Term Sheet (Kenya)
TERM SHEET
Law of Contract Act Cap. 23 | Companies Act No. 17 of 2015 | Capital Markets Act Cap. 485A
Date: [Term Sheet Date]
Expiry: [Expiry Date] (unless extended by mutual written agreement)
PARTIES:
Investor / Acquirer: [Investor Name], [Investor Address]
Company / Target: [Company Name] (BRS No: [Company BRS Number]), [Company Address]
This Term Sheet records the principal terms on which the Investor proposes to proceed with the transaction described below, subject to the conditions precedent set out herein. Unless expressly stated to be binding, the provisions of this Term Sheet are not legally binding and are subject to the execution of definitive transaction documents. The binding provisions are identified in Clause 9.
1. PROPOSED TRANSACTION
1.1 Transaction type: [Transaction Type].
1.2 Transaction description: [Transaction Description].
1.3 Pre-money valuation: [Pre-Money Valuation].
1.4 Investment / consideration: [Investment Amount].
1.5 Security to be issued: [Security Type].
1.6 Equity percentage (fully diluted): [Equity Percentage].
2. KEY INVESTMENT TERMS
2.1 Liquidation preference: [Liquidation Preference].
2.2 Anti-dilution: [Anti-Dilution]. Standard carve-outs from anti-dilution adjustments apply (ESOP, strategic investors, acquisition consideration).
2.3 Employee share option pool (ESOP): [ESOP Pool].
2.4 Board composition post-closing: [Board Composition]. Directors are appointed in accordance with the Companies Act No. 17 of 2015 and the Company's Articles of Association.
2.5 Reserved matters requiring Investor consent: [Reserved Matters].
2.6 Investor information rights: [Information Rights].
3. TRANSFER RESTRICTIONS AND EXIT
3.1 Pre-emption on new issues: [Pre-Emption Rights].
3.2 Drag-along rights: [Drag-Along Rights].
3.3 Tag-along rights: [Tag-Along Rights].
3.4 Founder lock-up / vesting: [Lock-Up Period].
3.5 Target exit mechanisms: [Exit Mechanisms].
3.6 Transfer restrictions and exit provisions shall be documented in the Shareholders Agreement and the amended Articles of Association of the Company under the Companies Act No. 17 of 2015.
4. CONDITIONS PRECEDENT TO CLOSING
4.1 The obligation of the Investor to complete the transaction is subject to satisfaction (or waiver in writing by the Investor) of the following conditions precedent: [Conditions Precedent].
4.2 For transactions meeting the prescribed thresholds, mandatory notification to and clearance from the Competition Authority of Kenya (CAK) under Section 42 of the Competition Act No. 12 of 2010 is required before closing. The parties shall cooperate in making any required CAK filing promptly after signing definitive agreements.
4.3 Foreign investors shall obtain an Investment Certificate from the Kenya Investment Authority (KenInvest) under the Investment Promotion Act No. 6 of 2004 where required. The Investor shall notify the Central Bank of Kenya (CBK) of the foreign investment in accordance with the CBK's foreign exchange reporting requirements.
4.4 For transactions in regulated sectors, the relevant sector regulator's approval for any change of control is a mandatory condition precedent.
5. DUE DILIGENCE
5.1 Due diligence timeline: [Due Diligence Timeline].
5.2 The Company shall provide the Investor and its advisers with timely and complete access to all information, documentation, and management necessary to conduct legal, financial, and technical due diligence.
5.3 The Investor may terminate the process at any time before execution of definitive documents if due diligence reveals material adverse matters, without liability to the Company except as provided in the costs clause.
6. EXCLUSIVITY (BINDING)
6.1 In consideration of the Investor's commitment to conduct due diligence and negotiate definitive documentation, the Company undertakes that during the exclusivity period of [Exclusivity Period] from the date of signing this Term Sheet, the Company and its founders, directors, and advisers shall not, directly or indirectly: (a) solicit, initiate, or encourage any competing offer, investment, or acquisition proposal; (b) negotiate or enter into discussions with any third party regarding a transaction that would be competitive with this Term Sheet; or (c) disclose any information about the Company to any potential competing investor without the Investor's prior written consent.
6.2 Break fee: [Break Fee].
6.3 The Investor may seek injunctive relief before the High Court of Kenya under the Civil Procedure Act Cap. 21 to restrain any breach of this exclusivity obligation, in addition to any monetary claim.
7. COSTS AND CONFIDENTIALITY (BINDING)
7.1 Costs: [Costs Allocation].
7.2 Confidentiality: [Confidentiality Obligation]. This confidentiality obligation is immediately binding and shall survive termination or expiry of this Term Sheet for a period of 3 years.
