A Memorandum of Understanding (MOU) is the sort of document you might scrawl on a bar napkin, outlining the next big innovation after a late evening. It’s a memorandum of understanding, a legal term that is a non-legally binding precursor document that records proposed terms between two parties during the negotiation stage. It is useful in recording what is to be included in the proposed agreement.
MOUs specify mutually-accepted expectations between two or more people or organisations as they work toward a common objective.
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Touchstones of MOUs:
- Generally not legally binding (however can specify certain clauses to be binding within MOU);
- They don’t deal with the exchange of money.
The reasoning as to why this document is generally not binding is due to the fact that neither party wants to deal with the ramifications of a binding agreement. If they were to seek this assurance of binding nature, they would seek out a ‘contract’.
A competent construction of an MOU will generally reflect diplomatic and creative analytical thinking. The document will also provide a mutually beneficial foundation that both entities can work from to achieve shared goals.
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What does a Memorandum of Understanding cover?
- Details of the proposed agreement;
- Obligations of both parties;
- Consideration for the proposed agreement;
- Options to include clauses for confidentiality, non-solicitation and/or exclusivity obligations.
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