A Memorandum of understanding (MOU) is a formal and a written agreement between parties under which their aligned intentions are expressed. Additionally, this sort of paper outlines the purpose of a common course of action. A Memorandum of understanding (MOU) can be bilateral (between two parties) or multilateral (between several parties) (between more than two parties). 

Consider a Memorandum of understanding (MOU) as a means for both sides to communicate their agreement to pursue their shared objectives. A memorandum of understanding means that the parties have achieved an agreement and are prepared to proceed. Although an MOU is not legally binding, it acts as a serious indication that a legally binding contract is forthcoming.

A Memorandum of understanding (MOU) is less structured than a contract but more formal than a handshake on the scale of formal agreements. Although a Memorandum of understanding (MOU) can sound similar to a contract, there are important distinctions. For instance, unlike an MOU, a contract is a private written document that is legally binding and enforceable by a court. 

The Memorandum of understanding (MOU) is the most often used agreement of foreign affairs. It is, though, an often-used system in company negotiations as well.


Prior to drafting the agreement, the parties to a memorandum of understanding must negotiate an agreement that is acceptable to both parties. All concerned should be aware of the critical positions taken by each side. Thus, the parties will establish a comprehensive and successful memorandum of understanding. 

To begin the process of creating a memorandum of understanding, all (or all) parties usually draft their own MOU documents that include the following topics: 

  •  Expectations that are ideal 

  •  Any critical results on which they did not gamble 

  •  A memorandum of understanding outlines each party's initial stance prior to initiating negotiations.

  •   Expected Results

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  • Businesses always prefer an MOU over a contract because it is a more amicable, bipartisan representation of a working partnership than a structured contract is. 

  • MOUs are commonly used to log arrangements between nonprofit organizations and charities for the usage of space or knowledge exchange. 

  • They are seen as less coercive and threatening than a formal relationship arrangement, and they are often utilized in situations where individuals do not want to suggest a legal promise or are unable to establish a legally enforceable agreement.

MOUs may be used in a variety of industries, including the following: 

1.    International law: On an international basis, MOUs are classified as treaties. As a result, they must be checked in the UN Treaty Set. Particularly when it comes to treaties, the parties' purpose when forming the MOU and the signatories' positions must be presented in order to decide if the arrangement is legally binding. The precise language used in the arrangement is often taken into account when assessing the legality of the MOU contract. 

When negotiating a memorandum of agreement, it is important to establish a contract that is transparent and understandable to both stakeholders. That is why it is important to consult with an accomplished attorney who will ensure that your MOU expresses your intentions, priorities, and aspirations clearly

2.    Financial sector/private enterprises: Typically, a memorandum of understanding acts as a non-binding document in the course of commercial or private company transactions. MOUs are formed in the absence of a legally binding or structured contract. In these instances, the MOU covers the following: 

  • Both parties have responsibilities. 

  •  Both parties' requirements 

  •   The agreement's terms and conditions 

3.    Government as well as Public affairs: MOUs can also be found inside government and public relations agencies. 


A Memorandum of understanding (MOU) enables both stakeholders to specify their aims and targets unequivocally. This reduces confusion and eliminates the possibility of future unforeseen conflicts. Additionally, by simply stating what each party desires of the other, an MOU serves as a model for any potential contract that all parties might or may not want to draft. 

The primary disadvantage of an MOU, based on your perspective, is that it is not legally binding. Although this could be advantageous in certain situations, since no side is obligated to adhere to the terms of the MOU, they may simply step away or alter their standards. MOUs will take much time and preparation to make, and if one party's requirements alter significantly, the MOU becomes a huge waste of money.


A Memorandum of understanding (MOU) specifies basic points of agreement. It identifies the participants, outlines the project on which they have agreed, determines its scope, and specifies the functions and obligations of each member. 

Although the MOU is not a legally binding document, it is a substantial move due to the time and commitment required to negotiate and draft an appropriate document. To create an MOU, the parties must come to an agreement. Prior to going on, each side discovers what is most valuable to the other. 

Frequently, the procedure continues with each faction writing its own best-case MOU. It considers its desired or optimal result, what it thinks it should give the other participants, and what points might be non-negotiable from its perspective. This is the starting point for talks for each side.

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Vainy Kacharia
I am an eminent 3rd year BA LLB student of NMIMS University. I have an inclination in the field of legal studies since I like to stick to the path of obeying rules and justify the wrong-happenings with the right people . I have an engrossment to grow myself working as corporate lawyer .

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