What is a Memorandum of Understanding?

A memorandum of understanding (MOU) is valuable for establishing mutual agreements between parties. It clearly outlines how parties will work together and define responsibilities and expectations. MOUs are often the first step before creating a formal agreement and binding contract. 

Whether engaging in a business partnership, collaborative project, or any other form of cooperation, this article will provide a step-by-step guide on how to draft a practical memorandum of understanding.

When should you use an MOU?

Memorandum of understandings are used before drafting the main contract in the early stages of an agreement. For example, in the United Kingdom, MOUs can be used to formalize school partnerships.

What are the benefits and drawbacks of a memorandum of understanding?

A memorandum of understanding (MOU) provides clarity for each of the involved parties on their first steps of working together, allowing stakeholders to gain a mutual understanding of the responsibilities of each partner.  However, one of the potential drawbacks of an MOU is that it’s not usually an enforceable, legally binding contract. The MOU does, however, create a paperwork trail outlining what has been agreed as part of negotiations, and it also sets out terms for cooperation. Essentially it’s a preliminary agreement that reduces uncertainty and the potential for disputes. 

What is the difference between a MOU and a MOA?

A memorandum of understanding (MOU) is a cooperative agreement between two parties that can include general terms and goals and is not intended to be legally binding. A memorandum of agreement (MOA) is a more detailed business document often created just before a legally binding contract. 

What is included in a memorandum of understanding?

Some key features will always be included in a memorandum of understanding, even though each MOU differs. This includes the names of the parties involved, the details of the project on which they are agreeing, the full scope of the project, and the individual roles and responsibilities. 

Here’s a guide to what you would put in a template for a memorandum of understanding. You can also create a template for signing using Docusign eSignature. With Docusign eSignature, you can create a template for MOUs and send it for signature immediately.

1. Date: Include month, day, and year, showing the date agreement was made when it goes into effect and the expected duration.

2. Parties involved: Provide the full legal names, addresses, and contact information of each organization or individual.

3. Purpose: State the intent to form a relationship between the parties and outline the purpose of the MOU.

4. Scope and objectives: Define the agreement's purpose in more detail. In this section, outline the scope of the agreement by defining its boundaries and limitations. Clearly state the objectives and goals you aim to achieve through the collaboration.

5. Terms of agreement: This defines what each party will bring to the agreement. Explain which roles are to be performed and who will perform them. Specify the responsibilities and contributions of each party involved in the agreement. Clearly define the tasks, deliverables, and timelines expected from each party.

6. Other terms and conditions: You may wish to use other clauses such as a method for termination, intellectual property rights, a non-disclosure agreement, or steps for dispute resolution.

7. Signature: You should add a signature to the template to allow all interested parties to sign.

Are MOUs legally binding?

Like the letter of intent, the Memorandum of Understanding is not a legal document. However, MOU elements such as the acceptance of an offer, the intention to be legally bound or even an exchange involving payment can make it contractually binding in law court.

This content is for general educational purposes only and is not intended, and should not be considered, legal advice. Laws frequently change and this information may not be current or accurate.  Docusign disclaims all warranties of any kind with respect to this material including merchantability, fitness for a particular purpose, or accuracy.  You should consult with a licensed attorney in your area for legal advice.