Term sheet conflicts frequently arise during the early stages of joint venture formation, particularly within the wider context of Shareholder & Joint Venture Control. Although a term sheet is often described as a preliminary, non-binding roadmap, it plays a decisive role in shaping expectations, negotiating leverage, and the structural foundations of the future JV. When misaligned assumptions, ambiguous provisions, or shifting commercial priorities emerge, parties may find themselves in conflict long before the JV agreement is drafted. Understanding how these conflicts arise, how they can be managed, and how to design term sheets that reduce future risk is essential for any business pursuing a joint venture in the UAE or internationally.
Conflicts at the term sheet stage typically stem from the intersection of commercial ambition, legal uncertainty, and competing expectations about control, economics, and risk allocation. Because term sheets are frequently drafted quickly to move a deal forward, they may be incomplete, overly high-level, or interpreted differently by each party.
When the term sheet lacks clarity on essential elements of the JV, parties may later disagree on what was intended. This includes critical items such as valuation contributions, capital commitments, intellectual property ownership, and the precise nature of each party’s rights and obligations. Ambiguity creates space for conflicting interpretations and prolonged negotiation.
One of the most common sources of term sheet disputes is differing expectations about governance. Majority versus minority rights, veto powers, board composition, and decision thresholds often seem clear during initial discussions but become contested when the formal JV agreement is being drafted. If not articulated specifically in the term sheet, governance becomes a pressure point.
As negotiations continue, market conditions, internal strategies, or financial pressures may change. A term sheet drafted months earlier may no longer represent the commercial reality, prompting one party to renegotiate or reinterpret commitments. This shift can cause friction, especially if the other party considers the original terms central to the deal.
Although term sheets are usually non-binding, certain provisions such as confidentiality, exclusivity, and break fees are often expressly binding. Conflicts arise when parties rely on non-binding terms as though they were final, or when one party unilaterally changes position on matters the other assumed were agreed in principle.
Term sheets frequently outline the initial contributions of capital, assets, or intellectual property. However, early-stage valuations, contribution methodologies, or expected financial responsibilities may later be contested. Misalignment at this stage often signals deeper incompatibilities in commercial objectives.
While conflicts can arise anywhere within a term sheet, certain areas consistently create tension because they influence power, risk, and economic sharing within the JV.
Parties may initially agree on a high-level equity split only to discover later that the corresponding rights, obligations, and capital contributions do not align with their expectations. The absence of detailed mechanics in the term sheet leaves significant room for disagreement.
Parties frequently dispute whether capital contributions are fixed, conditional, proportional, or subject to future re-evaluation. Conflicts also arise around whether funding shortfalls trigger dilution, default, or governance changes.
Control conflicts often revolve around who appoints senior management, who controls day-to-day operations, and what constitutes a reserved matter requiring joint approval. If the term sheet glosses over these items, drafting the formal JV agreement becomes contentious.
Term sheets often outline exit options but lack detail on valuation mechanisms, timing, drag-along or tag-along rights, or restrictions on transfers. If these issues are not aligned early, they become major sticking points during negotiation.
In technology, industrial, and services-based ventures, IP ownership and licensing terms must be clearly outlined. Conflicts occur when one party expects joint ownership while the other envisions a limited use licence or conditional access.
Once conflicts arise, proactive dispute management helps preserve the deal and prevent unnecessary escalation. Effective communication, structured negotiation, and objective evaluation are key.
The first step in resolving term sheet disputes is ensuring both parties understand the original intent of each provision. Revisiting meeting notes, negotiation history, and commercial rationale helps identify whether the conflict stems from a genuine misunderstanding or a change in expectations.
Bringing independent financial, legal, or technical advisors into the discussion can help resolve disagreements around valuation, contribution, governance rights, or risk allocation. Their objectivity often reduces tension and provides clarity on market norms.
Even though term sheets are usually non-binding, parties are generally expected to negotiate in good faith. Honouring this principle helps maintain trust and prevents disputes from derailing the entire JV formation process.
When discussions stall, formal negotiation frameworks or mediation can reset the process. These tools allow parties to preserve the partnership while addressing contentious issues under professional facilitation.
The most effective way to avoid disputes is to design a term sheet that is clear, comprehensive, and aligned with the strategic objectives of all parties. Precision at this stage saves time, reduces legal risk, and builds a stronger foundation for the joint venture.
Including explanatory notes or rationale behind key terms prevents future misinterpretation and supports consistent decision making when drafting the final JV agreement.
Statements such as “to be agreed later” create space for conflict. Even provisional frameworks are better than deferred decisions, as they anchor expectations and negotiation boundaries.
A well-structured term sheet labels each clause as binding or non-binding, ensuring clarity and legal certainty for both parties.
Conditional terms and clearly defined milestones reduce misunderstandings by tying obligations to objective triggers, such as regulatory approvals or agreed valuations.
Term sheet conflicts in JV formation are common but highly manageable when approached with clarity, transparency, and structured negotiation. Because term sheets lay the groundwork for long-term cooperation, addressing ambiguity early and designing robust preliminary terms significantly reduces the risk of disputes later in the process. By investing in detailed drafting, aligned expectations, and structured dispute management, businesses can transform potential conflicts into opportunities for stronger, more resilient joint venture partnerships.
