Memorandum of Understanding

What does Memorandum of Understanding mean?

A Memorandum of Understanding between entities is like an arrangement that is kept in the text, but not as binding on the parties. The Memorandum of Understanding is the main point of a mutual agreement engaged in the negotiation of the agreement.

The Memorandum of Understanding is simply an understanding document which is signed by the parties before finalizing the deal. Undoubtedly, discussions can take a very long time, it is necessary to make clear points as to what is being agreed and worked out by both sides.

What are the main motive of Memorandum of Understanding?

Only verbal agreement shall be there after the completion of the agreement between the members of the parties due to which MOU is drafted to record all the terms and conditions which are agreed by the members of the parties.

Below mentioned purposes makes a memorandum of understanding necessary:-

  • The core objective of the project must be cleared so that the members can understand the same in an easy and comfortable manner.
  • Statements on which the parties are negotiating should be mentioned.
  • Whatever advances have been gathered, the same have been disclosed.
  • Determine the energetic level of the other party in achieving the task.
  • It is required to ensure that the agreement is cracking in the midst of talks or not.

In some complicated contracts, the parties may enter into an agreement that is not binding and is necessary as the circumstances require. Such a formal arrangement may be known as a memorandum of understanding, a letter of intent. A Memorandum of Understanding may be helpful when a particular main issue, such as receiving approval from the State, is needed.

Who all are eligible to draft the memorandum of understanding?

Defining different issues, such as the final price, when and how the distribution may take place, conditions of employment, actual products and services, etc. between the parties are executed by the Memorandum of Understanding (MOU). It is also required to ensure that the purpose of the Memorandum of Understanding is to uphold the understanding and the agreements of both parties. Such MOU can be drafted in a simpler language so as to keep a record of the verbal agreement.

What is the procedure to use Memorandum of Understanding?

One should never show the MOU immediately to the other party after drafting the memorandum of understanding. Break for a second and let your team take a closer look at it so that any flaw can be addressed and this will enable you to be more reliable. There are some things that may not have been settled in every negotiation; you may take them out of the Memorandum of Understanding. Once an agreement has been resolved following a principled declaration of negotiation, it is an incredible opportunity to record the document that was consented.

It is the formal and actual document that indicates that the both the parties have actually reached an agreement with each other. Preparing a Memorandum of Understanding is not much harder than it looks, but requires focus. It should address the important parts of the conversation by recognizing the negotiation process and their consensus on the final value, goods, equipment, how to deliver the product and much more. After the formation of the Memorandum of Association, there would be continuous attempts by the other side representatives to make any changes to the contract terms and conditions of the Memorandum of Understanding.

What is the requirement of Memorandum of Understanding?

You might have heard of a lot of talks that were crumbled after a time of negotiation. What could be the reason for the deal that was about to be negotiated and suddenly got a fall through? What's missing? When the parties conclude their discussions and talks on a point then all of them comes under a verbal agreement, the missing element is written evidence which both sides need to be settled upon. People usually forget over a few things that were addressed or about what was accepted and what was not, which is why the problem arises and a verbal agreement contributes to a loss. For preventing letter of intent or memorandum of understanding, it is important for both sides to accept what they have decided. Importance of the memorandum of understanding is well aware by the good negotiator.

What distinguishes the Exclusive or Non-Exclusive Memorandum of Understanding?

There may be two types of memorandum of understanding i.e. elite or non-elite both.  When the unique MOU is ready, the participants are prevented from negotiating a different Memorandum of Understanding with other bodies until the expiration of the first MOU. Whereas non-exclusive MOU allows the parties to enter into a different Memorandum of Understanding with another party. Where, you are uncomfortable that your competitors may also contact your party and enter into contracts with them, and then you can go to the MoU on a preferential basis with another party. This would mean that, during the time of the Memorandum of Understanding, the group will be barred from contacting some other body.

What Role is played by the Confidentiality in Memorandum of Understanding?

It is necessary to consider and evaluate the existence and current state of the other party with whom you are negotiating. There is no doubt that party spends after gaining full awareness of the other group that is going to invest alongside you. A very necessary clause known as comprehensive confidentiality is required to be included in every memorandum of understanding (MOU) in case you are sure that the confidential information has been shared with your competitors.  When drafting a memorandum of understanding, you should carry out a clause stating that all information shared between the parties will be held private and will never be made public. MOU might be a one-page document as well as may involve multiple pages that do not have a specific format. The contents and their shape depend entirely on the arrangement that you are supposed to enter into with your clients. This means that, after the signature of the MOU, the parties can not withdraw from the contract under any conditions without facing the repercussions.