What is a Memorandum of Understanding?

Introduction

In the Modern business environment, companies enter into agreements to conduct their operations. When these companies negotiate with prospective business partners, joint ventures, vendors, and agents then they normally reach a preliminary agreement as to the first step in forming a treaty. 

Memorandum of Understanding (MOU)

A Memorandum of Understanding is also known as a Letter of Intent and it is simply a way for two parties to make an agreement in India. When parties agree to enter into a contract, but the terms and conditions have yet to be negotiated then they enter into a Memorandum of Understanding or Memorandum of Agreement.

It is created when two or more parties are having preliminary talks about the rights and duties of the parties to the agreement and is used to assess the intentions of the transacting parties before a formal agreement is made between them. It does not confer any rights on either of them. If the parties so wish, the Memorandum of Understanding can be kept confidential. This is a non-legally binding Memorandum of Understanding that may be useful to act as an agreement between two or more departments within the same public institution, but not a legally enforceable duty.    

Advantages of Memorandum of Understanding

There are many advantages of a Memorandum of Understanding which is as follows:

• Parties who want to establish a legal connection and cooperate toward a common purpose before entering into a contract might sign a Memorandum of Understanding which is the first step toward a legal contract or agreement.

• The parties prefer the Memorandum of understanding since it is easier, less complex, and takes less time than a contract.

• This formal Agreement has a lower level of complexity and makes it a more pleasant option for the parties.

•  When the parties want to keep away from any legal consequences before signing formal contracts but Memorandum of Understanding is always preferred.

Documents required for Memorandum of Understanding

Generally, no particular documents are needed to execute or draft the memorandum of understanding. Still, you have to contain the ID proof of all the parties which is concerned to confirm the names and permanent addresses of the party that must be reviewed.

Difference between a Memorandum of Understanding and an Agreement

There are many differences between a Memorandum of Understanding and a Memorandum of Agreement but some are given below:

Key Points to keep in mind while drafting MOU in India

Some points are kept in mind while drafting a Memorandum of Understanding which are mentioned following:

• It should contain the names and contact numbers of the parties to the memorandum of understanding.

• The main objective and aims for which the memorandum is being signed should be clearly affirmed.

• It should provide a schedule of the meetings to the parties.

• The amount of capital contribution to be provided by the parties must be specified in the memorandum of Understanding.

• The Memorandum of Understanding must be signed and dated by the authorized individuals or representatives of each party or organization. Once MOU has been written and agreed upon by all parties included.

• It should also involve the name of the person who has the authority to make reproving financial choices.

• The financial records of the program or assignment must be kept as well.

• The memorandum must state the term of the agreement between the parties and in which also mention the beginning and ending dates. It should also state under what circumstances the memorandum will be abandoned.

Conclusion

It concluded that when parties agree to enter into a contract, but the terms and conditions have yet to be negotiated then they enter into a Memorandum of Understanding or Memorandum of Agreement. This is a non-legally binding Memorandum of Understanding that may be useful to act as an agreement between two or more departments within the same public institution, but not a legally enforceable duty.

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Author:

Radhika Punani
Ambala
I am Radhika from Ambala city. I qualified LLM from Kurukshetra University and B.A.LLB from Maharishi Markandeshwar University