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What is a Memorandum of Agreement?
A memorandum of agreement, or MOA, is a legal document describing a business partnership between two parties that have agreed to cooperate to meet an agreed objective or complete a project. The memorandum lays out the agreed terms and outlines the steps to reach the desired goal of the agreement.
MOAs are usually used when money is involved, but that is not always the case.
It is considered a legal document because of its signatures. Still, it is less formal than a contract and more formal than a verbal agreement. In business it can be used for:
A memorandum of agreement is not the same thing as a memorandum of understanding (MOU). An MOU is used to describe each party's point of view about a project before entering into it.
Here’s an article about MOAs.
What Should Be in a Memorandum of Agreement?
Even though it is less than a formal contract, there are certain sections you want to make sure are included when completing an MOA. Some of these sections include:
- Purpose of the agreement
- names of parties involved
- scope of work
- any financial obligations
- dates of agreement
- any key contacts
- Detailed outline of roles and responsibilities, delineated by the person responsible
- Length or duration of the agreement
- Modification and termination
- Signatures of principals
Steps to Completing a Memorandum of Agreement
Below are 5 Steps to follow when completing an MOA:
- Step 1: Decide and define the parties. You need to consider who will sign the MOA and who else will be cooperatively working together. This includes anyone who may be involved in completing the agreed objectives.
- Step 2: Draft the Agreement. Choose a single person to be responsible. You know what they say about too many cooks in the kitchen. An agreement needs to be precise, and sometimes having one person responsible for drafting it helps keep it focused.
- Step 3: Send the MOA for review. The review is a chance for each party involved to ensure they are represented correctly and to ensure there is a general understanding of what is expected from the beginning. It is good practice to include a copy of the agreement and a sign-off sheet if multiple parties are involved in the review. This way, you know everyone has seen and reviewed the MOA before signing.
- Step 4: Finalize the Agreement. This is when any notes, changes, or additions from the reviewing parties are incorporated into a final draft. Again, sticking with one person makes this part easier to handle. You will also need to determine who will be signing the MOA. It may be the case that there are parties involved in the review who will not be responsible for signing it.
- Step 5: Sign the Agreement. You will need everyone responsible for meeting the objectives to sign the MOA. You will need to create photocopied records for all signatories. In the case others are involved, you should provide copies.
Overall, you want the agreement to be understood by everyone involved, so use simple and easy-to-understand language. You should also try and compose it with positive language, describing what a party will do, not what they won’t. Finally, ensure a balance of expectations among the parties involved, so no one party shoulders more of the responsibilities.
Sometimes it’s easier to use the parties’ own words to draft an agreement of this nature. It needs to be specific but straightforward enough to answer the who, what, when, and how questions.
Here’s an article about creating an MOA.
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Memorandum of Agreement vs. Memorandum of Understanding
There are a few differences between a Memorandum of Agreement with a Memorandum of Understanding (MOA) that are worth noting.
- An MOU is not legally binding in most cases
- An MOA is a legal agreement
- An MOU can be used for simple agreements not involving money
- An MOA is reserved for more complicated agreements than involve exchange of money for services
- An MOU includes a simple statement of goals – like a formal handshake
- An MOA uses legal language to create a statement of “general understanding”
Here’s an article about MOAs vs. MOUs
Is a Memorandum of Agreement Legally Binding and Enforceable?
A memorandum of agreement (MOA) is a legally binding and enforceable type of contract. When two parties enter into an MOA, the MOA is a formal understanding of what is expected between the parties. It includes agreed objectives and assigns risk.
In the case of a memorandum of understanding, the MOU serves to formalize a goal between two parties without making it legally binding. An MOU is similar to a handshake, where the integrity of both parties is the only binding force involved.
The MOU is usually a good first step to a legal agreement, but in and of itself is not legally binding. However, there are cases in which a clause within the MOU renders it legally binding.
Look for these key elements in an MOU; they make it legally binding.
- An Offer. If an offer is included, there is an expectation, usually of money or exchange of service. But, again, language like this in the MOU would make it legally binding.
- Acceptance of Offer. If an acceptance is made, as noted above, it usually means money will be exchanged for services. If that offer is accepted, it is legally binding.
- Legally Binding Intent. Again, similar to the exchange mentioned above. Any language indicating legally-bound intention in the MOU makes it subject to liabilities.
- Consideration. If there is a portion that outlines what each party can expect to receive from the agreement, monetary or otherwise, it is legally binding.
When Would You Use a Memorandum of Agreement?
Memorandums of agreement are regularly used in business and even treaty negotiations.
In business, they can be used for situations such as:
- Leasing facilities, land, or equipment
- Service contracts
- Asset purchases
- Non-disclosure agreements
- Technical training
Additionally, governments make use of MOAs to establish treaties between countries. These agreements require review in the United Nations Treaty Collection to determine whether they can be legally binding and avoid “secret diplomacy.” However, many of these forms of MOAs are made, and continue to be held, in confidence. The draw, for the government, of the MOA over other formal options is that they can be made without legislative approval, which makes the process much simpler to create.
Get Help with an MOA
When considering any potentially binding agreement, like a memorandum of agreement, you should enlist the help of a trained lawyer. An experienced lawyer can review and ensure you fully understand the implications of what you are signing before you sign.
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