Memorandum of Understanding
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If you're struggling to get your head around exactly what a Memorandum of Understanding is, this expert guide is here to help.
We've cut through all of the legal jargon, so you'll know exactly how to write up a MOU and when you may need to use it.
A Memorandum of Understanding, sometimes referred to as an MOU, is typically used as a preliminary written agreement before a formal contract is drawn up between parties. While it isn't a legally binding document, it can be used during the negotiation stage to express a common understanding and vision between the two sides involved.
Once drafted and signed, a Memorandum of Understanding can be used as a reference guide as negotiations continue and the parties work towards a final agreement.
Download this template at Lawpath
Generally speaking, a Memorandum of Understanding is useful in two circumstances:
A Memorandum of Understanding and a Letter of Intent serve very similar purposes: they are both used during the negotiation stage of a deal, in order to set out proposed terms going forward.
A Letter of Intent, however, is more commonly used than a MOU, and you'll generally find that most large business transactions use them to provide a structure as to how the agreement will go ahead.
Another key difference between the two documents is that a Letter of Intent can hold up in court as a legally binding document.
As you'd expect, there's no 'one-size-fits-all' rule when it comes to a Memorandum of Understanding. The document should be tailored to each individual situation, and take into account the parties involved and the common goals they're working towards.
A few key points to consider when drafting your Memorandum of Understanding include:
While a Memorandum of Understanding is not a legally binding document, it is still an effective tool to use between parties entering into negotiations. Typically, parties involved feel obliged to cooperate with the terms and conditions set out in the document. This is because failing to do so can harm their professional reputation.
A Memorandum of Understanding should also benefit both parties enough to encourage compliance from both sides.
As a non-legally binding document, a lawyer is not strictly necessary to draw up a Memorandum of Understanding. However, it is always a good idea to use a Memorandum of Understanding template to ensure that you have included all of the appropriate information.
Asking a lawyer to look over the final document also adds a level of protection for both parties involved.
A Memorandum of Understanding does not need to be more than a few pages long. It should only document essential information that both parties should know to move forward with their partnership.
While every MOU is unique, each one should provide answers to the following questions
Once written, the Memorandum of Understanding should be signed by all parties involved, preferably in front of an independent witness.
The usefulness of a Memorandum of Understanding should not be underestimated. Using a template or following an example, is a great way to make sure you're along the right lines when it comes to drafting your MOU.
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