What’s the Purpose of a Memorandum of Understanding?
A Memorandum of Understanding, or MOU, is an agreement between two parties. It establishes who will work together to meet mutual goals or produce an agreed-upon project or outcome.
It’s usually used as a preliminary written agreement that outlines some of the key terms and mutual goals that will likely become part of a formal contract at a later date. It’s often considered to lie somewhere between a legally signed contract and an informal handshake or verbal agreement. Avoid unnecessary errors with the help of Incfile’s customizable MOU template.
Who Should Use a Memorandum of Understanding?
A MOU is mostly used by businesses to establish a commercial partnership. However, it can also be utilized by government organizations, non-government organizations and charities. It helps to establish mutual goals and expectations, as well as obligations and rights between two parties.
It’s ideal for those who don’t want to yet enter a legal partnership and prefer to simply outline mutual goals and obligations as a first step. An MOU is also useful if you’re still negotiating and establishing initial goals, as it’s not yet legally binding or complete like a formal contract.
When to Establish a Memorandum of Understanding?
A MOU is usually established in the very early days of partnership negotiations. Here are some guidelines for how it’s used:
- Typically used during first rounds of talks when goals and objectives are still being outlined
- Once signed, it acts as a reference point as the parties move towards a more formal contract
- Can also be used as a long-standing partnership for those who don’t wish to form a legally binding contract
- Frees the parties from restrictive boundaries that can sometimes come with official contracts
It’s worth noting, however, that it’s not ideal if the partnership involves an exchange of money or any financial agreement. The non-legal nature of a Memorandum of Understanding means that it’s not recommended for any financial transactions or deals.
Is a Memorandum of Understanding a Legal Document?
A Memorandum of Understanding is not a legally enforceable or binding contract. It’s simply a preliminary agreement between parties before a more formal and legal contract has been signed. However, it can include binding and non-binding terms, which can help make it enforceable.
Need Help Creating a Memorandum of Understanding?
Drafting a Memorandum of Understanding doesn’t have to feel confusing. Using a template can seamlessly guide you through the steps and make sure that essential information is included. Get a sample of our lawyer-approved templates.
What Should a Memorandum of Understanding Include?
While the contents of a MOU are unique for each partnership and type of agreement, a Memorandum of Understanding template generally outlines the following:
- A listing of the parties involved
- The purpose of the partnership
- The common goals established
- The role of each party
- Any obligations or deadlines
- The duration of the agreement
- Appropriate signatures from both parties
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