The purpose of a Memorandum of Understanding (also known as a MOU), is to describe the broad outlines of an agreement that two or more parties have reached. It is the promise prior to a formal contract being signed, that the involved parties make toward officiating it. While not legally binding, the MOU signals that a binding contract is imminent.
MOUs communicate mutually shared expectations, and are more of a token of commitment to a mutually beneficial goal that all parties desire to see fulfilled. Entering an understanding of this nature is unofficial and therefore doesn’t carry hefty consequences if one is to change their mind. It is important for a MOU to be easy to understand, and customized to your liking. With CocoSign, you can access such a template that has been written and approved by experts.
CocoSign is an e-signature service that is both simple to use, and secure. Anyone is able to access trustworthy Memorandum of Understanding templates, and sign them using any mobile device, laptop or tablet. It is available across 190 countries, and the templates can be easily customized to the specific needs of an individual.
That being said there are elements that any individual considering entering MOU’s should take note of.
The purpose of the MOU
In order to make sure all parties are on the same page. Take note of terms negotiated and targets to be set, ensuring all parties remain on the same page, and work toward their common goal.
Duties and responsibilities
The responsibilities and duties of each party is clearly outlined in the memorandum of understanding, and it is important to be in agreement with what is expected of you. Shared responsibilities will also expressly outlined. It is important not to enter the agreement if one is not seeing eye to eye with what other parties expect of them.
Confidentiality
If necessary, a confidentiality clause is inducted into the MOU. Any party involved in the agreement must take note of this clause and take precaution not break the confidentiality and discretion expected from them. This clause is commonly used in situations where intellectual property is involved, or where the transaction involves elements that should not be shared with third parties.
Time period
Aside from the exact date of entering the agreement being taken note of, it is important to take notice of the period that the MOU will commence, along with the period of dissolution of the mutual partnership.
This information is needed in the circumstance that a party wishes to terminate the MOU. If a party wishes to step back too close to the end period of the MOU where a binding contract is now imminent, there may be responsibilities they need to satisfy to end the agreement.
Scope of the transaction
There may be a mutually decided upon extent to which third parties and other agencies can be involved in transactions. All these exclusions and inclusions in relation to the partnership should be clearly stated and understood by all parties, as to not overly involve a third party and over step on what fellow members of the MOU are in agreement with. Especially in the scenario that a confidentiality clause is present in the agreement.
Indemnification
This clause will address what the course of action is, when unplanned or accidental circumstances fall upon the mutual collaboration that all parties had initially agreed to. It ensures that the responsibility during such unforeseen circumstances is not just assumed.
Each party shall indemnify the other for losses incurred due to negligent behavior.
A mechanism for actual payment of losses is clarified, and must be agreed upon by all parties. Remembering that MOUs are not legally binding, this clause is what clarifies how consequences for negligence are dealt with.
Financial implications
This element adds clarity to the MOU by answering the question of the parties obliged to make payments, and the parties authorized to receive payments, in any transaction related to money flowing within/into the partnership.
Restrictions
Parties involved may set out restrictions on other parties such as privacy statements or disclaimers related to compliance with certain statutes. One may set restrictions they feel need to be present for them to enter into this agreement, and all terms are negotiable and must be mutually agreed upon. This is also a good projection into what parties can expect from entering a binding contract with each other later on, and is very telling of what kind of synergy to expect.
Dispute resolution
Formal methods of dispute resolution such as arbitration is normally avoided in an MOU, seeing as it is not a legally binding contract. Therefore parties typically agree to resolve conflict through mutual conflict and in good faith. However, the protocol that will be followed in the scenario of a dispute remaining unresolved for a prolonged period shall be agreed upon and noted under this clause.
Conclusion
The process of creating a MOU is quite straightforward and simple, however attention to detail must be paid to the language used in the clauses of the agreement. Failing to achieve clarity may lead to losses incurred by the parties involved before entering a binding contract. One should also understand that a MOU can become legally binding unintentionally, if terms added are too similar to a legally binding agreement, therefore utmost care must be taken while drafting this document. If the Memorandum of Understanding is composed by the parties themselves, it is advisable that a lawyer’s expertise is exercised in revising it, in order to avoid such a setback.
