Before we talk about MoU, I will quickly help you distinguish between Contract and MoU. A contract is a legally enforceable agreement between two or more parties that creates a legal obligation to do (or not do). Most commonly, contracts involve the exchange of promises. Another key characteristic of a contract is that if one of the parties breaches the contract they are legally punishable. For example, an LLP Agreement is one such Agreement, there are clauses in this agreement that abides the partners to legally abide by. Without a further due, this article will help you in required planning to enter a MoU.
Memorandum of understanding (MOU), similar to Contract, is an agreement between two or more parties. Unlike a contract, however, an MOU need not contain legally enforceable promises.
For Example, Company X is negotiating with company Y on a business deal, company XZ does not want to loose the deal but needs time to do due-diligence. Both the parties enter an MOU.
MOU may outline the terms of an agreement but state that each party’s responsibilities are only enforceable “in the event that the parties’ governing boards decide to enter a joint use agreement.”
For Example, Company X has responsibility of enforcing the MOU by September 2018
MoU typically addresses expectations and responsibilities of each of the parties such as: (1) who bears responsibility for the costs of maintenance and repairs, (2) insurance and liability, (3) staffing and communications, and (4) conflict resolution (5) Confidentiality
For Example, Directors of Company X cannot withdraw from the agreement, if it did the conflict may be resolved by described means.
A MoU can be exclusive or non-exclusive:
- Exclusive MoU, parties are restrained from entering similar MoUs with any other entity during the term of that MoU.
- Non-exclusive MoU, parties are free to enter discussions with other entities dealing with the same subject.
For Example, to avoid any competition of Company X approaching the company Y under negotiation, you can enter a MoU on an exclusive basis.
MoU Agreements ideally should consist:
The title of the MoU should reflect the nature of transactions between the parties.
- Identification of the Parties
The introduction of drafting a MoU and Agreement is same. Before discussing the structure and content of MoU, it is important to discuss the following principles:
(a) There is a mutual desire of both the parties of equal commitment to work together.
(b)The provisions of MoU should not be in conflict with any existing MoU or agreement entered by the organization between the parties and the third party.
(c)The language of MoU should be simple, unambiguous and open to review.
(d) MoU is a living document so it should be kept alive for review.
(e)Since MoU is a formal document it should be drafted with legal, technical and financial experts.
A brief summary of circumstances leading to the MoU
- Legislative Context
The MoU should contain the legislative context i.e. the statement to the extent it is legally binding as well as relevance to any law to which the parties are subjected to.
- Purpose of MoU
This broadly defines what a particular MoU actually covers i.e probable outcome of MoU and societal benefits. It defines every area that both the parties are going to cover in the MoU.
- Consideration of an Agreement
The consideration of an agreement should be clearly stated. The agreement must mention of exchange of dollars/rupees or goods or mutual promises. If it is an international agreement, it would be good to mention the currency in which the consideration would be paid to avoid hassles including the conversion date as well.
- Joint Undertaking and Responsibilities
A statement describing the joint responsibilities and action of each party including the description of cooperative activities, description of the exchange of resources. Reference to relevant timelines, milestones, protocols of communication between the parties.
- Other Clauses
- Termination of MoU
- Cancellation Provisions
- Dispute Resolution
- IP Rights
- Confidential information
- Address for Notices
- Review and Amendments
- Indemnification Clause