In private enterprise, a memorandum of understanding (MoU) is a formal document between two (bilateral) or more (multilateral) parties that outlines general agreements related to future formal negotiations. It is not legally binding, yet is commonly thought of as a stepping stone to a contract that is legally binding. In addition to private enterprise, this document is often used among nations before signing treaties.
What Must Be in a Memorandum of Understanding?
A typical MoU is not exhaustive in its provisions and clauses, but it should contain the basics, like the names and contact information of the parties. The scope of the proposed project or endeavor should also be included in the MoU, as well as the responsibilities of all parties. If the parties want to assign a deadline for moving forward with a formal contract, they may also attach an informal statute of limitations clause in the MoU. The MoU is usually signed by all parties at the end of the document.
How Much Legal Weight Does a Memorandum of Understanding Carry?
Generally, an MoU does not carry clout in court and is therefore not legally enforceable. The legal durability of a typical MoU falls somewhere between a business contract or partnership agreement and a gentleman’s agreement (handshake agreement). However, if money changes hands as a result of terms informally agreed to in the MoU, a court might look to the memorandum in certain situations.
Do You Really Need an Attorney to Help Draft a Memorandum of Understanding?
We recommend you have an attorney at least scrutinize an MoU before signing it, as the terms agreed to in the document go a long way towards setting expectations for the formal, legally binding contract. Having your business attorney on board at the beginning can also help the two of you get on the same page moving forward, as well as signaling to the other parties that you are serious about getting an effective deal done. Also, you never know when the MoU may end up being relevant in court.
Some business leaders think of the memorandum of understanding as an afterthought, but drafting an effective one holds many potential benefits for entrepreneurs. During the process of creating your MoU, you are able to gain important insights about your potential commercial partners and their business habits. Trembly Law Firm is well-equipped to assist in drafting and negotiating memoranda of understanding and other business documents. Ready to partner with an experienced and proactive business law firm? Reach us today here or call us at 305-431-5678.