CA Final · Advanced Financial Management · Startup Finance

Aarav Foods, a startup, receives a term sheet from a venture fund. Which statement best describes the legal status of a standard term sheet before the definitive agreements are signed?

A standard term sheet is generally non-binding on the main commercial terms such as valuation and investment amount, but clauses like confidentiality, exclusivity and governing law are usually binding. It only outlines the proposed deal before definitive agreements are executed.

1. AIt is generally non-binding on the main commercial terms, except for clauses such as confidentiality, exclusivity and governing lawCorrect
2. BIt is fully binding on every clause including the valuation and the investment amount
3. CIt has no binding effect on any clause, including confidentiality and exclusivity
4. DIt is binding only on the investor and never on the founders