The memorandum of understanding is a formal document signed by at least two parties involved in an agreement.
The document outlines the duties, rights, and obligations of each signatory. MOU lets both parties understand that they are on the same page and that all terms of the agreement will eventually be completed to their satisfaction.
Parties to an agreement often have to have preliminary discussions to define the terms of the transaction before entering into the agreement. These terms are written down in a document referred to as a memorandum of understanding (MOU). Therefore, unlike a contract, an MOU serves to define the general understanding between two or more parties but does not offer a legal framework for resolving disagreements and disputes.
Rather, it is designed to be used as an agreement where the parties anticipate that they will cooperate on certain matters in the future but do not want to form long-term relationships or need specific agreements in place. An MOU will, therefore, typically precede a future contract.
Most MOUs are written with the intent to allow for updates to be made later on, and therefore some people consider MOUs to be “water-tight.” However, these agreements cannot usually be changed without notifying both parties of changes that need to be made.
A memorandum of understanding is alternatively known as a letter of intent. Note that an MOU is not legally enforceable. However, it can become a binding document once signed into effect by the parties involved. This article will discuss the usage of an MOU template, how to prepare an MOU, its components, and other essential details surrounding MOUs.
Where to Use an MOU?
Memorandum of understanding is widely used in the business community and other sectors. In the corporate setting, an MOU is used in business transactions where both parties are willing to cooperate on a future project or transaction but do not want to enter into a formal contract.
A typical example of this is when an organization/company and another party enter into a memorandum of understanding for cooperation on research and development with another organization/company. MOUs are also used by individuals and organizations to outline terms, such as a payment schedule, that were not specified in a pre-existing contract. Additionally, an MOU can be used as an addendum to an existing contract where it outlines the conditions of a transaction not included in the original contract.
A customized MOU template can be easily made, filled, and used multiple times. This is why using a pre-made MOU template is preferred over making one from scratch. Government agencies are also frequent users of memorandum of understanding templates. Both inter and intra-agencies use MOUs to enter into a defined understanding of different issues such as trade, resolving conflict, joint development projects, etc. Such types of MOUs are deemed as types of treaties under international law.
MOUs are popular and embraced by government bureaucrats as they are less formal and offer more flexibility than contracts. However, MOUs are less embraced in law due to their legal ambiguity. Lastly, businesses and individuals can use an MOU to offer information on a project they are involved in. Such an MOU is referred to as an information memorandum or offering memorandum.
All businesses, companies, and governments prefer using pre-made MOU templates. These templates are developed to help users make the process of creating an MOU easier, especially for people who have little to no experience in this area. Since the template has already been created and tested, users can be sure that the format is correct and will follow the necessary steps for such an agreement.
How to Write a MOU
A memorandum of understanding will differ from one project or transaction to another. However, the process of creating an MOU can be summarized in the following general steps regardless of the document’s purpose.
Step 1: Planning phase
Before starting to write, MOU parties involved must first obtain information and make a plan on what issues are to be negotiated. During this phase, important documents or materials are gathered. The creator or author should then ensure that all participants of the agreement are in possession of whatever they need to be able to proceed with the memorandum of understanding process.
Step 2: Drafting phase
Once it has been ascertained that all parties are well prepared to proceed with discussions, the MOU should be drafted. An MOU template can also be used. The template to be used for this step will vary depending on the complexity or details of the project or arrangement. In order to save time, it is advisable to use a pre-made memorandum of an understanding template rather than creating the MOU from scratch.
Step 3: Negotiating phase
The next step is to have both parties make contact, negotiate and coordinate to come to an understanding. The MOU template created in step two should be consulted throughout this phase. Each party should review their draft versions of the memorandum of understanding and highlight what they agree on. Items of the MOU template that parties cannot agree on can be taken further up by legal counsel. Negotiations can proceed until the MOU terms have all been agreed on.
Step 4: Establish a timeframe for the MOU
Once terms have been agreed upon, it is necessary to establish a timeframe for the MOU. This involves establishing significant-end dates, milestones, MOU expiration dates, and termination rules. The timeframe established should be in a manner that will accommodate the process and obligations of each party. The time frame should be concise and clear. The parties involved may have to correspond and coordinate with other parties that are aligned with the agreement.
Step 5: Sign the final MOU
Lastly, all the parties involved must sign the document to signify that they agree with the terms presented. A template for a memorandum of understanding may contain spaces for signatures or a separate page for signatures if the document requires more space to accommodate signatures.
Components of Momorandum of Understanding
As much as the specifics of an MOU will vary from one MOU to another, most MOU templates contain common essential components that are often applicable in any situation where a memorandum of understanding is being used. Therefore, using a memorandum of understanding template effectively saves the time and effort that goes into creating an MOU from scratch.
Below are the various MOU components to look out for when selecting a template:
Date of agreement
A memorandum of understanding should be dated. The date of the agreement refers to the date on which the document is signed by all members of the parties involved and marks the effective date of the document. The date must be formatted to show the exact day, month, and year.
The MOU template must also provide the contact details of all the signatories or parties involved in the agreement. Contact information may include phone numbers, mailing addresses, email addresses, fax, etc.
Name of project
The memorandum of understanding should have a section to supply the name of the project in question. It is considered good practice to write the name of the project rather than the names of the parties/businesses involved. This is because two companies may be cooperating on more than one project.
