A Business Encyclopedia

Memorandum of Understanding (MoU)

Definition: The Memorandum of Understanding or MoU is the performance agreement between two or more parties wherein they agree on the common lines of action.

Generally, the parties opt for a memorandum of understanding when they don’t want the agreement to be legally enforceable and just want a written proof of their oral commitments to each other. However, whether the contract so formed between the parties implies a legal commitment or not depends on the legal elements written in the memorandum of understanding. Such as, offer and acceptance, consideration and intention to be legally bound, makes MOU a legally enforceable document.

Typically, the Memorandum of Understanding is comprised of following details:

  1. The parties to the agreement.
  2. The project for which the parties are forming an association.
  3. The time period, i.e. a start and end date when the agreement is functional.
  4. The duties and responsibilities of each partner are defined clearly.
  5. Proper disclaimers should be included, such as employees of party-1 should not be considered as the employees of party -2.
  6. The financial contribution of each party is clearly mentioned.
  7. The other important element to be included in the memorandum of understanding is the risk sharing, i.e. to what extent each party bears the risk due to any mishap.
  8. Finally, the signature and the date of signature of both the parties is required to confirm the terms and conditions mentioned in the memorandum of understanding.

Thus, MOU is the written agreement conforming the intentions, obligations, and mutual responsibilities of the two parties.

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