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Memorandum of Understanding

A Memorandum of Understanding (MoU) is a document that acts as a guideline governing two or more parties. It records the mutual understanding, goals, and plans of the parties while often leaving the formal contract for a later date.

Parties involved:

  • First party

    This could be an individual, a company, or a group of individuals and/ or companies entering into a formal relationship with the second party.

  • Second-party

    This could also be an individual, a company, or a group of individuals and/ or companies entering into a formal relationship with the first party. There may be more parties – third-party, fourth-party, etc. – depending on the nature of engagement. 

Essentials of an MoU

Purpose

An MoU should clearly mention the purpose of engagement i.e., why are you entering into the relationship.

Objective

It should include the objective for drawing the MoU – what is it that you wish to achieve through the MoU. 

Duties, responsibilities, and restrictions

It should establish a clear expectation setting – what each party needs to do, not do, and what they can expect from the other party(ies).

Confidentiality

It should mandate maintenance of the confidentiality of trade secrets, intellectual properties, and other sensitive information shared by the parties.

Financial responsibilities

If the relationship involves monetary exchange then it should include all financial details like who is responsible to make the payments, who is the receiver, amount, date of payment, etc.

Alterations and termination

It should leave room for any alterations, modifications, etc. It should also allow for termination of the agreement, obligations, etc. as and when needed.

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Why do you need an MoU?

  • Clear communication

    It helps with better communication of expectations, goals, and objectives and thus helps in the establishment of mutual understanding.

  • Simple and liberal drafting

    It is often a stepping stone for a more detailed, formal contract and thus there are no rigid requirements as to the clauses and structure of an MoU.

  • Flexibility

    It allows you to decide its nature and implication upon other parties. If you wish to have something more than a guideline, if you wish to bring in some accountability in the form of an enforceable contract, then you are free to do so by adding a few other clauses like dispute resolution and governing laws, legally binding intentions of the parties, etc.

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Are you one of these?

  • An entrepreneur in talks with a prospective partner
  • A startup looking to start a collaboration
  • A business owner getting into a formal relationship
  • A company kick-starting a new engagement

But why do you need a customized MoU?​

  • Do you have a unique business model?
  • Is your engagement peculiar to your business?
  • Do you have specific expectations and requirements for the engagement, unique to your business?

If yes, then you definitely need a customized MoU and not just a standard template. ​