Set forth terms for a new business relationship: Memorandum of Understanding
What we’ll cover
What is a Memorandum of Understanding?
A Memorandum of Understanding (MOU) is a document that business partners use to confirm their intent to work together. Memorandums of Understanding describe the project they plan to work on and what each party's expected contribution will be.
Unlike what you might assume, signing an MOU does not create a legally binding obligation for either party. It is the anticipation that the parties will work to finalize negotiations and complete a contract or agreement which will then become binding upon the parties.
By signing this agreement, all parties will be more likely to share the same set of expectations. Different from the blank templates that you may download elsewhere, each Memorandum of Understanding from Rocket Lawyer is fully customizable to match your specific situation.
When to use a Memorandum of Understanding:
- You're a business owner about to partner with another business.
- You own a small business and commonly partner with others.
- Another business has asked to work with your business.
- You and another company want to work on a project together.
Sample Memorandum of Understanding
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Memorandum of Understanding
This Memorandum of Understanding (the "Memorandum") is made on , by and between , of , , (hereinafter referred to as "") and , of , , (hereinafter referred to as "") for the purpose of achieving the various aims and objectives relating to the (the "Project").
WHEREAS and desire to enter into an agreement in which and will work together to complete the Project;
AND WHEREAS and are desirous to enter into a Memorandum of Understanding between them, setting out the working arrangements that each of the partners agree are necessary to complete the Project;
Purpose
The purpose of this Memorandum is to provide the framework for any future binding contract regarding the between and .
Obligations of the Partners
The Partners acknowledge that no contractual relationship is created between them by this Memorandum, but agree to work together in the true spirit of partnership to ensure that there is a united visible and responsive leadership of the Project and to demonstrate financial, administrative and managerial commitment to the Project by means of the following individual services.
Cooperation
The activities and services for the Project shall include, but not limited to:
| a. | Services to be rendered by include: |
| b. | Services to be rendered by include: |
Resources
The Partners will endeavor to have final approval and secure any financing necessary to fulfill their individual financial contributions at the start of the planning for the development of the Project.
| a. | agrees to provide the following financial, material and labor resources in respect of the Project: |
| b. | hereby agrees to provide the following financial, material and labor resources in respect of the Project: |
Communication Strategy
Marketing of the vision and any media or other public relations contact should always be consistent with the aims of the Project and only undertaken with the express agreement of both parties. Where it does not breach any confidentiality protocols, a spirit of open and transparent communication should be adhered to. Coordinated communications should be made with external organizations to elicit their support and further the aims of the Project.
Liability
No liability will arise or be assumed between the Partners as a result of this Memorandum.
Dispute Resolution
In the event of a dispute between the Partners in the negotiation of the final binding contract relating to this Project, a dispute resolution group will convene consisting of the Chief Executives of each of the Partners together with one other person independent of the Partners appointed by the Chief Executives. The dispute resolution group may receive for consideration any information it thinks fit concerning the dispute. The Partners agree that a decision of the dispute resolution group will be final. In the event the dispute resolution group is unable to make a compromise and reach a final decision, it is understood that neither party is obligated to enter into any binding contract to complete the Project.
Term
The arrangements made by the Partners by this Memorandum shall remain in place from until . The term can be extended only by agreement of all of the Partners.
Notice
Any notice or communication required or permitted under this Memorandum shall be sufficiently given if delivered in person or by certified mail, return receipt requested, to the address set forth in the opening paragraph or to such other address as one party may have furnished to the other in writing.
Governing Law
This Memorandum shall be construed in accordance with the laws of the State of Commonwealth of .
Assignment
Neither party may assign or transfer the responsibilities or agreement made herein without the prior written consent of the non-assigning party, which approval shall not be unreasonably withheld.
Amendment
This Memorandum may be amended or supplemented in writing, if the writing is signed by the party obligated under this Memorandum.
Severability
If any provision of this Memorandum is found to be invalid or unenforceable for any reason, the remaining provisions will continue to be valid and enforceable. If a court finds that any provision of this Memorandum is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision will be deemed to be written, construed, and enforced as so limited.
