Answer: When it’s a term sheet.
A term sheet is essentially a contract to make a contract; it describes in generalities the terms to be included in a more definitive agreement to be signed after further details are negotiated. Term sheets are usually non-binding in most respects, meaning the parties are not obligated to sign a definitive agreement if they can’t agree on terms.
Term sheets are most useful for significant transactions, such as financings, collaborations or acquisitions, where both parties want to ensure they’re on the same page before the lawyers start drafting documents. This can save both parties considerable time and expense.