What Is the Purpose of an MOU?
For business purposes, an MOU outlines the intention of two or more parties to enter a contract or pursue a deal. When there is no full agreement yet, an MOU clarifies the parties’ intentions and highlights unresolved issues.
You can think of this document as a framework for parties to move forward in their business dealings. It often sets the groundwork for more detailed documents such as a request for proposal (RFP), business proposal, or letter of intent. Compared to other agreements, an MOU is high-level. It focuses on the general terms and mutual understanding between the parties.
An MOU also serves as a statement of intent and good faith. It lets parties agree to share information or set negotiation strategies for an upcoming deal. It provides flexibility for addressing disagreements and aligning expectations.
MOUs for business purposes may have different formats and requirements than ones for government or educational institutions.
Is an MOU Legally Binding?
An MOU is not legally binding. It simply outlines the parties’ intentions for a project, negotiation, or partnership agreement. However, it should include enough details to clarify expectations as the parties continue to interact.
While the MOU itself remains non-binding, parties can add legally binding clauses. For example, they may add non-disclosure agreements to address specific concerns. Unless explicitly stated, an MOU does not require parties to fulfill its terms.
An MOU often serves as a preliminary step toward a formal, legally binding agreement. By addressing key points early, an MOU can facilitate the transition to definitive agreements, such as business contracts.
How Does an MOU Work?
An MOU is a practical tool for the early stages of negotiations or partnerships. While it’s not legally binding, it sets clear expectations, aligns goals, and helps build trust. It outlines key terms and responsibilities, laying the groundwork for collaboration. Here’s how it works:
- Initial Meeting: The parties meet to identify a mutual interest that could benefit from collaboration.
- Further Discussions: The parties communicate their expectations for the partnership.
- Drafting: The parties use a memorandum of understanding template to capture the agreed-upon terms.
- Review & Revision: The parties review and revise the MOU to ensure the agreement reflects their expectations.
- Implementation: The parties sign the document as a testament to their commitment.
- Monitoring & Communication: The parties regularly communicate and monitor the progress of their collaboration.
- Completion or Termination: The MOU remains effective until the parties complete their project or the MOU expires.
- Transition into a Legal Contract: The parties can choose to formalize their collaboration.
Memorandum of Understanding vs. Memorandum of Agreement
An MOU is a general agreement for cooperation. Meanwhile, a memorandum of agreement (MOA) is a more detailed document that further defines the parties’ roles.
An MOU is typically not legally binding but may include legally binding elements. In contrast, an MOA is legally binding if it contains standard contractual terms. These terms include an offer, acceptance, and consideration.
MOAs resemble informal contracts and often use language similar to binding agreements. They are common between private parties and government or regulatory agencies.
When deciding between an MOU and an MOA, think about whether the parties will exchange money. If funds are involved, an MOA is usually a better choice because it’s more likely to be legally binding. An MOA clearly outlines the partnership framework and ensures everyone will follow through with the established terms.
| Aspect | MOU | MOA |
|---|---|---|
| Purpose | General agreement for cooperation | Detailed document defining parties' roles |
| Legality | Not legally binding but may include binding elements | Legally binding |
| Level of Detail | Broad and high-level | More detailed, often resembling informal contracts |
| Language | Less formal | Similar to binding agreements, with precise terms |
| Common Uses | Cooperation without monetary exchange | Suitable for agreements with financial transactions |
| Partnership Framework | Establishes general expectations | Outlines terms to ensure follow-through |
How to Write an MOU
When writing a memorandum of understanding, it’s essential to focus on clarity and transparency to align all parties. The goal is to create a document that lays the groundwork for collaboration while keeping things flexible. By following these steps, you can structure an MOU agreement to cover all necessary details.
1. Identify the Parties
Provide the names and addresses of the parties. Indicate whether a party is acting as an individual or on behalf of an organization.
An MOU can involve two or more parties, making it a bilateral or multilateral agreement, respectively.
2. Describe the Project’s Purpose, Scope, & Timeline
Introduce the project by giving it a title or briefly describing it. You can also provide a broad overview of the objectives so the parties understand the scope.
