Heads of terms are the agreed principles between a buyer and a seller. The idea of heads of terms is to set up the main principal agreed terms before you incur costs of undertaking due diligence or instructing lawyers. Heads of terms are useful as they set out the purchase price and any conditions attached to their purchase price, so if there are targets to be met for deferred consideration or for earn out clauses. You could also include provisions in there for whether the seller is going to stay on in the business or whether they’re going to be a consultant. In general terms, heads of terms are not legally binding. They are intended to be a guiding principle so that you can look back at them throughout the terms of the transaction and find out what it was you had agreed at the outset.
