For many startups and small businesses, the difference between a Term Sheet and a Shareholders Agreement (SHA) can be confusing. A Term Sheet is a non-binding summary of key investment terms, while the SHA is a binding contract that defines shareholder rights, obligations, and governance after the investment.
Expert Drafting & Review – Tailored, precise drafting of Term Sheets and SHAs aligned with your deal and funding stage.
Compliance with Indian Laws – Ensuring agreements meet Companies Act, FEMA, and SEBI requirements.
Risk Identification & Due Diligence – Spotting legal and commercial risks before finalization.
Negotiation Support – Securing favorable terms on dilution, liquidation preference, board rights, and exits.
Lifecycle Support – Guidance on amendments, enforcement, dispute resolution, and termination.
Get Expert Help With Your Term Sheet or SHA Today
A Term Sheet and a Shareholders Agreement (SHA) are two essential documents in the lifecycle of a startup or early-stage company, especially during fundraising. While they serve related purposes, they differ in format, intent, and legal enforceability.
A Term Sheet is a preliminary, non-binding document that outlines the key commercial and investment terms agreed upon between founders and investors during a funding round.
Generally non-binding except for clauses on confidentiality and dispute resolution.
Flexible — terms can be revised or withdrawn by mutual agreement.
An SHA is a legally binding agreement between the company’s shareholders that governs their rights, responsibilities, and obligations.
Legally enforceable and more detailed than a term sheet.
Covers aspects such as capital structure, share transfer restrictions, decision-making processes, anti-dilution rights, and dispute resolution.
| Objective | Purpose |
|---|---|
| Shareholder Protection | Clearly defines each shareholder’s rights, roles and responsibilities to protect minority and majority interests. |
| Governance & Control | Establishes decision-making structure, voting rights and board representation for effective corporate governance. |
| Dispute Resolution | Provides mechanisms such as mediation or arbitration to resolve conflicts efficiently and reduce escalation risk. |
| Share Transfer Restrictions | Defines controls on how and when shares may be transferred to preserve ownership stability and strategic continuity. |
| Exit Strategies | Outlines buyback, IPO or acquisition procedures and exit mechanics for investors and founders. |
| Confidentiality & Non-Compete | Prevents leakage of sensitive information and restricts competing activities by key shareholders or founders. |
| Succession Planning | Defines rules for share transfer and governance in case of a shareholder’s death, disability or exit. |
| Investor Confidence | Builds trust through transparent rights, protections and predictable governance for current and prospective investors. |
| Legal Compliance | Ensures conformity with applicable Indian corporate and contract laws to reduce legal and regulatory risk. |
| Alignment of Interests | Encourages strategic unity and a shared business vision among stakeholders to support long-term growth. |
| Condition | Description |
|---|---|
| Binding Nature | The SHA is legally enforceable; it must clearly state its binding effect on all parties involved. |
| Shareholding Details | Lists each shareholder’s share count, ownership percentage, and any transfer restrictions applied. |
| Voting Rights | Allocates voting power among shareholders and defines any special rights or veto provisions. |
| Dividends & Distribution | Explains rules for profit sharing, dividend declarations, and timelines for payouts. |
| Transfer Restrictions | Mentions rights such as ROFR, tag-along, drag-along, and share lock-ins to manage ownership changes. |
| Dispute Resolution | Includes mediation and arbitration clauses, as well as the jurisdiction for resolving conflicts. |
| Termination Clause | Specifies when and how the SHA can be terminated, including any legal remedies available to the parties. |
1. Define Key Terms
Clarify equity split, voting rights, contributions, exits, and dispute rules.
2. Align Stakeholders
Discuss and agree on terms with co-founders, investors, and advisors.
3. Draft Term Sheet
Prepare a non-binding summary of key commercial terms.
4. Legal Review
Have experts check compliance and refine terms.
5. Draft Shareholders’ Agreement
Turn agreed terms into a binding legal document.
We ensure seamless alignment between founders and investors, starting with a clear, strategic term sheet and culminating in a legally robust Shareholders’ Agreement—crafted to protect your vision and future value.
