Term Sheet (Philippines)

A Term Sheet in the Philippines defines what each party must do under the deal and the consequences of failing to perform.

The binding or non-binding nature of a Philippine Term Sheet is determined by the language and intent of the parties under Article 1318 of the Civil Code — a document clearly stating that the price and structure are subject to further negotiation and definitive documentation will generally be treated as non-binding on those commercial terms. However, provisions expressly stated as binding — typically confidentiality, exclusivity (no-shop), and governing law clauses — are enforceable as contracts under the Civil Code's principle of obligatory force under Article 1159.

In the Philippine venture capital and private equity context, Term Sheets for equity investments in corporations typically address pre-money valuation, investment amount, share structure under the Revised Corporation Code (RA 11232), investor protective provisions (anti-dilution rights, liquidation preferences, board representation rights), and conditions precedent including completion of due diligence and SEC approval of new share issuances.

For M&A transactions subject to Philippine Competition Commission (PCC) review under RA 10667, the Term Sheet typically includes a condition precedent that the transaction will only proceed upon PCC clearance, and allocates the responsibility and cost of the PCC merger notification between the parties.

The legal framework governing the Term Sheet (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Term Sheet (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Revised Corporation Code (RA 11232, 2019) sets the foundational requirements.

A Philippines Term Sheet is needed at the early stages of a business acquisition, investment, or strategic transaction to align the parties on principal terms before investing time and resources in due diligence and definitive documentation.

A Term Sheet is required when a buyer and seller in a business acquisition have reached preliminary agreement on price, structure, and key conditions and wish to document the agreed terms — including any exclusivity period during which the seller agrees not to solicit or entertain competing offers — before commissioning legal due diligence and engaging lawyers to draft the definitive Business Acquisition Agreement or Asset Purchase Agreement.

A Term Sheet is needed when a venture capital or private equity investor and a Philippine startup or growth company have agreed in principle on an investment — including pre-money valuation, investment amount, equity percentage, and investor rights — and both parties want a documented starting point for negotiating the definitive Subscription Agreement and Shareholders' Agreement under the Revised Corporation Code (RA 11232).

A Term Sheet is required when two companies are exploring a joint venture in the Philippines and want to document agreed parameters — equity split, governance, capital contributions, profit-sharing — before engaging lawyers to draft the formal Joint Venture Agreement and applying for SEC registration of the joint venture entity.

A Term Sheet is needed when a Philippine corporation is raising debt financing from a bank or financial institution and the bank has issued a commitment letter or term sheet specifying loan amount, interest rate, collateral, and covenants, which the borrower must formally accept before the bank proceeds to prepare the loan documentation and security documents.

Parties in Philippines should prepare a Term Sheet (Philippines) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A Philippines Term Sheet for M&A and investment transactions must address the following principal terms to serve as an effective framework for definitive agreement negotiation.

Transaction Structure: Whether the proposed transaction is a share purchase (acquiring equity in a corporation under RA 11232), an asset purchase (acquiring specific business assets under the Civil Code), a merger (combining two corporations under Section 76 of RA 11232), or a new equity investment (subscription to new shares requiring SEC approval of amended Articles of Incorporation). The structure determines the applicable taxes (CGT at 15% for share sales under Section 24(D)(2) of the NIRC vs. VAT and DST for asset purchases) and regulatory approvals required.

Purchase Price or Valuation: The proposed transaction price or pre-money valuation (for equity investments), pricing methodology (fixed price, earn-out formula, or adjusted based on closing balance sheet), and consideration structure (cash, shares, deferred payment, or combination). For equity investments, specify the investment amount, resulting equity percentage, and post-money valuation.

Due Diligence Period and Exclusivity: The duration of the exclusivity period during which the seller agrees not to solicit, negotiate, or share information with competing buyers (the no-shop clause); the due diligence period and the seller's obligations to provide information access; and the conditions under which the buyer may terminate negotiations without liability.

Binding vs. Non-Binding Provisions: Explicit identification of which provisions are binding on both parties — typically confidentiality (incorporating NDA obligations under the Civil Code and Data Privacy Act RA 10173), exclusivity, cost allocation, and governing law — and which provisions are non-binding expressions of intent subject to definitive agreement — typically price, structure, and all commercial terms.

Conditions to Closing: PCC merger notification clearance under RA 10667 if thresholds are met; BSP, Insurance Commission, or other regulatory approvals; completion of due diligence to the buyer's satisfaction; no material adverse change in the target business; third-party consents; and board and stockholder approvals under Sections 36-38 of RA 11232.

Governing Law: Philippines law (Civil Code, RA 386), and designation of venue for binding disputes — typically the Regional Trial Court of Makati City, Pasig City, or Taguig City (BGC) for Metro Manila transactions, or ICC or PDRCI arbitration for international investors.

Additional compliance elements for a Term Sheet (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.