A memorandum of understanding (MOU) is a non-binding agreement used in professional situations as a way for two parties to express their intent in a negotiation.
Understanding what an MOU agreement is, what it includes, how to create a document template, and when you might need one can help you and other parties stay on the same page during important negotiations and business agreements.
Here’s everything you need to know about what a memorandum of understanding is and how you can create your own with jSign.
What is a Memorandum of Understanding?
A memorandum of understanding serves as a broad, non-binding outline of an agreement between two or more parties. These documents are used to express each party’s intentions.
Memorandums of understanding are commonly used when negotiating business transactions, creating new partnerships, participating in political negotiations, and similar situations.
You may also see an MOU referred to as a letter of intent (LOI) or a memorandum of agreement (MOA). These three documents are typically considered interchangeable as they serve the same general purpose.
While a memorandum of understanding is not binding, it does signal the willingness of the parties involved to move forward with a contract or agreement. You should always make sure to consult an attorney to discuss the language used in your MOU before sending or signing it.
You can view the MOU as a starting point for negotiations as it outlines the scope and purpose of the discussions.
When Should You Use a Memorandum of Understanding?
You should use an MOU agreement during the beginning stages of a transaction or negotiation with another party. MOUs are typically the first step toward formalizing an agreement and are used before creating and signing a binding contract.
An MOU outlines the principles, terms, and requirements that the parties involved are voluntarily agreeing to. It defines each party’s expectations and dictates how they will work together.
The goal of a memo of understanding is to ensure there is a mutual understanding of the transaction, making it easier to move forward into a binding contract that all parties are comfortable with.
What Does a Memorandum of Understanding Include?
A memorandum of understanding should include several key details that identify the parties involved, outline the terms of the mutual agreement, and establish the purpose of the agreement.
While not all MOUs look the same, they typically include the following information:
- Names and addresses of the parties involved
- Description of the project or transaction
- Responsibilities for each party involved
- Goals of each party
- Section for signatures
A memorandum of understanding may also include details such as a confidentiality clause, a process for resolving disputes between parties, and amendments if new circumstances change the nature of the agreement.
Remember that an MOU is a high-level overview of your agreement, meaning there’s no need to be overly specific when describing the details of the agreement. However, details should be clear and concise so that there is no ambiguity.
Advantages and Disadvantages of MOUs
The primary benefit of a memorandum of understanding is that it clearly establishes each party’s objectives and goals, making it less likely for disputes and other issues to arise in the future. An MOU can also serve as a blueprint for any future binding contracts that may be necessary.
Some may consider the biggest drawback of an MOU to be that it is a non-binding document. Depending on your point of view, this may be considered a benefit as it does not require any party to follow through with their stated responsibilities; however, it may be a drawback for parties that are committed to the agreement and are ready to move on to signing a binding contract.
MOUs can also take significant time and planning to prepare, and because they are non-binding, you may need to create a new MOU if one of the parties involved changes their requirements.
How Do You Write an MOU?
There are no specific rules or requirements for writing an MOU. In some cases, you might choose to write a high-level overview of the agreement, while in other cases, you might choose to write a more detailed explanation of the agreement and each party’s responsibilities. You may also consider leaving space to add bullet points as you collaborate with the other parties involved and decide to make ongoing amendments.
When writing an MOU, it’s always a good idea to consult with an attorney and have them review the language used in the document. While an MOU is not legally binding, its contents can still be used in a court of law, making it important to carefully consider what you write.
Why Is an MOU Important?
A memorandum of understanding is important as it allows each party involved in an agreement to clearly state their goals, responsibilities, intentions, and what they expect from the other parties.
Drafting an MOU is a great way to resolve any potential disputes and ensure all parties are able to come to a mutual understanding before signing a legally binding contract.
What’s the Difference Between an MOU and a Contract?
The primary difference between an MOU and a contract is that MOUs are non-binding. With an MOU, the parties involved are not bound by its terms. Instead, the document serves to establish mutual terms and goals. A contract, on the other hand, is a legally binding agreement that typically comes after the drafting of an MOU.
While both documents demonstrate an intent for multiple parties to enter an agreement, only a contract is legally binding.
Create an MOU Template Using jSign
With jSign, it’s easy to create an MOU template that you can use for current and future transactions. By creating a digital template, you can easily modify the document as needed, share it with others, and collect electronic signatures online — no paper required.
A successful MOU requires collaboration, and with jSign, you can keep all parties in the loop throughout the drafting process.
Save your business time and money by creating a memorandum of understanding online with jSign!