Memorandum of Understanding (MOU)

Definition - What does Memorandum of Understanding (MOU) mean?

A memorandum of understanding (MOU) is a document that describes a formal agreement between two parties. It is not a legal agreement, but it does indicate the establishment of a business relationship that will continue and likely result in a legal agreement such as a contract.

An MOU indicates that a legal contract will be forthcoming. This is more expeditious than other forms of documentation.

An MOU can also be put in place before the formalities of a contract when an agreement between parties has been reached but still requires written documentation.

MOUs can vary and be tailored to each organization’s or party’s needs. An MOU should state or describe:

  • Who the partners are and their contact information
  • What it is they are going to be working on, the background of the project and why the MOU is being entered into
  • The scope of the document and who will use what the MOU provides
  • Specified activities, if already determined
  • Implementation of activities
  • Funding issues
  • Each partys roles and responsibilities
  • A time line, if desired
  • Duration of agreement
  • A signature and date of signature by all of the parties agreeing to the MOU MOUs can be useful documents to get the ball rolling on major projects and can be used in any type of organization

The world of personal finance is cluttered with paperwork. Most of us donot realise the number of documents we sign to finalise various deals, from buying a pre-owned car from a friend to leasing out the house to a tenant.

While we realise the importance of going through every word of each document, do you know which one is legally binding and which one could be used by the other party to outsmart and swindle you? Surprised? In fact, there are documents that are not legally binding even if they are drafted by a lawyer and signed by witnesses.

Such a document is called a memorandum of understanding (MoU) and is actually just a means for two parties to reach a decision. It is used to gauge the intention of the transacting parties before a deal is officially signed between them and does not grant either of them any rights

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