs and conditions | Measurable, objective triggers |
| 9 | Over-long exclusivity | Proportionate period with an exit |
| 10 | Silence on IP in a project | State who owns existing and new IP |
| 11 | Acting as if the deal is done | Wait for the final agreements |
| 12 | Assuming no obligations at all | Know the governing law; act in good faith |
For a tick-box version of what every term sheet should include, see our Term Sheet Checklist.
Frequently asked questions
What is the biggest mistake in a term sheet?
Not saying clearly what is binding. It can leave you bound to terms you meant to keep open, or without protection on the terms you meant to enforce, such as confidentiality.
Can term sheet mistakes be fixed after signing?
Most can, because most of the term sheet isn't binding and can be corrected in the final agreements. Mistakes in the binding terms, or in who the parties are, are harder to fix and may need both sides to agree a correction.
What are the red flags in a term sheet I've received?
Watch for: a price or completion obligation described as binding, long exclusivity with penalties, open-ended conditions with no end date, uncapped costs you must pay even if the other side walks away, and a governing law or forum you don't recognise.
Should a lawyer review a term sheet?
It's wise, especially for the binding terms, cross-border deals, security or guarantees, and anything involving regulated businesses or personal data.
Avoid these mistakes from the start
Founders Doc's term sheet tool is built around these lessons. It asks for legal entity details, prompts for a precise description of the deal, keeps the binding list in step with the clauses you choose, and flags problems such as a missing state for US or Australian law before you send anything.