How to Write a Memorandum of Understanding?

Introduction

The foundation is the stepping stone to create anything of value. Such a foundation acts as a scope of agreement and defines the future course and scope of negotiations. The crucial element to constitute such a foundation is a Memorandum of Understanding. It signifies that the parties share a common goal and have reached a common understanding to execute that goal. 

Memorandum of Understanding

It signifies that the undersigned parties have reached an understanding and wish to proceed further.

What are the advantages and disadvantages of a memorandum of understanding?

Advantages of a MOU

1.    Helps in finding a common goal

In this competitive and uncertain environment, it is essential for both parties to know their desires and wants from the agreement. 

A MOU can serve as one of the best assets to find such a common goal. Although it is not legally enforceable (unless agreed otherwise) it still helps in determining common goals.

2.    Reduces Uncertainty

Businesses nowadays are functioning in a high-risk environment and therefore they possess a risk of being occasionally uncertain and hazy. This can lead to unwavering commands and a lack of certainty. In such a scenario, the memorandum of understanding functions as a great tool to be fixated on realistic goals and reduce the chances of uncertainty. The lack of ambiguity in businesses from the initial stage is essential for a prolonged relationship.

3.    Reduce the Existing Agreements

During the negotiation, two or more parties are likely to reach an agreement on some terms and conditions that will be included in the subsequent contract. The MOU becomes useful at this point.

Even though the document does not possess legal capacity it is essential because it helps in determining the initial goals and state of mind of the parties during the negotiation phase.

Disadvantages of a MOU

1.    Non - Binding in Nature 

The MOU is a non-binding agreement, which implies that none of the parties is liable for the consequences of non-adherence to the previously agreed terms. Unlike, a MOA (Memorandum of Association), the MOU (Memorandum of Understanding) cannot be challenged in a court of law. 

2.    Causes Prolonged Negotiation

When both parties negotiate the terms of the contract there is a probability of hassles which may cause an issue in the event of a time constraint.

What is the difference between a MOU and a MOA?

What elements should a memorandum of understanding include?

Since an MOU is required to describe that the parties intend to contract and have reached an understanding, therefore it should contain details such as the date of the contract, details of the parties to such contract, the purpose of forming such a contract, the proposed date when such agreement between the parties will be effective. It should be clear and concise and shall contain the aims that the parties to such an agreement are trying to achieve.

Are MOUs legally binding?

A Memorandum of Understanding’s legal implication depends upon the signatories to the agreement. If the parties are of the understanding that such MOU does have a legal implication and can serve as a subset for future negotiations then it can act as a legally binding instrument. 

In general parlance, the memorandum of understanding serves as an instrument that defines the scope of future negotiations between the parties to such an agreement.

How to Write a Memorandum of Understanding?

To draft an MOU, a person should keep the following points in mind. 

An MOU shall contain the names of parties, the motto of their coming together, details of the project they are agreeing to work on together, and the roles and responsibilities of each party to the said agreement. While it does not possess legal force in every scenario, it is still a crucial element of an organization’s foundation.

It should be ensured that the parties have reached to a common understanding and only those objectives should be constituted in a MOU, for which the signing parties have agreed to in the same state of mind and the same sense. 

Conclusion

Above everything else, it should be kept in mind that executing a memorandum of understanding is compulsory. The company should never downplay the advantages of using a memorandum of understanding.

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Author:

Disha Chauhan
Delhi, India
Campus Law Centre, University of Delhi, Final Year Law