Clicked Gallery

What's the Difference Between a Letter of Intent and a Term Sheet?

Highlighted from a real earnings story. Explained by Clicked.

Used in a sentence

The Daily Ledger · Markets

A company stamped every page of its term sheet "Non Binding Terms" and still paid $217 million, the value of the deal it laid out.

The reader highlighted one clause — on the page or in a PDF. Clicked made the legal term “term sheet” easy to understand:

Explained in three depths

Same facts, different vibe — Slang mode 😎

The Clicked way

●○○

Overview

A term sheet is an outline of a deal's key numbers: the price, the structure, the headline terms, often bullets. A letter of intent is the fuller version, in prose: the numbers, plus how the deal will run and the buyer's case for doing it. Neither name settles what is binding; the wording of everything signed does. SIGA Technologies printed "Non Binding Terms" on every page of its term sheet and still paid $217 million, the value of the deal it laid out.
●○○

Overview

A term sheet is the deal boiled down to its numbers. A letter of intent is those numbers plus everything around them, and it doubles as the buyer's audition: why them, what they see in you, how painless they promise to be. Attached to the flattery is a clause taking you off the market, typically for 30 to 90 days. The compliments are free. The clause is the part with consequences. 😎

A quick take — often all you need.

●●○

Detail

Both documents put a deal on paper before anyone is committed. The term sheet is the deal's key numbers: the price, the structure, the headline terms. The letter of intent builds the rest of the deal around those numbers: what gets checked and by when, how long the seller stays off the market, and what must be true before anyone signs. It also makes the buyer's case for why they are the right party. None of that binds either side, except the clauses that count from the day you sign: the exclusivity, the confidentiality, and who pays if the deal dies. SIGA Technologies agreed a term sheet to license its smallpox drug to PharmAthene, "Non Binding Terms" on every page. A separate signed agreement promised good-faith negotiation of a licence on those terms if the merger fell apart. It collapsed, and SIGA came back proposing terms far richer than it had promised to negotiate toward: the bad faith that separate promise existed to catch. Delaware's courts agreed the liability came from breaking that promise, not from the term sheet, and set the damages using the term sheet's own numbers. SIGA paid $217 million. Neither document forces the deal itself, and the buyer can still walk once the books are checked. Only the conduct promised along the way stays owed.
●●○

Detail

A term sheet or a letter of intent is supposed to be the safe stage of a deal, the outline everyone can still back out of. How safe depends on how you behave once it exists, because a court reads conduct as well as paper. Pennzoil proved it in 1984. It shook hands with Getty Oil on a written outline to buy control at $110 a share, both companies put out press releases, and executives celebrated. The real contract was still being drafted when Texaco arrived offering $125 a share, and Getty took it. Pennzoil sued Texaco, and everything turned on one question: were the outline, the handshakes and the announcements already a deal? A Houston jury said yes, and ordered Texaco to pay $10.53 billion for it, the largest verdict any American court had produced at the time. Texaco went into bankruptcy protection and eventually paid $3 billion to settle. That verdict cuts both ways. If you want your outline treated as an outline, keep behaving like people still deciding, which rules out announcements, celebrations, and acting as if the thing is done. And if a rival treats someone else's outline as nothing, they are betting a jury sees it the same way. Texaco lost that bet by ten figures. 😎

Want more? One click digs deeper.

●●●

Analogy

You ask a tour operator to plan two weeks away for the family. A quotation covers the numbers, meaning dates, flights, three hotels and a price per person. A trip pack covers more, taking those numbers and wrapping them in a day-by-day plan, what is included, when each payment falls due, what they need from you, and a page on why their trips run smoothly. Nothing here books the trip, and most of it can still change. The quotation is the term sheet, the deal in numbers. The trip pack is the letter of intent, the deal described whole. And one line in its small print is already real: the planning deposit you paid to hold your dates, gone if you walk away.
Deepest level reached.
●●●

Analogy

Ask a designer what a full brand package costs and a number comes back, say $1,200, maybe split by piece. Hire one properly and a proposal lands first. The identical $1,200 now arrives with three concepts, two revision rounds, and a week-by-week schedule. It also sets out what you must send over and when, money up front, and why they are the one for it. That bare figure was the term sheet. This proposal is your letter of intent, the identical job now carrying a process and a pitch around it. Neither document is the work itself. But cancel once the up-front payment clears and you will discover which lines were binding all along. 😎
Deepest level reached.

Unfamiliar concept? A real-world example makes it click — fresh analogies on tap.

AI explanations may contain errors · Not professional advice

Formal definition — The same term, explained the usual way

A term sheet and a letter of intent are both preliminary transaction documents recording the principal terms of a proposed deal before a definitive agreement is negotiated. By convention, a term sheet sets out the key commercial terms, principally the economic ones, in summary or bullet form, and is common in financing transactions. A letter of intent, typical in acquisitions, is written in narrative form and covers the proposed terms more broadly, including transaction structure, the scope and timetable of due diligence, conditions, exclusivity, and the parties' expectations of the process. Both are generally expressed to be non-binding as to the transaction itself, while designated provisions, commonly exclusivity, confidentiality, and expense allocation, bind on signature. Labels are not decisive, and courts examine the language and the parties' conduct, and in some jurisdictions an obligation to negotiate in good faith by reference to such a document is enforceable, with damages potentially measured against the terms it records. Neither document obliges a party to complete the transaction.

Want Clicked to explain terms like “term sheet” directly in your browser — including on PDFs?

Add to Chrome — Free

50 free Explanations · No credit card required