8. DEFINITIVE DOCUMENTATION AND PROCESS
8.1 If the transaction proceeds, definitive documentation shall include (as appropriate): (a) a Subscription Agreement or Share Purchase Agreement; (b) a Shareholders Agreement; (c) amended Memorandum and Articles of Association of the Company under the Companies Act No. 17 of 2015; and (d) any ancillary agreements (employment agreements, IP assignments, non-compete agreements).
8.2 The Parties shall negotiate in good faith to finalise definitive documentation within the exclusivity period. Neither Party is obligated to close the transaction unless and until definitive agreements are executed.
8.3 This Term Sheet expires on [Expiry Date] unless extended by mutual written agreement.
9. BINDING PROVISIONS AND GOVERNING LAW
9.1 Binding provisions: [Binding Clauses]. These provisions constitute binding agreements under the Law of Contract Act Cap. 23, supported by the mutual commitment of the Parties to negotiate in good faith.
9.2 Non-binding provisions: All other provisions of this Term Sheet are non-binding statements of intent and are subject to the negotiation and execution of definitive transaction documents.
9.3 This Term Sheet is governed by and construed in accordance with the laws of Kenya. Any dispute concerning the binding provisions of this Term Sheet shall be resolved by arbitration before the Nairobi Centre for International Arbitration (NCIA) under the Arbitration Act No. 4 of 1995, with the seat of arbitration in Nairobi, Kenya.
By signing below, the Parties acknowledge the terms of this Term Sheet and agree to be bound by the binding provisions identified in Clause 9.1.
Authorised Signatory (Investor / Acquirer)
________________
Signature
Authorised Signatory (Company)
________________
Signature
Witness
________________
Signature
What Is a Term Sheet (Kenya)?
A Term Sheet in Kenya documents the term sheet in a form the parties and authorities can rely on.
A Kenya Term Sheet is commonly used in venture capital and private equity transactions governed by the framework established under the Capital Markets Act Cap. 485A administered by the Capital Markets Authority (CMA). The CMA's Guidelines on Venture Capital and Early Stage Funding, issued under the Capital Markets Act, contemplate the use of term sheets as a preliminary step in formalising private equity transactions. For startups registered under the Companies Act No. 17 of 2015, a term sheet from an angel investor or venture capital fund is typically the first formal document in the investment process, followed by due diligence, a Shareholders Agreement, and updated Memorandum and Articles of Association.
The binding versus non-binding nature of a Term Sheet in Kenya is determined by the specific provisions of the document and the intent of the parties under the Law of Contract Act Cap. 23. Under Section 2 of the Act, a contract requires offer, acceptance, and lawful consideration. A Term Sheet that is expressly stated to be non-binding — except for specific clauses such as confidentiality, exclusivity, and costs allocation — does not constitute an enforceable contract for the main transaction, but the specifically binding provisions (confidentiality, exclusivity, no-shop) are themselves enforceable contracts supported by mutual consideration. Parties who breach a binding exclusivity provision may be liable in damages under the Law of Contract Act Cap. 23 even if the main transaction is not completed.
The Companies Act No. 17 of 2015, administered by the Business Registration Service (BRS) under the Attorney General's office, governs the constitution of Kenyan companies and the rights attaching to different classes of shares. A Term Sheet for an equity investment in a Kenyan company must align with the company's existing Articles of Association and must contemplate any amendments required to create preference shares, anti-dilution provisions, drag-along and tag-along rights, or other bespoke investor rights. Under Section 28 of the Companies Act, a company's Articles of Association may be amended by a special resolution (75% of members voting in favour) at a general meeting, and this process must be completed before the investment can formally close.
For transactions involving foreign investment in Kenya, the Kenya Investment Authority (KenInvest), established under the Investment Promotion Act No. 6 of 2004, supports foreign direct investment and issues Investment Certificates. Foreign investors taking equity in Kenyan companies must comply with the foreign investment notification requirements of KenInvest and the foreign exchange reporting requirements of the Central Bank of Kenya (CBK) under the Central Bank of Kenya Act Cap. 491 and the Foreign Exchange (Forex) Act Cap. 113.
For transactions in regulated sectors — banking, insurance, telecommunications, energy, or media — the relevant sector regulator must approve any material change in ownership or control of the regulated entity. For example, the Communications Authority of Kenya (CA) under KICA must approve changes of control in licensed telecommunications operators, and the Insurance Regulatory Authority (IRA) under the Insurance Act Cap. 487 must approve transfers of controlling interests in licensed insurers. The Term Sheet should include a condition precedent requiring all necessary regulatory approvals to be obtained before completion of the transaction.
