What is Memorandum of Understanding (MoU)

A memorandum of understanding is an agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract, Investopedia suggests.

The MOU can be seen as the starting point for negotiations as it defines the scope and purpose of the talks. Such memoranda are most often seen in international treaty negotiations but also may be used in high-stakes business dealings such as merger talks.

A memorandum of understanding (MoU) is a type of agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action, according to Wikipedia.

It is often used either in cases where parties do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. It is a more formal alternative to a gentlemen’s agreement.

The MOU, although a formal document, is not legally binding. It merely shows the willingness of each concerned party to take action to move the contract forward. In addition, an MOU brings about the definition of the purposes and scope of negotiations.

Hence, the document serves as the foundation for negotiations. Such types of agreements are commonly used in business opportunity negotiations and discussions and treaty negotiations.

The contents of an MOU include but are not limited to the scope and intended action of the MOU, the project, and the names of the parties and their respective responsibilities. Other contents include the length of the agreement, when the agreement begins, and when or how either party can terminate the agreement. Also, an MOU can contain contact information for the parties involved and possible dates for performance reviews.

In order to prepare a complete and effective document (MOU), the parties affected must first reach an understanding acceptable by each party and clear information on the important stances for each of the parties.

It is important to note that although MOUs are not legally binding, they may include a clause that can be legally binding, and violations of the clauses may result in the guilty party being liable.