A Memorandum of Understanding (MOU) template outlines an agreement between two or more parties in a formal document. An MOU communicates the mutually accepted expectations of the people, organizations, or governments involved in the agreement.
Find out everything you need to know in order to create a clear and effective Memorandum of Understanding.
- What is a Memorandum of Understanding (MOU)?
- How to Write a Memorandum of Understanding (MOU)?
- Sample Memorandum of Understanding Template
- Tips For Writing a Memorandum of Understanding
- Is a Memorandum of Understanding legally binding?
- Why Write a Memorandum of Understanding?
- Memorandum of Understanding FAQs
What is a Memorandum of Understanding (MOU)?
A Memorandum of Understanding (MOU) is a written document that outlines a preliminary agreement between two or more parties regarding the terms of a potential purchase, negotiation, or other transaction.
You can use an MOU to document the commitment of one party to do business with another. It describes the principal terms of a proposed agreement and signals that a binding contract is imminent.
How to Write a Memorandum of Understanding (MOU)?
When learning how to write a memorandum of understanding, it’s important to use the following numbered stages:
- Title: Begin with a specific opening title such as “Memorandum of Understanding between Jane Smith and John Doe”
- Date: Include month, day, and year, showing the date agreement was made, when it goes into effect, and the expected duration
- Introduction of parties. Use each party’s full name and address, corporate or organizational title, and any other contact information
- Purpose and objectives: Clearly define the purpose of the parties’ agreement; objectives of the MOU must be precisely outlined right at the beginning of the document
- Description: Describe the subject matter of the MOU and the reason for its creation
- Terms of the agreement: Typically, these fall into two categories: cooperation and resources. First, the agreement generally explains how the parties will cooperate with each other concerning actions to be performed and which party will perform them. The second category involves resources, and what each party brings to the agreement
- Responsibilities: Outline what each party must do in order to fulfill the agreement
- Miscellaneous: Insert provisions such as dispute resolution options, the method for termination, a non-disclosure agreement, or a privacy clause
- Signature block: Include the words, “Acknowledged and Agreed,” with your signatures and the date
Structuring a memorandum of understanding using a template is far more efficient. In minutes, you can produce a memorandum of understanding with a Legal Templates free step-by-step form builder.
Sample Memorandum of Understanding Template
Here’s what a memorandum of understanding template typically looks like:
This memorandum of understanding sample was created using an MOU template found in Legal Templates, which provides both document builders and a free download and print feature ready for immediate use.
Tips For Writing a Memorandum of Understanding
Ways to approach the structure of an MOU
A good approach to the overall writing of an MOU is to examine whether the MOU has answered the basic questions related to who, what, when, where, and how the agreement will play out. It ensures that potential difficulties are addressed and answered.
Another method of structure that could be helpful is to sandwich each agreement between the words “both parties agree” and ending again with “both parties agree.” Sandwiched between those words is the relevant statement each party individually agrees to. It forms a sort of balance by clearly and repeatedly signifying what is expected of each party in the future.
Keep it simple
Writing the MOU in simple terms will help ensure that the agreement’s terms are realistic and actually within the scope of the authority of the signing parties. If not, look for the correctly authorized individual who can sign off on the MOU.
Make sure that the wording is precise and succinct. To help with clarity, an MOU should be written using positive language. For example, you should state what a party will do and not what they will not do.
Coordination and review
Be absolutely sure that all parties sign the agreement. When multiple parties are involved, select a point person in charge of drafting the MOU. Consider submitting a draft agreement for coordination and review by sending the draft out to parties alongside a sign-off sheet. This will ensure the draft MOU has been seen and reviewed by all parties.
Is a Memorandum of Understanding legally binding?
No, a memorandum of understanding is not legally binding. It merely signals the willingness of the parties to move forward with a contract based on the initial MOU.
You may wonder why you should bother with an MOU when it’s not legally binding. Writing the MOU is still a significant step because of the time and effort involved in negotiating, discussing, and drafting an effective document. To formulate an MOU, the parties must figure out what is most important to each other and use that information to reach a mutual agreement.
Why Write a Memorandum of Understanding?
Evidence of intent
There are several situations involving business negotiations or purchase and sale agreements where an MOU is beneficial. For example, banks may require evidence of intent to enter into a deal before they promise to grant financing.
Good faith intention
Without a valid MOU, either party may question the other’s commitment and simply walk away when negotiating terms. The parties can sign an MOU to show each other a good faith intention to work out a deal.
Similarly, parties may know they want to enter into a business deal with one another, but they aren’t quite ready to sign a legally binding contract. An MOU serves to move the deal forward in incremental steps.
Writing an MOU is also beneficial by setting the expectations of all parties involved. The process frequently begins with each party drafting their own initial MOU, indicating preferred outcomes, ideal terms, and what points may be non-negotiable. This is each party’s starting point for negotiations in producing a mutually accepted MOU agreement.
Memorandum of Understanding FAQs
What is the purpose of a memorandum of understanding?
A memorandum of understanding or letter of intent is designed to set forth an agreement between two parties to make a contract in the future. At the same time, the parties understand that key details of that contract remain to be worked out, and so the memorandum is not legally binding.
The memorandum can still be useful in clarifying points that have been agreed upon already, and in setting a timetable for reaching the agreement. Other details, such as applicable law, or key people responsible for making the agreement can also be set down in the memorandum. By removing the simple or agreed-upon issues, the parties are freed to focus on the more important or contentious issues of the contract.
The final contract, if carefully drafted, will contain the key elements of the memorandum of understanding.
When to use and not to use a memorandum of understanding?
A memorandum of understanding should be used if the parties can agree upon some terms and not others. It should be used to help the parties set out a road map and deadlines for negotiations.
It can set expectations for the negotiations and can be used as evidence for others that negotiations are at hand. Thus it can be very useful in helping secure financing for the deal from a bank or third-party lender.
If the contract to be settled is fairly standardized and has few terms which can be negotiated, then a memorandum of understanding may not be needed.