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Memorandum of Understanding

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What Is a Memorandum of Understanding?

A memorandum of understanding (MOU) is a written agreement between parties that expresses their aligned will. This type of document also details the intent of a common line of action. A memorandum of understanding can be bilateral (between two parties) or multilateral (between more than two parties).

You can think of a memorandum of understanding as a way for all parties to express that they agree to proceed with their mutual goals. An MOU indicates that the parties have reached an understanding and are ready to move forward. Though an MOU is not legally binding, it serves as a serious declaration that a binding contract is imminent, and it may include some binding provisions if the parties choose to do so.

On the scale of formal agreements, a memorandum of understanding is less formal than a contract but more formal than a handshake. A memorandum of understanding may sound a lot like a contract, but there are significant differences. For example, a contract is a private written agreement, and unlike an MOU, it is legally binding and enforceable by a judge.

The memorandum of understanding document is often found in international relations, used as a companion or alternative to a formal treaty. However, it is a common device in business negotiations as well.

Other Names for a Memorandum of Understanding

You may see this type of document referred to by a few different names. Common names for a memorandum of understanding include:

  • MOU
  • MoU
  • Memorandum of Understanding Form
  • MOU Agreement

When Should You Use a Memorandum of Understanding?

Here are a few common reasons for using an MOU:

  • You own a business and plan to partner with another business.
  • You own a small business and frequently partner with others.
  • Another business has asked about working with your business.
  • Your company and another business want to work on a specific project together.

Memorandum of Understanding Templates

Purchase and download templates drafted by lawyers in our network that match your needs.
Joint Venture MoU
Used for potential Joint Ventures or Business Partnerships.
Service Agreement MoU
Used for potential Service Agreement with new customer.
Outsourcing MoU
Used for potential outsourcing agreement for new vendor.
Asset Purchase MoU
Used for potential Asset Purchase of new asset.
Share Purchase MoU
Used for potential share purchase of existing shares.
Business Relationship MoU
Used for potential new Business Relationship with another party.
*By purchasing a template, you acknowledge that you have read and understood ContractsCounsel's Terms of Use.

Is a Memorandum of Understanding Legally Binding?

Although an MOU is a formal document, it is typically not legally binding. Instead, the MOU is used to demonstrate each party's willingness to take whatever action is necessary to move a contract forward. The memorandum of understanding also defines the purposes and the scope of negotiations. In other words, the MOU document acts as the foundation for negotiations. These types of agreements are used frequently in:

  • Business opportunity discussions
  • Business opportunity negotiations
  • Treaty negotiations

A memorandum of understanding is the same as a letter of intent in United States law. MOUs are basically indistinguishable under the law from letters of intent and memoranda of agreement. These documents all discuss a mutually beneficial goal and the desire for the involved parties to complete this stated goal.

Here is some further reading about letters of intent.

Though MOUs themselves are not legally binding documents, they can include a clause that becomes legally binding. In those cases, a party that violates that clause can be held liable.

Key elements that may render a memorandum of understanding to be legally binding include:

  • An offer
  • Acceptance of that offer
  • Legally binding intention
  • Consideration (the benefit each party expects to get from the contract, such as payment or other compensation)

What Information Must a Memorandum of Understanding Include?

Though not limited to these details, a memorandum of understanding should include the following information:

  • Scope and intended action of the memorandum of understanding
  • Information about the project
  • Name of parties involved in the agreement
  • Respective responsibilities of the involved parties

The MOU should also include certain key facts, including:

  • When the agreement begins
  • The length of the agreement
  • When and/or how any party involved may terminate the agreement

Some MOUs also include contact information for the parties involved as well as potential dates for performance reviews.

How Does a Memorandum of Understanding Work?

Before preparing the document, the parties who are creating a memorandum of understanding must reach an understanding that all parties accept. Everyone involved should have clear information about the important stances each party holds. This way, the parties can create a complete and effective MOU document.

To create a memorandum of understanding, both (or all) parties typically first prepare their own MOU documents that discuss:

  • Ideal expectations
  • Desired outcomes
  • Any essential outcomes that they would not compromise on
  • How they believe the other stakeholders can benefit from the memorandum of understanding

A memorandum of understanding serves to demonstrate each party's initial position before entering into negotiations.

Memorandum of understanding

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Advantages and Disadvantages of Creating an MOU

A memorandum of understanding comes with both benefits and drawbacks for the parties creating the agreement.

Advantages of an MOU include:

  • Clear objectives: A memorandum of understanding allows all parties to establish their mutual intentions. Parties can clearly state all of their objectives and goals.
  • Reduced uncertainty: An MOU typically makes the objectives and expectations of all parties very clear, so the document helps prevent potential future disputes from occurring.
  • Foundation for the future: The memorandum of understanding document already outlines terms and objectives, so you can easily use this document as a foundation for a binding contract in the future.
  • Ease of exit: On the other hand, if any party involved in the agreement feels that their goals and objectives are not being met, then they can easily end this type of agreement since it is not legally binding at the MOU stage.
  • Paper trail: Once a memorandum of understanding is finalized, it creates a clear record of the terms included in the negotiations.

The major disadvantage of a memorandum of understanding is that it is not legally binding. As a result, an MOU makes it very easy for any involved party to either exit the agreement or not meet the outlined requirements since these actions don't typically have consequences.

