Take a step toward formalizing an agreement with a memorandum of understanding. Learn when you need one and how to write an effective document that keeps both parties on the same page.
Everything you need for a memorandum of understanding.
What is a memorandum of understanding?
A memorandum of understanding, or MOU, is a nonbinding agreement that states each party’s intentions to take action, conduct a business transaction, or form a new partnership. This type of agreement may also be referred to as a letter of intent (LOI) or memorandum of agreement (MOA). Under U.S. law, all three are effectively interchangeable.
When should you draw up an MOU?
If you or your business is in the beginning stages of a transaction with another party, an MOU is often the first step toward a formal agreement via a binding contract. An MOU clearly defines how the parties will work together and lays out each one’s expectations and responsibilities. The goal is to achieve a mutual understanding of the partnership, so you can move forward into an enforceable contract everyone feels confident about.
A note about MOUs in government agencies and international relations.
The legal definition of an MOU differs in public affairs and in other countries. In international law, MOUs fall under the “treaty” category and must be registered as such with the United Nations. In the United Kingdom, an MOU is often used in context of agreements that pertain to the government. If your MOU deals with the public or international sector, consult a legal professional to make sure your document works the way you intend it to.
Benefits and drawbacks of MOUs.
Memoranda of understanding are not enforceable contracts because no offers are presented and no transactions are made. This could be a drawback for partners who have already cemented the details of the transaction and are ready to legally commit.
But for many, it is exactly because they are a step down from a formal contract that MOUs are so useful. An MOU is also one step up from the informal, unwritten “gentlemen’s agreement.” If casual, verbal comments are the most concrete artifacts you have of your potential partnership, a solid next step might be to elevate your conversations with an MOU.
That way you can establish a paper trail and keep negotiations moving forward. Each party has the opportunity to review the terms of the agreement, resolve any disputes or miscommunications, and make changes to the agreement before signing on the dotted line.
What to include in your MOU.
Every agreement will look slightly different, but a good rule of thumb is to use MOUs as an agreement to agree, not as the final word. You should include whatever terms you feel are necessary to establish a mutual agreement about the common line of action you both will follow. This often includes:
- Purpose of the partnership
- Goals of each party
- Duties of each party
- Timeline
- Confidentiality clause
- Process for resolving disputes
The legality of MOUs.
While it is not a legal document, certain elements of an MOU could make it a legally binding and enforceable document in court. Make sure to consult an attorney on the language you use before sending or signing an MOU. According to the Four Corners Rule, a legal doctrine that courts use to determine the meaning of a contract, if an MOU includes one or more of the following elements, it could be deemed contractually binding:
- An offer
- An acceptance of an offer
- Intention to be legally bound
- Consideration (an exchange involving payment or money)
Make your own memorandum of understanding.
It’s easy to create your own MOU template with Adobe Acrobat Pro DC with e-sign. Paperless e-docs save your business time and money, and you can collect e-signatures from anywhere.
Quick revision and open collaboration are key to a successful MOU. And with Acrobat Pro DC, you can do it all digitally and keep your partnership on the right track.
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