Everything you need to know about the Memorandum of Understanding (MoU)

A Memorandum of Understanding (MoU) is a type of written agreement where two parties (bilateral) or more than two parties (multilateral) are involved and formed to proceed or continue a business relationship. It is a declaration that the agreement is inevitable even if not bonded legally. An MoU contract explains the project, determines its scope, and identifies the parties, as well as details related to each party’s role and responsibilities.

There are four elements in an MoU, also known as the four corners; An offer, Acceptance of the Offer, Legally Binding Intention, and Consideration. Even though the MoU is not legally binding, it is an essential step for a company due to the time and effort it took in negotiating and drafting the appropriate document. This article will provide you with a detailed guide on the MoU agreement.

Types of Memorandum of Understanding

There are two types of MoUs and they are as follows:

• Bilateral Memorandum of Understanding

It is a type of MoU agreement that takes place between two parties and outlines their common goals and intentions. It is a non-binding document used when legal commitment is needed or possible.

• Multilateral Memorandum of Understanding

It is a type of MoU agreement where more than two parties are involved and outline the intentions and goals they want to achieve together. It is a non-binding agreement and no legal assistance is needed.

The Legal Considerations of a Memorandum of Understanding

The agreement must have the details mentioned below to be regarded as legally binding:

The name, address, and business of all the parties involved are to be provided if applicable and the MoU agreement must make it clear that it is not a contract by any chance.

The MoU agreement must specifically include the agreement’s goals, and separate sections for each party’s objectives and intentions must be added to the agreement.

It will also include the financial responsibilities such as who will be overseeing the finances and how they must be managed and the agreement must be signed by the parties involved.

The MoU will be considered a legally binding contract when all the clauses are included and can be enforced. It must also include the agreement’s terms, conditions, and considerations. 

The Features of the MoU Agreement

Let us discuss the features of an MoU agreement:

• The MoU should mention the party's meeting schedule such as meeting once or twice a month.
• The parties involved in signing the MoU should be identified by name and other relevant information, and the objectives and purpose of the signed agreement should be obvious.
• The memorandum must specify in detail how much capital contribution each party provides and the individual authority making the financial decisions. It should also mention the program or assignment and maintain its financial record keeping.
• The MoU may also outline who will be in charge of running the assignment regularly. It is essential to specify the role and duties of that position and the responsibilities and compensation along with it.
• The agreement must be dated and signed by the authorized individual of each party after being produced and approved by all the parties involved.
• It should also specify the commencement and ending of the memorandum and, the terms of the agreement between the parties involved along with the conditions on which basis the agreement can or will be terminated.

Advantages of MoU

Here are some advantages of the MoU agreement:

Minimizes Risk of Uncertainty

Negotiations in business can be challenging and uncertain at times. It can be hazy at the start of a business relationship between two parties and may also lead to disagreements with your business partner over the contract terms. The MoU provides a great way to reduce the risk of uncertainty and safeguard it and also reduces objectives and expectations. Setting clear goals during the negotiation can prevent disagreement between the involved parties. It reduces the risk of uncertainty while drafting the formal contract as the parties have already set and agreed upon the proposed terms.

The Easy Ending of the Engagement

The MoU facilitates positive relationships between the parties as the terms are already present. When you are unsure about engaging in relations with the other party you have to use the MOU agreement as it is the best place to start and establishes what the parties want to achieve from the agreement. Ending the agreement is easy if you know the objectives do not align with yours. A terminating an agreement a formal process should be followed and it can be complex, stressful, and costly at times.

Helps You Establish One Common Intention

Both parties must understand each other’s objectives and goals when dealing with a business and its challenges. The MoU is one of the best assets to have when running a business. If you do not understand the terms and conditions clearly, your business will most likely fail. It is necessary to set one common intention between both parties for all the agreements and engagements in the future.

Minimizes the Prior Agreements

Two or more parties will likely agree on some terms in the future contract when negotiating. This will only change when one individual party forgets or likes to turn from the terms and conditions. Even if the MoU is not legally binding it helps by recording what was available during the negotiation phase. It offers a proper understanding between the parties to a common objective. The MoU is beneficial as it allows all the parties involved to communicate secret information safely without any fear of it getting leaked.

Disadvantages of MoU

• Non-Binding Nature: Any party can withdraw from the MoU agreement at any time, as it is not legally binding.
• Limited Legal Protection: It does not provide the same level of protection compared to contracts.

Difference between an MoU and an MoA    

Let us discuss the difference between an MoU and MoA:

Why is MOU Important?

The MOU agreement is important as it establishes a plan for cooperation and collaboration between two or more parties. It can help in building trust and confidence between the parties and reduce the risk of disputes. MOUs help in improving communication and information sharing between parties and promote transparency and accountability. It helps in supporting the achievement of common goals and objectives.         

How to Draft an MOU?

Let us discuss the steps involved in drafting an MOU agreement:

• Every party involved in the MoU agreement decides what they want and compromises accordingly.
• The parties begin the initial MoU agreement’s drafting process after deciding.
• The agreement usually mentions the rules that apply to the mediation procedure.
• All the parties agree on the MoU agreement starting and ending dates and the termination policies when negotiating.
• After each party has included all the restrictions, privacy policy statements, and website disclaimer, the MoU agreement is then signed at the very end.

