MoU stands for Memorandum of understanding. MoU means, mutually agreed set of statements for the understanding. The MoU can be presented as an effective and technical tool for establishing clear objective and targets. The MoU is exchange of words between the parties, and the MoU can be enforceable if those words say so. It is the first stage of the making of a contract. To be legally operative, MoU must identify the contracting parties, spell out the subject matter of the agreement and its objectives, summarise the essential terms and must be signed by the contracting parties.
Binding or non-binding?
A MoU can be drafted to be either legally binding on the parties to the MoU or serve as a document that is not binding and only captures the intent of the parties. A legally binding MoU is useful when parties have already agreed on major aspects of the deal and do not want this understanding to change under any circumstances. It also ensures that the parties do not back out of a deal without facing any consequences. Often parties opt for a non-binding MoU as they wait to complete a due diligence exercise. This is a detailed investigation of a company and its results typically affect the terms of the deal materially. Parties therefore, do not want to enter into any binding documentation before the investigations are complete.
A MoU has been entered between parties who are about to enter into a contract. At the start of negotiations of this nature parties shares lot of information to each other. Since, no party will going to invest on your idea or company without having the complete information. In order to ensure that this information would keep secret from your competitor, MOU includes a comprehensive confidentiality clause. This confidentiality clause provides that all the information shared between the parties must be disclosed to any 3rd party.
- Covers Entire Relationship.
- It saves Time because it provides a framework to quickly negotiate agreements. Therefore, the same terms need not be repetitively negotiated for deals that are very similar to each other.
A Memorandum of Understanding (MOU) is a formal agreement between two or more parties. Companies and organizations can use MOUs to establish official partnerships.
An MOU helps the parties to clear the arrangements so as to speed up the process of negotiation in relation to the agreement. It is not intended to be a legally binding document. If you want a legally binding document then an MOU is not appropriate.
Agreement is any document which is enforceable by Law. You can have substantial rights in Agreement and not in MOU. MOU is a legal document describing a bilateral agreement between parties.
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