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  • Writer's pictureRajvin Singh Gill

Sale & Purchase of a Business: Why you need a term sheet (and an example of one)

When engaging in the sale or purchase of a business, whether through share transfer or asset acquisition, it's advisable for the seller and buyer to contemplate employing a term sheet. This document outlines the main terms and conditions of the deal. By using a term sheet, both parties can focus on the broader aspects of the transaction, rather than getting caught up in specific details like the exact payment amount. Additionally, a term sheet helps prevent misinterpretations and allows the parties to swiftly identify any significant issues that could potentially derail the deal in the initial stages of the process.

Typically, a term sheet is not legally binding and is not meant to encompass all the exhaustive terms and conditions of the transaction.

Below is a sample format for creating a term sheet. On the left side, you'll find the standard headings for terms and conditions. The right side is where these terms and conditions should be detailed.

In the provided template, we've included (on the right side) the aspects to contemplate when drafting these terms and conditions, thus aiding readers in the drafting process. Even if the parties have no plans to formalize a term sheet and instead opt to directly proceed with a sales and purchase agreement, the template below offers valuable guidance on the essential terms to reflect on before finalizing the agreement.

Principal Terms and Conditions in relation to the sale and purchase of (insert subject matter):


​Sale and Purchase

​This part is meant to explain the nature of the sale and purchase, which could involve either the assets of a business or the shares of a company (referred to as the "Target").



Insert identity of the purchaser including name, company number or NRIC/passport, etc,.



Insert identity of the seller including name, company number or NRIC/passport, etc,.



This part is designed to outline the terms and conditions regarding the payment for the transaction. This includes the following aspects:

(a) the specified payment amount;

(b) the method of fulfilling the payment, which could involve cash or issuing shares;

(c) the consideration of any required deposit;

(d) whether the payment is divided into multiple installments;

(e) the possibility of a retention sum, where a part of the payment is held after the completion of the transaction, contingent upon meeting agreed-upon conditions;

(f) the timing of the payment;

(g) whether the payment is a fixed sum or is subject to modification based on the Target's financial status as of a designated date


Profit Guarantee

​When applicable, this part is used to detail any assurances provided by the seller concerning an agreed-upon profit target that the Target is expected to achieve within a defined timeframe. It includes the agreed schedule and compensation to be given to the seller should the profit target be fulfilled. Moreover, it covers the rules and methods for calculating the profit and the outcomes if the Target fails to meet the profit guarantee (if any consequences apply).



When applicable, this part is meant to define the sum of the earn-out that the seller is eligible to receive. It also outlines the agreed-upon schedule for disbursing the earn-out and the guidelines and process for establishing the seller's qualification for the earn-out (if any such criteria exist).


Definitive Agreements

This part is intended to outline the contracts that must be established for the transaction. Usually, the final agreements encompass the sales and purchase agreement, a potential shareholders' agreement, if needed, and a service agreement with the Target's crucial management, if necessary.


Conditions Precedent

​This part outlines the prerequisites that must be met before the agreement becomes final. Generally, the agreement states that once it becomes unconditional, failing to proceed with the transaction could result in the defaulting party being held accountable for any damages incurred by the other party. The common conditions that must be satisfied beforehand include:

(a) In the event that the seller is a corporation, the passing of a board of directors' resolution approving the transaction and the execution of the final agreements.

(b) If the purchaser is a corporation, the passing of a board of directors' resolution endorsing the transaction and the execution of the final agreements.

(c) If the transaction involves the sale and purchase of shares, the approval of the Target's board of directors for registering the share transfer in the purchaser's name.

(d) If the transaction involves the sale and purchase of business assets, the approval of the Target's board of directors for transferring the business assets.

(e) A comprehensive review, including legal, financial, tax, environmental, and operational due diligence on the Target, with the findings being satisfactory to the Purchaser.

(f) Obtaining necessary authorizations from pertinent authorities in relevant jurisdictions, if needed.

(g) Gaining approval from the Target's financiers for changes in shareholders or the disposal of business assets, if applicable.

(h) The establishment of service agreements between the Target and its key management, if necessary.

(i) Fulfilling any other required approvals, notifications, or registrations



​This portion allocates the responsibilities of both the seller and the purchaser towards the employees of the Target once the transaction is finalized. This aspect is subject to the laws applicable in the relevant jurisdictions.

In the context of Malaysia, the rights of employees whose wages do not exceed RM2,000 ("EA Employees") are governed by the Employment Act 1955 ("EA 1955"). According to Section 12(3) of the EA 1955, if the termination of an EA Employee's service is primarily due to a change in business ownership, the employer must provide notice of termination to the EA Employee, adhering to the stipulated notice period under the EA 1955.

As specified in Regulation 8(1) of the Employment (Termination and Lay-off Benefits) Regulations 1980 ("Employment Regulations"), if a change in business ownership occurs, affecting an EA Employee's employment, the EA Employee might not be entitled to termination benefits if, within 7 days of the ownership change, the new business owner offers continued employment to the EA Employee under terms that are as favorable as their previous terms. If the employee unreasonably declines this offer, the employee is not entitled to termination benefits. However, if the new business owner does not present such an offer in accordance with Regulation 8(1), the employment contract of the EA Employee is considered terminated, and the employer prior to the ownership change is obligated to provide all termination benefits mandated by the Employment Regulations


Restrictive Undertaking

​This part outlines the commitments made by the seller, which prevent them from engaging in competitive activities with the Target for a mutually agreed duration following the completion of the transaction. The extent of this restrictive commitment might encompass the seller's related parties, subsidiaries (if the seller is a corporation), or even the seller's family members (if the seller is an individual), subject to applicable laws and the relative bargaining strength of the parties involved.



This part aims to establish the obligations of confidentiality that both parties must adhere to in order to protect sensitive information



This portion outlines the designated timeframe for exclusivity, wherein the seller commits to not engaging in discussions with any other external parties regarding the sale of the specific business assets or shares. During this period, the purchaser holds the sole privilege to engage in negotiations with the seller



​This part is intended to outline the expenses that each party is responsible for in relation to the transaction. These costs could encompass legal fees for both parties, as well as stamp duty incurred upon the execution of the sales and purchase agreement and the transfer of shares or assets


Governing law and dispute

This part is designed to establish the jurisdictional law that will govern the agreement and the preferred method for resolving disputes, which can include either court litigation or arbitration.

The content presented in this article is meant solely for offering general information and should not be considered as legal opinion or professional advice.

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If you have any questions on how to structure a term sheet or the sale and purchase of a business generally, please do to contact us for a complementary consultation.


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