Although a memorandum of understanding is not a legally enforceable document, it is consistently viewed as a significant step. This is because drafting an effective MOU document requires all parties to put forth time and effort. The parties creating a memorandum of understanding must come to a mutual understanding, learn about what is most important to the others involved, and agree to move forward.

Uses of a Memorandum of Understanding

MOUs may come into play in a few sectors, including:

  • Private sector/private enterprises: A memorandum of understanding generally serves as a non-binding agreement during business or private enterprise dealings. MOUs are created without a legally enforceable or formal contract. In these situations, the MOU covers:
    • Responsibilities of all parties
    • Requirements of all parties
    • Terms and details of the agreement
  • Government and public affairs: MOUs may be used within government departments as well.
  • Public international law: MOUs are categorized as treaties on an international level. Therefore, they must be reviewed in the United Nations Treaty Collection. Especially when it comes to treaties, the intent of the parties creating the MOU and the positions of signatories must be presented to determine if the agreement is legally binding. The exact wording used throughout the agreement also comes into play when determining the MOU document's legality.

When signing a memorandum of understanding, it is important to create a clear document that all parties can agree to and understand. That's why it's so important to work with an experienced lawyer who can make sure that your MOU clearly states your goals, intentions, and expectations.

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Samuel R. on ContractsCounsel
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Samuel R.

Attorney
Free Consultation
Phoenix - Arizona
5 Yrs Experience
Licensed in AZ, PA, UT
Widener University Delaware Law School

My career interests are to practice Transactional Corporate Law, including Business Start Up, and Mergers and Acquisitions, as well as Real Estate Law, Estate Planning Law, Tax, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I currently serve as General Counsel for a bioengineering company. I handle everything from their Mergers & Acquisitions, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing expert specialized legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I was selected to the 2024 Super Lawyers Southwest Rising Stars list. Each year no more than 2.5% of the attorneys in Arizona and New Mexico are selected to the Rising Stars. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, mergers and acquisitions and also trademark registration and licensing.

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Rene H.

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I am an attorney licensed in both California and Mexico. I offer a unique blend of 14 years of legal expertise that bridges the gap between diverse legal landscapes. My background is enriched by significant roles as in-house counsel for global powerhouses such as Anheuser-Busch, Campari Group, and Grupo Lala, alongside contributions to Tier 1 law firms. I specialize in navigating the complexities of two pivotal areas: AI/Tech Innovation: With a profound grasp of both cutting-edge transformer models and foundational machine learning technologies, I am your go-to advisor for integrating these advancements into your business. Whether it's B2B or B2C applications, I ensure that your company harnesses the power of AI in a manner that's not only enterprise-friendly but also fully compliant with regulatory standards. Cross-Border Excellence: My expertise extends beyond borders, with over a decade of experience facilitating cross-border operations for companies in more than 20 countries. I am particularly adept at enhancing US-Mexico operations, ensuring seamless and efficient business transactions across these territories.

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Fabian graduated with honors from the University of Miami School of law, where he served as the articles and comments editor for the law school's Race and Social Justice Law Review. He received the John F. Evans Memorial Scholarship Award for excellence in the university's Litigation Skills Program and the HOPE Pro Bono award for completing more than one hundred (100) pro bono hours. Additionally, he received the CALI Excellence for the future award in Sports Law. He focuses his practice on corporate, real estate and immigration matters. Fabian has experience representing luxury hotel owners and operators in connection with the drafting of hotel management agreements, restaurant license agreements, and complex restaurant leases for domestic and international projects including: Nobu Tulum, Nobu Punta Cana, Nobu Orlando, Nobu Chicago and the Nickelodeon Hotel in Riviera Maya, Mexico, among others. He has represented clients in the commercial real estate industry in connection with the drafting of purchase and sale agreements, promissory notes, and mortgages. Lastly, Fabian routinely counsels corporate clients in connection with the drafting of articles of organization, operating agreements, and other documents related to acquisitions, restructurings and investments.

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Partnership

Memorandum of Understanding

Colorado

Asked on Mar 29, 2021

When is it appropriate to use a memorandum of understanding?

I am discussing a partnership with another company and we will be doing a pilot before integrating our software. The other party has asked us to provide a partnership agreement. I read about memorandum of understandings and wanted to learn more about what they are used for.

Jane C.

Answered Mar 29, 2021

You may use a Memorandum of Understanding when you want a written agreement that is less formal than a contract yet still outlines the terms of your partnership. Disclaimer - This information is provided for general informational purposes only. No information contained in this post should be construed as legal advice and does not establish an attorney-client relationship.

Read 1 attorney answer>

Memorandum of Understanding

Colorado

Asked on Mar 26, 2021

When is it appropriate to use a memorandum of understanding?

We are trying to create a partnership with a company and wanted to know if using a memorandum of understanding was sufficient or if we need to create a partnership agreement. This is a pilot partnership and the other party is suggesting a memorandum of understanding.

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Recent Project:
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Location: New York
Turnaround: Less than a week
Service: Contract Review
Doc Type: Memorandum of Understanding
Page Count: 8
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Bid Range: $395 - $1,200

ContractsCounsel User

Recent Project:
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Location: Georgia
Turnaround: Less than a week
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Doc Type: Memorandum of Understanding
Page Count: 8
Number of Bids: 2
Bid Range: $335 - $500
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