A Memorandum of Understanding (MoU) is an interim step in setting up an agreement between two or more parties. In some jurisdictions an MoU is considered a legal document; in others it is considered a non-binding statement of the interests of each of the parties. To be on the safe side, the parties should explicitly state whether their MoU is binding or simply a preliminary step toward establishing an agreement.
MoUs are generally considered a sign of serious intent and the first step toward a legal contract. They can be drawn up quickly and serve as a basis for further negotiations. If the agreement is not legally binding, there is no need for a lawyer to draft the MoU.
The language of the agreement is more business-like and much less legalistic than a contract. However, the elements of an MoU are much the same as the elements of a contract. They include:
Names of the parties to the agreement – The parties to an agreement may be two or more people or legal entities.
Date of the agreement – The agreement should note the date the agreement was signed.
Nature of the substance of the agreement – This section could be several paragraphs long. The nature of the agreement explains in summary form why the parties are making the agreement. It might even have a discussion of the course of events that led up to the agreement. This section should provide the readers with an explanation for the rationale and motivation for the parties to come together to form this agreement.
The contributions each party is to make to the agreement – Many MoUs don’t call for the parties to make financial commitments to the other parties. Instead, they could call for other types of contribuitons such as the use of equipment, the provision of expertise, access to valuable contacts or mailing lists, joint participation in marketing events, the use of a venue, an option to do business, or any other valuable contribution.
The types of benefits each party expects to derive from the agreement – Although most agreements lead to benefits expressed in financial terms, there are many other types of benefits. The benefits to one party could be the contributions of the other party. The agreement should explicitly state the benefits each party expects to receive from the eventual agreement.
The term of the agreement (starting and ending dates) – An MoU could be time limited or it could be on-going. In either case, the term of the agreement needs to be stated.
The next steps – Since the MoU is a formal statement that should lead to a legally binding agreement, the agreement should state the likely next steps each of the parties needs to complete in order to bring the agreement to closure as a contract. It should also state the time frame for those steps.