The Sweat Equity Term Sheet is a crucial document used when companies, particularly startups and growing businesses, wish to compensate individuals for their services with company equity instead of or in addition to cash compensation. This arrangement is common in Belgium's entrepreneurial ecosystem, where companies need to conserve cash while attracting talented individuals. The document must comply with Belgian corporate law, employment regulations, and tax requirements, making it essential to structure the agreement properly from the outset. It typically precedes more detailed agreements and serves as a foundation for negotiating final terms, outlining key aspects such as equity percentage, vesting schedule, service requirements, and basic rights and obligations of both parties. The term sheet helps ensure clarity and alignment between the company and service provider before proceeding with formal equity issuance procedures.
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1. Parties: Identification of the company and the service provider/sweat equity recipient
2. Background: Context of the arrangement and brief description of the company and service provider's expertise
3. Definitions: Key terms used throughout the term sheet
4. Services: Description of services to be provided by the service provider
5. Equity Compensation: Details of the equity stake offered, including percentage, type of shares, and vesting schedule
6. Vesting Terms: Specific conditions and timeline for equity vesting
7. Valuation: Agreed company valuation for the purpose of the sweat equity calculation
8. Tax Treatment: Overview of tax implications and responsibilities
9. Confidentiality: Provisions regarding confidential information protection
10. Term and Termination: Duration of the agreement and conditions for termination
11. Governing Law: Specification of Belgian law as governing law and jurisdiction
1. Non-Competition: Restrictions on competing activities, included when the service provider has access to sensitive information
2. Intellectual Property Rights: Specific IP provisions when the services involve creation of intellectual property
3. Board Participation: Terms for board representation if applicable to senior service providers
4. Tag-Along Rights: Rights to participate in future sale of shares, included for significant equity stakes
5. Drag-Along Rights: Obligation to participate in future sale of shares, included for significant equity stakes
6. Future Funding Provisions: Terms regarding dilution and participation in future funding rounds
7. Exit Strategy: Provisions regarding company sale or IPO, included for strategic positions
8. Alternative Dispute Resolution: Mediation or arbitration provisions if preferred over court proceedings
1. Schedule A - Services Description: Detailed outline of services to be provided and performance metrics
2. Schedule B - Vesting Schedule: Detailed timeline and conditions for equity vesting
3. Schedule C - Share Rights: Detailed description of rights attached to the shares
4. Schedule D - Company Cap Table: Current and post-investment capitalization table
5. Schedule E - Shareholders' Agreement Terms: Key terms from the shareholders' agreement that apply to the sweat equity shares
6. Appendix 1 - Tax Calculations: Illustrative tax calculations and implications
7. Appendix 2 - Required Notices: Forms and notices required under Belgian law for equity issuance
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