An MOU or Memorandum of Understanding is a written agreement between two parties that explains the proposed agreement between them. It is essentially a document that lists the expectations and ideas of the two parties before they enter into a legal contract.
An MOU can be considered as a starting point for negotiations between organizations as it defines the scope and purpose of the collaboration. This type of documents are often used in international negotiations, such as between nations, but can be used in high-stakes deals like mergers.
What is an MOU?
An MOU is a document that contains an agreement between organizations who want to come to a mutual understanding to proceed further into business relations. While it is not legally binding, it is a document that stands as the initial step of entering into a legal contract.
An MOU describes what each organization agrees to contribute to collaboration, details of how each organization collaborates, the timeframe for delivering the expected outcomes and how the parties pay for costs of delivering outcomes. MOUs are much like contracts that define how any two parties work together. Technically, MOUs are not legally enforceable but they should be perceived as a tool that facilitates collaboration and ensures a smooth bond between organizations.
The Components of an MOU
As an MOU can be used in any situation that does not bind the parties legally, it is quite easy to create if you know about its basic components. A well-executed MOU outlines specific points of an understanding clearly.
It names the parties involved, describes the project on which they collaborate, defines its scope and lists the roles and responsibilities of the parties. The document contains details of the initiatives on which the organizations agree and the length of the project duration as well as the scope of the project. It also contains information about how the costs associated with the collaboration will be authorized and paid.
Apart from this, the MOU also describes guidelines governing the use of the name and logo of the organization in collaborated materials like brochures, fact sheets, press releases and websites. It also contains guidelines about the ownership of materials developed jointly and their use after the expiration of the MOU. It also defines how the partnership will be announced to the media and the public. An important part of the MOU is the length of duration the agreement will be valid for.
This is called the period of performance and includes the date of effect and date of ending. It also includes a point of contact for each party facilitating the collaboration and signatures from leaders of the organizations along with the date of signing the document.
Working of an MOU
Though not legally enforceable, this document stands as a critical step in any collaboration because of the time and effort involved in creating this effective document. The participating organizations should reach a mutual understanding to be able to create an MOU. During this process, the parties learn what things are important to others before they move forward. The process starts with each organization drafting its best-case document. It contains its desired outcome, the expected offering to other party and the points non-negotiable on its side. This serves as the starting point for each party for the negotiation.
When an MOU is signed, it expresses an agreement to move forward. The agreement denotes that the two organizations have reached upon a mutual understanding and are ready to proceed. According to the U.S. law, an MOU is also known as a letter of intent or memorandum of agreement. These documents communicate an agreement on a mutual goal and the intention of getting it accomplished. MOUs describe the mutual agreement of expectations of the organizations involved.
MOU Vs Other Similar Documents
An MOU is different from a contract. It is something that resembles an informal written communication. However, it is more formal than verbal communication but not legally binding like a contract. What makes an MOU different from a contract is the enforceability of both.
An MOU is an agreement that is not legally binding and it is an outline of expectations. A contract, on the other hand, describes some legally enforceable obligations. If the obligations listed in the contract are not followed, the suffering party has the right to sue.
MOU is very similar to the letter of intent. They are often used interchangeably. Just like a letter of intent, an MOU is created before a formal contract and outlines the agreement between organizations. However, the main difference between these two documents is that a letter of intent never has legal obligations. An MOU can be legally binding if a party relies upon it and gets injured as the other party did not meet the agreed obligations. MOUs often contain legally binding clauses like privacy agreements.
Sample MOU Template
Using a template provides a way to create an effective and cost-efficient MOU. A legally verified template lets you monitor the potency of your MOU. Our sample MOU template is designed to help organizations looking to enter into partnership agreements.
MOUs are really useful documents for business collaboration. We hope this guide helps you learn about the importance and structure of MOUs, their uses and their difference with other legal documents.