Clarify that the MOU is not a binding contract but an expression of intent to work together on a single project.
3. Highlight Expertise & Resources
Outline each party’s contributions to the project. It may be financial resources, equipment, or skills. Be specific about each party’s role and ensure that contributions match their strengths. Explain how each party’s unique abilities will help achieve the project’s goals. These details ensure that each party’s involvement is purposeful.
4. Define the Parties’ Responsibilities
Each party should outline the activities they agree to undertake. While an MOU isn’t a contract, defining responsibilities helps everyone understand their potential role. These responsibilities may include tasks like project management, financial support, or research.
5. Outline a Communication Strategy
A clear communication plan keeps everyone informed and on the same page. Specify how the parties will share feedback and decisions, such as through meetings or emails. Also, outline how the parties will share the project with the public while respecting confidentiality. Good communication helps build trust and keeps the project on track.
You can also specify how the parties will resolve disputes, whether through mediation, arbitration, or both.
6. Add the Governing Law
If the parties are from different regions, establish which jurisdiction applies. This way, the parties will know which court will handle the case if legal action is necessary.
While the MOU isn’t legally binding, some sections may still be enforceable and stand alone if legal action is required. Clarifying these terms helps prevent ambiguity and ensures both parties are aligned.
7. Address Prior Memos of Understanding
Specify that the new MOU replaces any previous MOUs that relate to the proposed collaboration. This provision provides clarity and shows which document you want to take priority.
8. Reiterate the Agreement’s Nature
Clarify that this document is an agreement to work together and not a legally binding document. Make it clear that your signature will represent your intent to achieve the listed goals. Reiterate that it doesn’t create formal legal obligations.
9. Address Amendments & Assignments
Include whether one party can amend the MOU or assign it to someone else without consent. These decisions can help you maintain control over how the agreement evolves.
10. State the Termination Procedures
Explain that the parties can terminate the MOU by mutual written agreement. Specify the amount of notice they must give. You can also state that the agreement automatically ends when the parties complete their responsibilities in the purpose and scope sections.
11. Add Additional Terms of Understanding
Add additional terms of understanding for greater clarity. These terms include responsibilities for finances, hold harmless clauses, and insurance guidelines.
Gather signatures from both parties to conclude the document.
MOUs in Everyday Use vs. International Relations
In everyday use, memos of understanding are used for partnerships between businesses and non-profits. In certain situations, such as in public affairs, international law, or between foreign nations, parties may use MOUs differently. For example, two countries might use an MOU as a treaty. In this case, it may require registration with the United Nations.
In the United Kingdom and some of its Commonwealth countries, an MOU is primarily used in government agreements. This differs from the more traditional use between private entities.
When dealing with overseas businesses, it’s important to speak with an attorney. They can ensure the MOU meets the correct legal standards and is structured for the specific context.
How Legal Templates Helps With MOUs
Legal Templates makes creating an MOU easy with our customizable MOU template that includes non-binding language. Drafting an MOU can be time-consuming, especially if you’re unsure how to structure it or what to include.
With our document builder, you input your collaboration details, and we handle the rest. This saves you time, eliminates guesswork, and ensures your MOU is clear, effective, and suited to your situation. Whether you’re outlining a new partnership or formalizing the first steps of a project, we simplify the process so you can focus on building strong relationships.
MOU Sample
View a sample of a memorandum of understanding template below. Once you’re familiar with the MOU format, you can create your own with our document builder.
Frequently Asked Questions
When should I not use a memorandum of understanding?
Avoid using a memorandum of understanding template if the business arrangement is complex and has many factors to consider.
How long does a memorandum of understanding last?
An MOU is usually indefinite if the parties don’t specify an end date. However, these agreements usually exist for short-term projects. Parties can establish an end date ranging from a few weeks to several months.
What happens if you break an MOU?
Breaking an MOU won’t result in legal consequences if it’s explicitly non-binding. But failing to honor the terms can damage trust, which may affect future business collaborations. Consider the impact on goodwill even if there are no legal obligations.
