Memorandum of Understanding (MOU) (2024)

A memorandum of understanding (MOU) outlines a preliminary agreement between two or more parties in a formal document. It communicates the mutually accepted expectations of a potential purchase, negotiation, or other transaction.

Depending on the agreement’s scope, the MOU can be between individuals, organizations, or governments. It describes the principal terms of a proposed commitment and signals that a binding contract is imminent.

Elements to Include in a Memorandum of Understanding

Here are some common elements to include in an MOU:’

• Governing law: List the state’s laws that will govern the agreement.
• Date: Include the month, day, and year to designate the effective date. Indicate the expected duration if the parties have a timeframe in mind.
• Parties’ information: Identify the “First Party” and “Second Party” by writing their full names, addresses, corporate/organizational titles (if applicable), and any other details.
• Purpose and objectives: Clearly define the purpose of the parties’ agreement and the goals they want to achieve.
• Expertise: Describe the parties’ scope of collaboration, including the unique experiences each can contribute.
• Responsibilities: Outline what each party must do to fulfill the agreement
• Resources: List the material, financial, and labor resources each party will provide.
• Miscellaneous provisions: Insert provisions relating to other conditions, including dispute resolution, termination procedures, and severability. You may also wish to add a non-disclosure agreement section to prevent one party from sharing sensitive information they may receive as part of the collaboration.
• Signatures: Obtain signatures from both parties involved, ensuring they include the date they sign.

When to Use a Memorandum of Understanding

A memorandum of understanding provides evidence of intent and good faith and helps set expectations with another party. Here are some instances when you’d benefit from using an MOU:

Here are some instances when you’d use a memorandum of understanding:

• Entering a Partnership of Collaboration: An MOU can help parties in the early stages of discussing a partnership, project, or collaboration. It can let them outline the basic structure of their agreement before finalizing a legal contract.
• Clarifying Roles and Responsibilities: An MOU can minimize misunderstandings, as it clearly defines each party’s roles, responsibilities, and expectations.
• Documenting a Non-Financial Agreement: If an agreement doesn’t require significant financial transactions and focuses on cooperation instead of exchanging money, an MOU can offer a formal outline for the expected terms.
• Initiating a Joint Venture: If entities or organizations want to work together on cooperative efforts, research projects, or joint ventures, an MOU can record the terms of the collaboration. It can explain conditions like project goals, intellectual property rights, and resource sharing.
• Entering an Inter-Departmental or Inter-Agency Agreement: Some non-profit organizations, departments, or government agencies may want to work together, and they can document their collaboration when writing a legally binding contract isn’t appropriate or necessary.
• Establishing Precedents for Future Negotiations: An MOU can serve as the foundation for future negotiations, as it records the preliminary agreement and intentions that the parties can later expand upon.
• Entering International Agreements: If individuals or entities from different countries want to collaborate, they may find their legal systems and enforcement mechanisms differ. An MOU can help them outline their intentions to work together and set the groundwork for collaboration.
• Testing Pilot Projects: If an individual or entity is unsure of collaborating with another party, they can use an MOU to test a pilot project and determine if future collaboration is the right decision.

How Does a Memorandum of Understanding Work?

Step 1 – Initiation and Negotiation

The first step in the process is when the parties meet to identify a mutual goal or interest that could benefit from collaboration.

They participate in discussions and negotiations to describe their resources, objectives, and expectations for the partnership or project.

Step 2 – Drafting the MOU

Referencing their initial discussions and negotiations, both parties work together to draft the MOU and capture the agreed-upon terms. The terms should include the agreement’s purpose, each party’s roles and responsibilities, the resources each party will contribute, timelines, and any specific clauses or conditions.

Step 3 – Review and Revision

Each party should review the MOU and make revisions as necessary. This stage invites feedback to ensure the document accurately reflects the agreement. Each party can discuss any concerns about potential legal implications or binding clauses with an attorney.

Step 4 – Signing the MOU

Once both parties acknowledge the MOU’s terms and agree on its included provisions, each party or their representative can sign it. By adding their signatures, the parties show their commitment to the MOU’s terms.

Step 5 – Implementation

After signing the memorandum, both parties should implement its terms and fulfill their expected responsibilities and roles.

This document acts as a reference for the collaboration or project, ensuring that all parties stay on the same page with the agreed-upon terms and objectives.

Step 6 – Monitoring and Communication

Please note that because this document isn’t legally binding, the parties can make adjustments to their work processes as necessary. They should regularly communicate and monitor the progress of their collaboration. They can refer to the MOU to address any disagreements or clarify ambiguities.

Step 7 – Completion of Termination

The MOU remains effective until the parties complete their combined project or the MOU’s expiration date arrives (if it specified one).

If either party wants to exit the agreement, they should refer to the MOU’s termination terms so they can do so gracefully.

Step 8 – Transition into a Legal Contract

Depending on both parties’ goals, they may transition the MOU into a legal contract and formalize their collaboration.

This process involves writing a new document and including additional conditions, terms, and adjustments necessary for a formal, enforceable contract.

If both parties agree to the suggested terms, they can sign their new business contract into effect.

Memorandum of Understanding Sample

Download a free memorandum of understanding template as a PDF or Word file below:

Frequently Asked Questions