Memorandum of Understanding :What is it and How Does it Work?

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Written By Berry Mathew

What is it?

A Memorandum of Understanding is an agreement amongst two or more parties, expressing the intent to enter a legally binding contract, in order to achieve a common goal.

It is a non-legally binding document that will express the basic outline of the common goal parties wish to achieve in its most early stages, and what the responsibilities of the parties shall be. 

In the instance you need a MOU template, it is advisable that the template you shall customize is easy to understand, straight forward, and its details are not overly complicated. With CocoSign, one can access such a template that is not only dependable and easily customized, but also approved and written by legal experts. 

CocoSign provides contracts that cover all the important bases a Memorandum of Understanding needs to contain, in order to be effective. 

Seeing as a Memorandum of Understanding is a broad outline of the agreement among people with a common goal, and is a promise of an imminent binding contract, one must remember that it is not legally binding.

There are elements one should be familiar with, and understand the purpose these elements serve, in order to have a good understanding on how MOU’s work, and how effective the agreement is, despite it not being legally binding:

How does it work?

  • Formal Identification

Parties  provide formal identification, and state the purpose and nature of their relationship, and the purpose of the MOU. This provides clarity on the purpose of the agreement, and what the shared goal of it is. 

  1. Language 

Lengths are taken to distinctly state that the document is non-legally binding. If a MOU resembles a contract in terms of language and intent, it becomes legally enforceable.  This can open parties up to serious legal consequences, if they act outside of the agreement. 

  • Definition of terms

Relevant terminologies are clarified and revised amongst all parties, in order to avoid unfortunate misunderstandings in the future. One should remember that a MOU states mutually accepted expectations that will be cemented with a legally binding contract at the end. Therefore a major role of the MOU is to ensure everyone is on the same page, and terminologies must be clarified, so that everyone understands what they are agreeing to beforehand. 

  1. Scope of the MOU 

The boundaries of the MOU are clearly stated. These ‘boundaries’ express what is included and what is excluded in a Memorandum of Understanding. Considerations are also given to the boundaries of any other existing MOUs that parties may be involved in, in order to avoid conflicts of interest down the road.

  • Aim of the MOU

A Memorandum of Understanding provides direction to the tasks of all involved members.

The expected outcomes of the MOU should be stated and everyone must be in agreement, and then it is easy to determine what responsibilities and roles each party must lay in orer to reach their shared aim/goal. 

  • Joint undertakings and responsibilities

Here, statements of timing, relevant timelines, milestones, and the expectations/responsibilities of each party shall be expressed, as all Memorandums of Understanding require a combined effort from everyone. 

Defining the process of how any resource exchange arrangement shall be conducted, and also protocols for communicating among parties so that everyone stays included. 

  • Terms of operation of the MOU

The duration of the MOU, cancellation provisions, the review processes and how regular they shall be, dispute resolution, negotiations, consultations, to mention a few, are all addressed and unanimously agreed on how to handle them. This way, in the event of any of the mentioned instances, a MOU acts as a guide on how these processes are dealt with.

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  • Official endorsement by involved parties

Signature blocks that provide formal endorsement and the pledge of each involved party that they have agreed to the memorandum of understanding. With CocoSign, this is done using e-signatures.

  • Dispute resolution

It is imperative that all parties agree upon how internal disputes shall be approached and dealt with, governed by what is decided in the memorandum of understanding. Rather than wait for a dispute to occur and have disagreements on what constitutes a fair punitive measure. This is why a MOU is done before anything, in order to be prepared for unforeseen circumstances, and to already know how to deal with them.

  • Termination 

In the event that a party calls for the termination of their involvement, the MOU will have the process to follow for this action to be complete. The MOU provides clarity on such topics like what one is entitled to leave with, and so on. In such abrupt circumstances, the MOU still protects the interest of the parties, and keeps the agreement on track. 

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There needs to be mutual desire by all parties to enter into a memorandum of understanding with a shared and equal commitment to working together, in order to meet the eventual goal of entering a formal legally binding contract. 

A Memorandum of Understanding should be customized to cover the needs of an agreement, as the nature of MOUs are always unique to their aim.

Provisions of the MOU should not conflict with any existing arrangements of the parties, as conflicts of interest will complicate the impending legally binding agreement. The contents of the MOU should be clear, ambiguous, and therefore easy to understand and review. 

The more simple and straightforward the MOU, the less likely it is for a party to misconstrue elements of the living document and create complications in the future.