When Do You Need a Term Sheet (Kenya)?
A Term Sheet in Kenya is required at the outset of any significant transaction between sophisticated commercial parties where the detailed terms need to be agreed in principle before the time and expense of drafting full definitive documentation is incurred, and where a clear written record of the agreed commercial framework is needed to guide the negotiation of binding agreements.
A Term Sheet is needed when a Kenya-registered startup seeks funding from an angel investor, a venture capital fund, or a private equity house. The Term Sheet records the pre-money valuation, the investment amount, the percentage equity being sold, the type of security (ordinary shares, preference shares, or a convertible instrument under the Law of Contract Act Cap. 23), any board representation rights, and any conditions precedent — such as completion of due diligence, issuance of an Investment Certificate by KenInvest, and approval by the company's existing shareholders.
A Term Sheet is required when two Kenyan companies propose to merge or when one company proposes to acquire the business or shares of another. Under the Competition Act No. 12 of 2010, mergers that meet prescribed financial thresholds must be notified to the Competition Authority of Kenya (CAK) before completion. The Term Sheet records the proposed acquisition structure (share purchase or asset purchase), the purchase price, the price adjustment mechanism (completion accounts or locked-box), the key representations and warranties required from the seller, and the deal protection provisions (break fee, exclusivity) that protect the buyer during the due diligence and regulatory approval period.
A Term Sheet is needed when a Kenyan company proposes to admit a new institutional investor into an existing shareholders' structure. The Term Sheet addresses the valuation, anti-dilution protections (ratchet, weighted average, or full-ratchet), pre-emptive rights, transfer restrictions, drag-along and tag-along rights under the Companies Act No. 17 of 2015, and the investor's information rights and veto rights over specified reserved matters.
A Term Sheet is required when a Kenyan company seeks a significant debt facility from a bank or development finance institution (DFI) such as the East African Development Bank (EADB) or the Development Bank of Kenya (DBK). The Term Sheet (or term loan indicative letter) records the facility amount, interest rate (fixed or floating, referenced to a benchmark such as the Kenya Banks Reference Rate or SOFR for USD facilities), tenor, security, financial covenants, and conditions precedent to drawdown.
A Term Sheet is needed when a joint venture between two or more Kenyan or foreign and Kenyan entities is being structured. The Term Sheet records the shareholding percentages, contributions of each party, governance structure (board composition, reserved matters, quorum, and voting thresholds), profit distribution policy, and exit mechanisms — buy-sell (shotgun) clauses, rights of first refusal, and drag-along provisions — before the Joint Venture Agreement and Shareholders Agreement are drafted.
What to Include in Your Term Sheet (Kenya)
A Kenya Term Sheet under the Law of Contract Act Cap. 23 and the Companies Act No. 17 of 2015 must address the following essential elements to provide a clear and commercially complete framework for the proposed transaction and to reduce the risk of disputes during the definitive documentation process.
Parties and Transaction Overview: Full legal names and Companies Act registration numbers of the parties; a brief description of the proposed transaction (equity investment, acquisition, joint venture, or debt financing); the target company's name, BRS number, and registered office address; and the proposed transaction structure (share purchase, asset purchase, subscription for new shares, or convertible instrument).
Valuation and Consideration: The pre-money valuation of the target company (for equity investments); the investment or acquisition consideration; the price per share (if determinable); the type of security to be issued — ordinary shares, preference shares with defined rights (liquidation preference, dividend preference, conversion rights), or a convertible note with agreed conversion discount, valuation cap, and conversion triggers under the Law of Contract Act Cap. 23; and any earn-out or deferred consideration mechanism with its measurement metrics.
Capitalisation and Dilution: The fully diluted capitalisation table showing existing and proposed shareholders, share classes, and percentages post-investment; any agreed employee share option pool (ESOP) to be carved out before or after the investment; anti-dilution provisions — weighted average or full-ratchet — protecting the investor against dilutive future rounds at a lower valuation.
Governance and Investor Rights: Board composition post-closing (number of directors, investor nominee seats, independent director requirement); reserved matters requiring investor consent (as specified in the amended Articles of Association or the Shareholders Agreement under the Companies Act No. 17 of 2015); investor information rights (monthly management accounts, quarterly board packs, annual audited financial statements); and observer rights (non-voting board observer seat).
Transfer Restrictions and Liquidity Rights: Pre-emptive rights (right of first refusal on transfer of shares); co-sale rights (tag-along right allowing minority shareholders to sell alongside a majority seller); drag-along rights (majority shareholder's right to require minority shareholders to sell on the same terms in a third-party acquisition); lock-up periods during which investors or founders agree not to sell shares; and rights of first offer.