Another item that must appear on the MOU is an overview of the project, transaction, or agreement at hand. The introduction should mention the key aspects of the agreement, for example, what is the type of project and what it involves. This section of any MOU template may state the objectives and goals of the project, transaction, or agreement. This way, any party reviewing the MOU can have an idea of what the agreement or project is about.
Purpose of MOU
The purpose of the MOU should also be clearly written down. The purpose is the main reason why the memorandum of understanding was created. It should be simple, clear, and concise. It can address the general project or a specific aspect of the project.
Terms of collaboration
The document must also have a section for the agreement terms and conditions to be listed in full. The terms of the MOU section should list what has been agreed upon by both parties in reference to each of them and their respective responsibilities within the contract. The terms should also be consistent and clear. This section will often be numbered and takes up a specific order of importance.
Meeting and reporting
The memorandum of understanding should also have some sort of reporting and meeting procedure or plan. This section should clearly outline when and how often meetings will take place between the parties involved and what will be discussed during these meetings. For example, a quarterly review of progress by all parties involved may be scheduled to discuss how things are advancing.
It is crucial to have a cooperation section. The cooperation section of an MOU template will outline the nature of cooperation between the parties. This section should be written to allow the parties to understand what they are expected to do and what they can expect of one another. The cooperation section is also where the parties should outline their expectations, rights, and responsibilities towards each other.
Typically, all the parties involved will often have to designate the resources they will commit to the project or agreement. Resources could include financial, human, and technological. The MOU template should outline the various resources from each party. This way, all parties involved can be clear on what they will provide in terms of resources to help move the agreement forward.
Ordinarily, there have to be people designated to oversee the execution of a project or implantation of the agreement. Therefore, a memorandum of the understanding template should provide a section where the names, contact details, and roles of people assigned to oversee day-to-day operations can be added.
The MOU template should have a disclaimer that clarifies that all the stipulations of the document ought to be legally enforceable within the respective jurisdiction – state and federal laws. This will often be given in a statement.
Conditions of alteration or termination
A section that guides the parties involved on what to do should it be necessary to terminate, amend or alter the MOU should also be provided. Often, there will be terms and conditions listed that can prompt the alteration or termination of the memorandum of understanding.
A dispute resolution section should also be provided. This section should address how disputes can be resolved between parties involved in the agreement. It should specify the process for resolution and how to implement it. Some dispute resolution methods are mediation, arbitration, and legal action.
Signatures with date
The last section of any memorandum of understanding template is where all parties represented on the document can sign and state their respective agreement to each other. This section will provide the names, phone numbers, and roles of all those who have signed on to the MOU. In a situation where a company is using an MOU, the CEO, manager, attorney, or official representative can sign the document. This is a crucial step, as, without it, no enforceable legal obligations will be created as a result of signing an MOU.
Fee MOU Templates
The process of creating a memorandum of understanding usually requires individuals’ time and energy. Therefore, MOU templates help save these valuable resources by providing an organized way to create effective MOUs. You can download such templates from our site for free. These templates are professionally designed to show the appropriate format; they are readily downloadable and easily customizable to suit different scenarios.
There are certain legal considerations that any business or individual using a memorandum of understanding should keep at the back of their mind. Firstly, it is imperative to note that the document will not hold up in court if an agreement or provision does not appear in the memorandum of understanding.
Therefore, for the MOU to be legally enforceable, it should clearly identify the parties involved, the document must be identified as an MOU, the intention or purpose of the MOU must be explicitly defined, a consideration (financial obligation) must be applicable, and there must be an attestation to the contents of the document through signatures from all the parties involved. Therefore, language is a huge consideration when it comes to the legal enforceability of an MOU. Precise legalese backed by consideration can make the document legally enforceable.
However, note that an MOU as a document is not legally binding. Therefore, it is advisable to add the following statement – “This MOU is in no way a legally binding contract between the aforementioned parties” – to ensure this is the case.
Signatories to an MOU must also consider legally enforceable clauses such as Privacy Agreements or NDAs within the MOU. Even though a legally enforceable clause in the document does not imply the entire document is legally binding, breaching such clauses may be liable to litigation.
Frequently Asked Questions
An MOU, just like a contract, is an agreement between two or more parties but differs in that an MOU is not legally binding or enforceable, unlike a contract. An MOU is, infact, the first step in creating a contract.
An MOU is, in some cases, referred to as a letter of intent. Despite the similarities, the documents are different in that an MOU can be legally binding if the correct legalese is used and consideration is involved. However, a letter of intent can never be legally binding. As a result, MOUs will often be used before actualizing a contract, while a letter of intent is used to initiate quick resolve to an issue.
A partnership agreement is more specific than an MOU. A partnership agreement is a more formal type of agreement between parties detailing the division of roles, responsibilities, and profits in a given project or business venture. Consequently, a partnership agreement will hold more weight in court than an MOU.
In most cases, it is not. However, in some cases, an MOU may be legally binding. Consideration and legalese are often the determining factors of whether an MOU is legally binding or not. Therefore, in some jurisdictions, the memorandum of understanding is legally binding between the parties involved, whereas it may not be considered legally binding in others. In either case, it will still serve as a record of the agreement for all parties involved.