Checklist for Memorandum of Understanding Agreement Draft

Here are the following details needed when drafting an MoU agreement:

• Information about the agency
• Identification information with the contact of the recipient or sub-recipient
• Identifying information with the contact of the service provider
• The unconditional commitment to provide service by the third-party providers
• Description of provided services
• Provision of the scope of services
• Specific contract to be matched
• Duration of the contract
• Number of clients receiving service
• Total number of clients receiving service over the grant term
• Qualification of the person providing the service
• The estimated value of the services provided
• Documentation of the service match
• Document requirements and responsibilities of the recipient and service provider
• Standard timelines of the recipient and service provider for providing services to individuals

MOU Process in India

MOUs are often seen in business dealings involving higher stakes such as merger talks. They are also seen in negotiations related to global treaties. The Section 10 of the Indian Contract Act of 1872 mentions all the fundamental necessities of a legally binding agreement or contract.

• The offer must be received by one party and delivered by another party.
• There needs to be a lawful object and consideration.
• An intention to foster a legal relationship.
• The party’s consent should be free of influence and not affected by fraud.
• The qualification of a party to enter a contract includes being 18 years old and above, being of sane mind, and not being involved in any insolvency or bankruptcy.

Stamp Duty on MOU of Company

The MOU agreement does not require payment of the stamp duty. The online MoU should be presented in court if it includes a pledge to purchase real estate worth more than Rs 100. An agreement with a paid stamp duty has value and is allowed in court. If the agreement isn’t stamped properly, the court won't accept it as proof or evidence.

Basic Contents of the Memorandum of Understanding

The following details include the basic contents of an MoU:

Introduction: It begins with an introduction by identifying the parties involved in an agreement and gives an overview of the purpose of the collaboration.

Objectives: This section points out the specific goals or objectives the parties want to achieve through the collaboration.

Scope: It defines the collaboration scope and what each party will offer or contribute to the assignment and project. It includes budget, timelines, resources, deliverables, and responsibilities.

Roles and Responsibilities: It outlines the responsibilities and roles of every party involved in the collaboration. It includes obligations, expectations, and duties in a project.

Term and Termination: This section points out the agreement duration and the circumstances under which the agreement can be dissolved or terminated.

Non-Disclosure and Confidentiality: It outlines non-disclosure and confidentiality obligations in a collaboration. This includes information that is considered private and confidential and how it should be handled.

Intellectual Property: This addresses the intellectual property ownership developed and created during the collaboration. It outlines how the intellectual property rights will be allocated and managed.

Dispute Resolution: It points out the procedures that should be followed in any dispute and disagreement between the involved parties in a collaboration.

Governing Law: This outlines the laws and regulations governing the MoU and any disputes that may arise from it.

Signatures: The agreement is signed by the representatives of each party, agreeing on the terms and conditions outlined in the document.

When is MOU Used?

MOU agreement is used by people and organizations in various circumstances, and here they are as follows:

• Companies and organizations use the MoU to explain their intentions and goals in the contract.
• Making a payment plan when it is not mentioned in the MoU contract.
• Businesses may use MoU online as an amendment when outlining transactional terms to a legal contract as a prenuptial agreement or sale of real estate.
• Another type of MoU is the information memorandum that can be used for both private and professional purposes.

Legal Validity of MOU in India

The MOU is not legally binding but it can still have legal significance in certain circumstances:

• Legal Validity in Certain Cases: It can have legal validity in a few circumstances like when it contains some obligations, is signed by the representative of a party, and includes consideration or payment. The parties may be legally accountable in these cases for failing to fulfill the obligations in the MoU.
• Used in Legal Proceedings: It can be used as proof in the legal proceedings and establishes the intentions and understanding of the parties at the time of collaboration.
• MoU is Not a Contract: It is not a contract and is not enforceable by law. It is a document that points out the intention and understanding of the parties to work together to achieve a common goal.
• Pre-Contractual Document: MoU serves as a pre-contractual document that outlines the terms and conditions of a future contract. After the contract gets finalized, the MoU loses its relevance.
• Enforceability of MoU as Per Law
• The enforceability of the MoU agreement depends on various factors, including the party’s intent and legal provisions that are applied to the agreement:
• Agreement on Essential Terms: It should contain all the terms of the document including the duration, the scope, and the responsibilities of the parties involved.
• Performance of Obligations: It can be enforced if the involved parties have their obligations in the agreement. If a party fails to comply or perform it, the other party may resort to legal actions to enforce the MoU.
• Compliance with Statutory Requirements: Few laws may require the parties to execute the MOU in a certain format or register it with the government. Failing to do so can affect the enforceability of the agreement.
• Intention to Create a Legal Relationship: The MoU must intend to create a legal relationship between the parties to be enforceable. The court will judge the MOU agreement based on whether the parties intended to create a legally binding document.

Memorandum of Understanding in International Relations and Government Agencies

The definition of the memorandum of understanding varies in public affairs and other nations. It must be registered with the UN as a treaty to be enforced under international law. The MOU is used in the UK frequently when discussing agreements involving the government.

In government agencies, it is often used as a means of agency coordination and cooperation. The National Council of Education Research and Training and the National Anti-Doping Agency signed an MoU on the 3^rd of March 2023 for the promotion of sports with school children and teachers.

In international relations, an MoU is used to establish a plan for collaboration and coordination between a country or countries and an international organization. India and Mexico signed an MoU on joint research, technology, and innovation projects on the 4^th of March 2023. The main emphasis of the MoU agreement is the aerospace, earth and ocean sciences, electronics, mining, water, mineral, clean energy, healthcare sectors, and biotech.

MOU vs Similar Documents

MOU Agreement Format

The attached image is a sample format of the Memorandum of Understanding agreement:

The MoU concludes a mutual agreement between parties and proceeds with a proposed project and collaboration by pointing out the terms and expectations. It generally does not create a legally binding contract but potentially leading to a formal agreement in the future. It expresses the party's intention to work towards a common goal with a clear understanding of their roles and responsibilities.

This piece of content provided a detailed explanation of the Memorandum of Understanding.  If you want to get your common registration or MoU and MoA, visit our website Online Legal India.