Conditions Precedent and Due Diligence: Satisfactory completion of legal, financial, and technical due diligence; requisite shareholder approvals under the Companies Act No. 17 of 2015; KenInvest Investment Certificate where required under the Investment Promotion Act No. 6 of 2004; Competition Authority of Kenya (CAK) merger clearance where applicable under the Competition Act No. 12 of 2010; and sector regulatory approvals.
Exclusivity, Confidentiality, and Costs: Exclusivity period during which the target company (or seller) agrees not to solicit or entertain competing offers — typically 30 to 60 days; consequences of breach of exclusivity (break fee or injunctive relief); mutual confidentiality obligations consistent with any separately executed Non-Disclosure Agreement; and allocation of legal and advisory costs (each party typically bears its own costs, but the Term Sheet should address any agreed contribution to the investor's due diligence costs by the company).
Governing Law and Expiry: The Term Sheet is governed by the laws of Kenya under the Law of Contract Act Cap. 23. The Term Sheet expires on a specified date unless extended by mutual written agreement. The forms-legal.com Kenya Term Sheet template records all principal investment parameters and includes binding confidentiality and exclusivity provisions aligned with the Companies Act No. 17 of 2015 and the Capital Markets Act Cap. 485A regulatory framework.
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Frequently Asked Questions
The legal status of a Term Sheet in Kenya depends on the express terms of the document itself and the intent of the parties as determined under the Law of Contract Act Cap. 23. A well-drafted Term Sheet distinguishes between binding provisions and non-binding provisions. The commercial terms of the proposed transaction — valuation, investment amount, equity percentage, governance arrangements — are typically stated to be non-binding: they record an agreement in principle pending the negotiation and execution of definitive documentation, and neither party is contractually committed to complete the transaction. However, specific provisions of the Term Sheet are expressly stated to be binding and create immediately enforceable obligations: the confidentiality clause (preventing parties from disclosing the terms of the negotiations); the exclusivity clause (preventing the company from soliciting or accepting competing offers during the exclusivity period); and the costs clause (allocating responsibility for legal and advisory costs). A party that breaches the binding exclusivity provision — for example, by accepting a competing offer during the exclusivity period — is liable in damages under the Law of Contract Act Cap. 23. Under Kenyan equitable principles, a party who acts in bad faith during Term Sheet negotiations by intentionally misleading the other party may also face a claim in misrepresentation.
Several regulatory approvals may be required as conditions precedent to closing a transaction documented by a Kenya Term Sheet, depending on the sector, the parties, and the transaction size. For mergers and acquisitions meeting prescribed financial thresholds — currently a combined annual turnover above KES 1 billion or total assets above KES 500 million — notification to the Competition Authority of Kenya (CAK) under Section 42 of the Competition Act No. 12 of 2010 is mandatory before completion. Completing a notifiable merger without CAK approval is an offence under the Act. For transactions involving foreign investors taking equity in Kenyan companies, an Investment Certificate from the Kenya Investment Authority (KenInvest) under the Investment Promotion Act No. 6 of 2004 is required to access investment incentives and to enable repatriation of profits. For transactions in regulated sectors — banking (Central Bank of Kenya under the Banking Act Cap. 488), insurance (Insurance Regulatory Authority under the Insurance Act Cap. 487), telecommunications (Communications Authority under KICA), energy (Energy and Petroleum Regulatory Authority under the Energy Act No. 1 of 2019), or capital markets (Capital Markets Authority under the Capital Markets Act Cap. 485A) — the relevant regulator's prior approval for a change of control of the licensed entity is mandatory. The Term Sheet's conditions precedent list should identify all required approvals and allocate responsibility for obtaining them.
In Kenyan commercial practice, the terms Term Sheet and Letter of Intent (LOI) are often used interchangeably, but they have slightly different connotations. A Term Sheet is typically used in equity investment and venture capital transactions — it sets out the economic and governance terms of a proposed investment in structured table or list format and is signed by both parties. A Letter of Intent is more commonly used in M&A, real estate, and commercial transactions — it is typically written in letter form and expresses one party's intention to proceed with a transaction on outlined terms, sometimes signed only by the party expressing the intent. Both documents are generally stated to be non-binding in respect of the main transaction terms, with specific provisions (confidentiality, exclusivity) being binding. Under the Law of Contract Act Cap. 23, the label placed on a document — whether Term Sheet or Letter of Intent — is less important than the substance of its terms and the intent of the parties. A document that is sufficiently certain in its terms, supported by consideration, and intended to be binding may constitute an enforceable contract notwithstanding being labelled a Term Sheet. Parties should take legal advice on the binding effect of any Term Sheet or LOI before signing.
