As the name suggests, a MoU is nothing but a document that establishes the agreement between two or more parties on a certain clause, condition, or event. It shows the consensus between the parties and indicates collaboration between them. It is generally used when two or more parties wish to offer something to the other party and also want to receive something in return. In simple words, it is like a mutual give and take document. When parties cannot create legally enforceable contract or cannot imply legal binding, they prefer to go for Memorandum of Understanding. It is also known as ‘letter of intent’ and is often treated as an alternative to the ‘gentleman’s agreement
MoU helps in ensuring that all the parties are in agreement with the clauses slated therein. Though not a legal document, it can serve as a proof in the court of law if any of the party fails to meet the obligations. It is the first stage in the formation of a formal contract. The main purpose of a MOU is to make sure that all parties know that they are in agreement with each other, and it also serves as a binding contract. Whether in a private business house or government organization, Memorandum of Understanding has become an integral part of many partnerships and agreements.
To make the concept easier to understand, here is an example of an international MoU of the Oil-for-Food Program, created in 1995. This MoU was signed by United Nations and Iraq, wherein, the later was allowed to sell oil to the entire world in exchange of humanitarian help for its civilians, including food, medicines, etc. The MoU lasted only till 2003 because, according to United Nations, Iraq started to rebuild the military which was not allowed by the MoU and hence it was terminated. The MoU doesn’t have to be always signed by higher authorities or large enterprises, smaller companies can also sign MoUs for business partnerships or joint ventures. Many government agencies and organizations also sign MoUs for interdepartmental co-operation. Following is a template of MoU which will help you to draft one on your own.
Memorandum of Understanding
Name of Party A
Name of Party B
We, Party A and Party B, have come together to collaborate and to make an agreement for MoU for a JV. The partners entering the MoU have agreed to form a collaboration and so agree to the following articles and clauses:
Purpose and Scope
Mention the statement of purpose and give a precise yet clear description of expectations. You may also justify the reason behind undertaking a collaboration.
For example: To start a joint venture for the production of electric cars.
Goals and Objectives
Enlist the vision or goals which the partnership in question wants to achieve.
For example: Technology sharing
Give a clear background of how the partnership came into existence and how it will benefit the partners as well the industry. This section can also mention about the selection of consortium members to collectively look after the business.
Party A: Name, title and organization
Party B: Name, title and organization
Roles and Responsibilities
Enlist a detailed point to point responsibilities of all the partners and the consortium members.
Commencement and Operations
Give details of the operations of the joint venture and a strategic management plan.
Governance Structure and Reporting
In this section, give a brief description of the structure of governance, and a detailed account of the reporting system and responsibilities.
Issues of Mutual Understanding
Enlist the issues of mutual understanding and consensus, and select a chairperson for the consortium members.
Decide and describe which party makes the payments. Also, mention the amount and frequency of payment, and the duration for which these payments need to be made.
Give the exact details of profit-sharing. Also, mention in detail the list of financial undertakings and responsibilities.
Mention the frequency, place and time of meetings, and the name of the person chairing the meetings. Also, note the name of the partner who bears the responsibility for provision of agenda and minutes of meetings.
Communication and Information Sharing
Describe in detail how the flow of communication will be directed and how the sharing of information will take place. If there is a no privacy or confidentiality clause it is essential to mention it here.
Describe a brief mechanism which will enable the partners to undertake dispute management and resolution of conflict. This is essential for immediate redressal of issues.
Review and Evaluation
Mention in detail, the review mechanism for evaluation of planning, actions and results. Enlist the deadlines and completion of targets. Describe the steps taken for strategic evaluation of operations. Explain about the collation of quantifiable data to support the success rate. Mention about a re-assessment strategy if the need it felt.
Mention a list of resources which will be required for the JV to function.
Mention the articles that can be negotiated later or are subject to change under specific conditions.
Non Changeable Articles
Enlist the articles that are rigid and would not be considered for any kind of change in the future.
Term of Agreement
Mention the exact number of years for which the collaboration exists.
Termination or Amendments
Enlist the clauses regarding termination.
Enlist the clauses regarding amendments.
If the MoU has a specific trial period, then it is essential to note it here.
Revival Date of the MoU
Mention the date for revival of MoU or discussion.
Mention any other details like:
This MOU is not a legal undertaking. The signatories will abide by the terms to reach the objective slated in the MoU, by striving to do their best.
Partnering Organization: A
Partnering Organization: B
Other Sections in a MoU
Always remember that the template is subject to change as per the nature of the agreement. You may need to add or remove some other sections as per your needs and requirements. Here is a list of few more details which can be included in the MoU.
• Management structure
• Intellectual property clause
• Costs and expenses
• Termination by consent
• Sales and transfers to third parties
• Logistic support
• Quality assurance
Tips for an Effective MoU
✓ Hold a meeting of all the parties involved and discuss a plan.
✓ Draft a purpose statement by identifying the goals of the MOU.
✓ Decide and freeze a timeline for the MoU, outlining the date of commencement and ending.
✓ Determine the responsibilities and tasks of all the parties.
✓ Do not forget to take the authorization and sanctions for the same.
✓ Be sure about the clauses of the MoU before signing it.
✓ The document may bear logos of all the parties.
Apart from this, make sure that you use a simple and lucid language throughout the MoU, so that even a third party would be able to read and understand the document easily. You may even have to translate the document if a foreign party is involved. The Memorandum of Understanding is a document which describes an agreement between two parties and sets out the parties’ common goals and courses of action to be taken for a particular purpose. It is used by parties who want to enter into a project together, but do not want the rigid formalities of a legally binding contract. This template is customizable and you may modify it to suit your specific usage.