Memorandum of Understanding (MOU)

Is a Memorandum of Understanding (MOU) legally binding?

A Memorandum of Understanding (MOU) is a non-legally binding agreement between two or more parties outlined in a formal document that sets out the willingness and intent of the parties to move forward with a contract.

A Memorandum of Understanding, or MOU, can be defined as an agreement between parties and can be bilateral (two) or multilateral (more than two parties). It expresses a common understanding between the parties in question and interprets the intent of a common line of action.

The MOU is the starting point for negotiations as it defines the scope and purpose of the talks between the parties since such agreements are usually used in high-stakes business dealings such as merger talks.

What is the purpose of a Memorandum of Understanding?

A Memorandum of Understanding (MOU) is an expression of agreement to proceed. It indicates that the parties have reached an understanding and are moving forward. Although it is not legally binding, it is a serious declaration that a contract is imminent and there is a mutual agreement on the content of the upcoming contract.

Memorandum of Understanding guidance

A Memorandum of Understanding (MOU) clearly outlines specific points and key elements of an understanding between the parties.

It names the parties, describes the project they agree on, defines its scope, and details each party’s future and current roles and responsibilities.

While not a legally enforceable document, the Memorandum of Understanding (MOU) is a significant step because of the time and effort involved in negotiating and drafting an effective document.

The participating parties need to reach a mutual understanding to produce an MOU. In the process, each side learns what is most important to the others before moving forward.

How to create a Memorandum of Understanding (MOU)

The process usually begins with each party effectively drafting its own Memorandum of Understanding (MOU) that consists of its ideal or preferred outcome, what it believes it has to offer to the other parties, and what points may be non-negotiable on its side.

An initial draft is then written, after which representatives from each party meet to discuss the details. Memorandums of Understanding (MOU) often list communication expectations to help the mediation process.

During this time, agreements regarding the timeline for when the Memorandum of Understanding (MOU) takes effect are discussed.

Agreements outlining how or when a party can terminate the understanding are also decided. This is when a party inserts disclaimers, restrictions or privacy statements, as desired. 

Once discussions are finished, a final MOU is drafted and signed.

The contents of an MOU include but are not limited to the scope and intended action of the MOU, the project, and the names of the parties and their respective responsibilities.

Other content might include the length of the agreement, when the agreement begins, and when or how either party can terminate the agreement. 

Also, an MOU can contain contact information for the parties involved and possible dates for performance reviews.

What to include on a Memorandum of Understanding template

MOUs are often used to establish the framework for a future, more detailed contract or to formalise a partnership or joint venture. They specify the parties involved, their responsibilities, the scope of the project or endeavour, timelines, and other key elements.

An MOU is typically less formal than a contract and may need to have the legal enforceability of a contract. However, some MOUs can carry a degree of legal weight if they include terms and conditions intended to be legally binding.

Here are some common elements often found in an MOU:

1. Introduction/Background: Briefly describe the context and why the parties enter an MOU.
2. Parties Involved: Identifies the entities or individuals in the agreement.
3. Objectives: Outlines the goals and objectives the parties hope to achieve through collaboration.
4. Scope of Work: Details the roles and responsibilities of each party, what is expected, and what is out of scope.
5. Terms and Duration: Specifies the time the MOU will be effective and under what conditions it can be terminated.
6. Resources: Describes any resources, financial or otherwise, that will be committed by each party.
7. Confidentiality: States whether any information shared will be confidential and under what conditions.
8. Dispute Resolution: This may outline procedures for resolving disagreements or misunderstandings.
9. Signatures: Usually includes a space for the parties’ signatures, often with a date.
10. Attachments/Appendices: Any additional documents, schedules, or materials referenced in the MOU.

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Along with this document, make sure you see these other templates in our library:

• Shareholder Agreement
• Letter of Intent
• Heads of Terms
• Share Appreciation Rights Plan
• Share Option Plan

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