Prior Memorandum Superseded
This Memorandum constitutes the entire Memorandum between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and Memorandums, whether written or oral.
Understanding
It is mutually agreed upon and understood by and among the Partners of this Memorandum that:
| a. | Each Partner will work together in a coordinated fashion for the fulfillment of the Project. |
| b. | In no way does this agreement restrict involved Partners from participating in similar agreements with other public or private agencies, organizations, and individuals. |
| c. | To the extent possible, each Partner will participate in the development of the Project. |
| d. | Nothing in this memorandum shall obligate any Partner to the transfer of funds. Any endeavor involving reimbursement or contribution of funds between the Partners of this Memorandum will be handled in accordance with applicable laws, regulations, and procedures. Such endeavors will be outlined in separate agreements that shall be made in writing by representatives of the Partners involved and shall be independently authorized by appropriate statutory authority. This Memorandum does not provide such authority. |
| e. | This Memorandum is not intended to and does not create any right, benefit, or trust responsibility. |
| f. | This Memorandum will be effective upon the signature of both Partners. |
| g. | Any Partner may terminate its participation in this Memorandum by providing written notice to other Partner. |
The following Partners support the goals and objectives of the :
Signatories
This Agreement shall be signed on behalf of by , , and on behalf of by , its . This Agreement shall be effective as of the date first written above.
| By: | Date: |
, its
| By: | Date: |
, its
Memorandum of Understanding
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Next Steps: Make it Legal
| _____ | Look over the Subordinated Loan Agreement to ensure it matches your intentions. If you need to make changes to the Agreement outside of the interview, you will be able to make changes online or in Word format in the Document Manager at the end of the process. |
| _____ Have the Parties sign and date the Subordinated Loan Agreement in duplicate. You can also use Rocket Lawyers e-signature service to electronically sign and share the document. |
| _____ | Deliver a copy of the Subordinated Loan Agreement to the other Parties. |
Copies
| _____ | Keep a copy of all documents for your own records and in case there is a problem. |
| _____ Each Party should receive an original signed copy of the Subordinated Loan Agreement. Your copy should be kept in a safe place. If you signed a paper copy of your document, you can use Rocket Lawyer to store and share it. Safe and secure in your Rocket Lawyer account, you can access it any time from any computer, as well as share it for future reference. |
Members can always consult an attorney at no extra cost!
| _____ If you have quick questions or wish to review this document with an attorney, you can do so for free. Rocket Lawyer's On Call® service makes it fast and easy to speak with a local attorney. Get started by visiting the Find a Lawyer tab on our site, or calling (866) 243-2183. |
About Memorandums of Understanding
Learn about how to set forth terms for a new business relationship
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What are the pros and cons of a Memorandum of Understanding?
While a Memorandum of Understanding does offer a good number of advantages, there’s always the chance it might not be the right fit for you and your business partners. If you’re wondering if that is the case, we have compiled the advantages and disadvantages of an MOU for you:
Pros
A Memorandum of Understanding serves as a framework where all involved parties can explicitly articulate their objectives and aspirations. This promotes a reduction in ambiguity that can help to avoid any potential future disputes that might catch anyone off guard. Moreover, by precisely outlining each party's separate expectations, an MOU serves as a template for any future contracts, should all parties choose to formalize their partnership. Overall, many consider completing an MOU to be good business practice.
Cons
One noteworthy limitation of a Memorandum of Understanding is its nonbinding nature. While this characteristic can be advantageous in some scenarios because it liberates both parties from mandatory compliance with the MOU's provisions, it also grants parties the flexibility to withdraw from the agreement or amend their expectations as circumstances dictate. This lack of commitment can sometimes be considered a drawback.
Still not sure? Don’t worry – feel free to ask a Rocket Lawyer network attorney for legal advice.
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Common Terms in a Memorandum of Understanding
A Memorandum of Understanding is used to set out the basis for a future agreement between two business partners. To do this, it covers a wide variety of terms that you might not be too familiar with. Here are some of them:
Introduction and status of the negotiations
This section outlines who the parties involved are, names the company or project they’re involved in, and states clearly that they will work together. It also includes the date on which the MOU will take effect.
