Why Waiting for “Non‑Binding” Documents Can Backfire
One of the most common and potentially costly legal mistakes businesses make is delaying when they engage an experienced business lawyer, especially when presented with documents like a term sheet – even if it’s labeled “non-binding.” Many entrepreneurs believe they can wait until definitive agreements are drafted, but this can be a critical error.
In this vital video, Phil Crowley, founder of Crowley Law LLC and a seasoned business attorney, explains why this delay can put your business at a significant disadvantage:
The Trap of “Non‑Binding” Clauses That Still Bind
The “Non-Binding” Term Sheet Trap: While a term sheet might state it’s “non-binding” (except for certain clauses like confidentiality or exclusivity), the practical reality is that the terms outlined within it often set a strong precedent. Phil warns that it can be extraordinarily difficult to change or renegotiate these key terms once they’ve been agreed upon in principle, even if informally, when you get to the stage of drafting definitive, binding legal documents.
How Oral Promises Fall Through Without Legal Backup
The Peril of Oral Promises: If you’ve been promised certain conditions or benefits orally, but those promises are not captured in the term sheet, you may find it incredibly challenging to have those important elements incorporated into the final, binding agreements later on.
Consequences of Delayed Lawyer Involvement
The Damaging Consequences of Delay: Waiting too long to involve your lawyer can lead to several negative outcomes:
The deal may not go forward because unaddressed issues become roadblocks.
Even worse, the deal does go forward, but on terms that are unfavorable to you, or without the crucial elements you thought were agreed upon. You don’t get what you were truly promised.
Why Early Legal Review Powers Strong Negotiation
Phil’s core advice is clear: engaging an experienced business lawyer sooner rather than later – ideally before or as soon as a term sheet is presented – is unequivocally in your best interest. Early legal review can help identify potential issues, ensure your understanding of all terms, and strategize for the negotiation of definitive documents that truly protect your company.
Don’t let a seemingly informal document dictate unfavorable terms for a critical deal. Understand the implications from the start.
Don’t Let a Term Sheet Dictate Your Deal
If you’re a business owner, entrepreneur, or founder involved in negotiations or reviewing term sheets, this video is essential viewing.