Anti-dilution provisions in a Kenya Term Sheet protect an investor's percentage ownership and economic value against the dilutive effect of future share issuances at a lower price per share (a down round). Two main mechanisms are used in Kenyan venture capital and private equity transactions. First, weighted average anti-dilution adjusts the investor's conversion price (for preference shares or convertible instruments) by reference to a formula that takes into account both the lower price of the new round and the volume of new shares issued — the broader weighted average is more founder-friendly than the narrow weighted average formula. Second, full-ratchet anti-dilution resets the investor's conversion price to the lowest price at which any new share is issued, without reference to the volume of new shares. Full-ratchet is the most investor-friendly mechanism and significantly penalises founders and earlier investors in a down round. Standard carve-outs from anti-dilution adjustments — new shares issued to employees under an approved ESOP, shares issued as acquisition consideration, shares issued on conversion of approved instruments — must be listed in the Term Sheet. Under the Companies Act No. 17 of 2015, anti-dilution rights are implemented through provisions in the company's Articles of Association or through a Shareholders Agreement executed alongside the investment.
Drag-along and tag-along rights are transfer protection provisions commonly included in Kenya Term Sheets for equity investment transactions, implemented through the company's Articles of Association or a Shareholders Agreement under the Companies Act No. 17 of 2015. A drag-along right gives a majority shareholder (or a specified group of shareholders holding a defined percentage, typically 75% of shares) the right to compel minority shareholders to sell their shares on the same terms and conditions as the majority's sale to a third-party buyer. This right benefits investors and majority shareholders by ensuring that a clean 100% exit to an acquirer is not blocked by a small minority who refuse to sell. A tag-along right (co-sale right) gives minority shareholders the right to participate in a majority shareholder's sale to a third party by selling their shares on the same price and terms as the selling majority shareholder. This right protects minority shareholders — typically founders or early investors — against being left behind with shares in a company controlled by a new majority owner they did not choose. The Term Sheet should specify the drag-along threshold, the tag-along trigger, the procedure for exercising these rights, and the minimum notice period. These provisions are standard in Kenyan startup and private equity transactions and align with international venture capital practice.
A Kenya Term Sheet itself does not require Competition Authority of Kenya (CAK) approval — the Term Sheet is a pre-transaction document that precedes the formal binding agreements. However, the underlying transaction recorded in the Term Sheet may require mandatory merger notification to the CAK under Section 42 of the Competition Act No. 12 of 2010. A merger is notifiable to the CAK where the combined annual turnover of the merging parties in Kenya exceeds KES 1 billion or their combined assets exceed KES 500 million. A transaction structured as an acquisition of a controlling interest in a target company — even if the shares are acquired progressively — is a merger for CAK notification purposes once control passes. The CAK has the power under Section 40 of the Competition Act to prohibit a merger, approve it unconditionally, or approve it subject to conditions designed to remedy any anti-competitive effects. Completing a notifiable merger without CAK approval renders the transaction void under Section 46 of the Act and may attract financial penalties. The Term Sheet's conditions precedent should include CAK clearance as a mandatory condition for all transactions that meet the notification threshold, and the exclusivity period should be long enough to accommodate the CAK review timeline — typically 30 to 60 working days for a Phase 1 review and up to 120 working days if a Phase 2 investigation is initiated.
The exclusivity period (also called a no-shop period or lock-out period) in a Kenya Term Sheet is a binding contractual provision under the Law of Contract Act Cap. 23 through which the target company (in an investment transaction) or the seller (in an M&A transaction) undertakes not to solicit, entertain, or enter into discussions with any other party about a competing transaction during the specified period. Exclusivity gives the investor or buyer the time and confidence to conduct due diligence and negotiate definitive documentation without the risk of being outbid or pre-empted by a competing offer. Typical exclusivity periods in Kenyan venture capital and startup transactions range from 30 to 60 days — sufficient time to complete due diligence, obtain regulatory confirmations from KenInvest and the CAK (if required), and negotiate a Shareholders Agreement and amended Articles of Association. For larger M&A transactions requiring Competition Authority merger notification, exclusivity periods of 60 to 90 days or longer may be appropriate. The Term Sheet should define the consequences of breach of exclusivity — typically a break fee payable by the party in breach, plus the right to seek injunctive relief under the Civil Procedure Act Cap. 21 before the High Court of Kenya to prevent the competing transaction from proceeding. Founders and companies should treat the exclusivity obligation seriously, as breach can result in significant financial liability and reputational damage in Kenya's investment community.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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