Obligations of the partners
This section details the responsibilities of each partner. It is divided as “cooperation” and “resources.” Cooperation outlines the activities and services and resources states what each partner will provide when it comes to the necessary goods to get started on the project.
Dispute resolution
This section identifies the chosen method among all partners to resolve a dispute. Commonly, this involves mediation or alternative dispute resolution, but that doesn’t have to be the case. You and your business partners are free to outline whatever method you agree might work best for you.
Severability
Severability refers to what happens if any provision of your Memorandum of Understanding turns out to be invalid or unenforceable by a court. A severability clause typically states that the rest of the agreement and all remaining provisions still remain valid, except for the terms or provisions a court deems invalid or unenforceable.
Superseding
If this isn’t your first Memorandum of Understanding with your business partners, for the sake of transparency, it is good practice to add a section stating whether this new one supersedes all of the previous agreements – and, if not, which parts from previous ones are still valid.
If you want your Memorandum of Understanding to include further or more detailed provisions, you can edit your document. However, if you do this, you may want a lawyer to review your MOU for you to make sure it complies with all relevant laws and meets your specific needs. Reach out to a Rocket Lawyer network attorney to get your document reviewed or for affordable legal advice.
Memorandum of Understanding FAQs
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How do I write a Memorandum of Understanding (MOU)?
It's very simple to document your plans with a free Memorandum of Understanding template from Rocket Lawyer:
- Make the document – Answer a few questions and we will do the rest.
- Send and share it – Discuss the details with the other party, or ask a lawyer.
- Sign it and make it legal – Sign electronically with RocketSign®.
This solution, in many cases, would end up being much less expensive than hiring and working with a traditional lawyer.
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What is the purpose of a Memorandum of Understanding (MOU)?
A Memorandum of Understanding helps you and your partner think through how a future agreement may work before the actual legally binding agreement is signed. An MOU defines a business project you are planning to undertake with a partner or partners. Usually, the project is short-term and has a forecasted end date. The MOU defines who the parties are and what their expected contributions will be. It also defines the project and the purpose of the project.
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What information is included in an MOU?
Creating a Memorandum of Understanding is simple using Rocket Lawyer. By the time you are ready to make an MOU, you've likely already had the conversations to know what you want to include in the document.
To make a Memorandum of Understanding using Rocket Lawyer, you need to provide the following information:
- Dates: When the MOU will start and when it will end.
- Contact information: Contact information for all parties involved.
- Name of project: Often, businesses use project names rather than their company names.
- Contributions: What each party will contribute to the project.
- Other contributions: What financial, material, or labor resources each party will contribute.
The rest of the MOU is automatically generated for you. If you need to make other changes, you can easily edit the document.
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Is a Memorandum of Understanding legally binding?
Generally speaking, no. A Memorandum of Understanding outlines the intention of making a legal agreement, but it is not a legally enforceable document itself. While it is not enforceable, it is a powerful tool for helping you outline what a final, legal agreement will include. In most cases, unless money is exchanged, an MOU will not stand up in court if challenged.
You may want to seek legal advice to help determine the enforceability of your Memorandum of Understanding.
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What is the difference between an MOU, a Partnership Agreement, and a Letter of Intent?
A contract or Partnership Agreement is usually more enforceable than a Memorandum of Understanding, and contracts are generally binding. Once an agreement is made, typically a Joint Venture, the legal relationship begins. Then, money or resources are exchanged, and work on the project begins. While an MOU usually doesn't carry much weight in court, a formal contract or agreement often does. A document similar to an MOU, called a Letter of Intent, is often used to show intent to purchase all or part of a company. Like an MOU, it is a document that outlines a future agreement.
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What other documents might be helpful for my business?
If you're using a Memorandum of Understanding, chances are you might need one of the following:
- General Contract for Services
- Partnership Agreement
- Joint Venture Agreement
- Non-Disclosure Agreement
If you have any questions about what's right for you and your business, connect with a Rocket Lawyer network attorney for quick answers or a document review.
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