What is MOU agreement?

MOU is also known as Memorandum of Understanding. A memorandum of understanding is a contract between two or more parties written in a formal document. Memorandum of Understanding is not a legally binding agreement, but it has the willingness of the parties to move forward with contract.

An MOU is not a legally contract, it can be considered a legitimate agreement, but it is not legally binding even if it sounds like one. Although, it is a basis of a contract in the future and even if it is taken as a legally binding contract, Memorandum of Understanding is not a legally binding contract because it does not have any legal teams involved in writing or at time of signing the agreement.

A memorandum of understanding is considered a starting point for negotiations because it defines the purpose and scope of the talk between the parties. Memorandum of Understanding is usually used in international treaty negotiations, and it is also used in business dealings which include merger talks.

In a memorandum of understanding or MOU, all parties involved express that they agree with all the terms and conditions and would like to proceed towards their mutual goals.

In simple words, a memorandum of understanding shows that all parties have a mutual understanding about everything mentioned in the contract and they are ready to move forward with the goals of the parties. A memorandum of understanding may not be a legally binding contract, but it is a sign that a legally binding contract is approaching.

According to international relations, Memorandum of Understanding fall under the category of treaties and they are registered under the treaty collection of United Nations. In international law, a memorandum of understanding is a political agreement between parties, and it is less formal than a treaty or a legally binding contract. Treaties or contracts usually take a long time; however, memorandum of understanding use a short time and they can be kept confidential easily.

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When to use a Memorandum of Understanding (MOU)?

You can use a Memorandum of Understanding in following cases:

• When you own a business and would like to partner with another business
• When you have a small business and partner with others frequently
• Another business is interested in working with your business
• When a company wants to work with your business on a specific project

An advantage of having a Memorandum of Understanding is that it helps in avoiding the obligations under international laws, MOUs can be put into effect usually without requiring and official legislative approval because they are not legally binding. MOUs that are confidential cannot be enforced by anyone and it can be concluded that no obligations under international law have been created.

How does a Memorandum of Understanding works?

Basically, a memorandum of understanding provides an idea to each party about their responsibilities and requirements and the parties work together according to that roadmap. Memorandum of Understanding is usually created at the very early stages of an initiative or a relationship between two parties. Unlike other contracts, a memorandum of understanding does not require an exchange of money or any refund and payment policies.

Before the parties move on to the stage of contract negotiation and signing, everyone should state their expectations and resolve all the conflicts that arise or can arise in the future.

Who writes a Memorandum of Understanding MOU?

Either party can write the agreement, but the job actually goes to the party that is asking to have the agreement in writing or the party that wants to dictate the terms and conditions of the agreement. In order to avoid conflicts and complications with the MOU, all parties that are involved should sit together and come up with a draft of the agreement that can later on be converted into a memorandum of understanding. After writing the memorandum of understanding, each party is allowed to put their signature on it and each party have a separate signed copy of the MOU, in order to avoid any misunderstanding in the future.

Types of a Memorandum of Understanding MOU?

There are basically two different types of MOU:

• Bilateral MOU:

  Bilateral Memorandum of Understanding is a type of preparatory written agreement between two parties. Bilateral MOU is usually used to decide the responsibilities of each party and it can also be used for a number of different reasons.

• Multilateral MOU:

  A Multilateral Memorandum of Understanding is an agreement between more than two parties. A Multilateral MOU is created when multiple parties want to work with together on a project or have mutual goals. In such cases, a multilateral MOU can help in outlining the responsibilities of each party that is involved in the project.

Things to include in a Memorandum of Understanding:

Memorandum of Understanding is a simple agreement and as it does not require presence of a legal team, it is even easier to write the agreement. The most important thing to note while making the agreement is that all parties are on the same page about everything included in the agreement and there won’t be any complications in the future, this way the agreement will be made smoothly and in good intentions.

Following are the things that must be included in an MOU:

• Name and contact information of all parties that are involved in the making of the agreement
• The roles of each party involved and the requirements and expectations from each party.
• Scope and intended action of the memorandum of understanding
• Information and details about the project
• The length of agreement
• When and how any party involved may terminate the agreement
• The reason why the agreement is created
• The governing law
• The date on which the agreement will be effective
• Shared goal of all the parties involved
• Terms and conditions of the agreement
• Important dates and commitments
• Measures to resolve the dispute if any occur in the future

Before creating the memorandum of understanding all parties should come up with their own MOU documents where they list their expectations from the project, desired outcomes, things that they will not compromise on. This will help in creating an MOU with good intentions

Advantages of MOU:

There are certain advantages of a Memorandum of Understanding:

• Clear Objectives: All parties are allowed to have a mutual understanding about the goals of the project.
• Reduced uncertainty: MOU makes the goals and objectives of each party clear and reduce the risk of any disputes occurring in the future.
• Foundation for the future: Since the MOU has all the terms and conditions already written it can be easy to make an official contract out of it.
• Easy to exit: if a party feels like their goals do not match with the agreement goals any longer, they can easily exit the agreement.
• Paper trail: It creates a record of the terms included in the agreement which is helpful in case any party try to get out of the terms that they agreed over.

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