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Part 1: What is a Memorandum of Understanding?
A memorandum of understanding (also known as MOU or MoU) is a formal written document between two parties or more, outlining the key terms and details of an understanding or agreement, including each parties’ requirements and responsibilities.
Memorandum of Understanding is not a legally binding contract, yet is often regarded as the first stage in the development of a formal contract. It indicates that the parties involved in the contract are ready to move ahead in a common line of action.
Memorandum of Understanding can be seen as the step one for any negotiations or deals that are taking place. Talks of negotiations occur after both parties have agreed to the memorandum of understanding.
Generally, memorandum of understanding is commonly used in international negotiations between two countries regarding a treaty or a proposition. However, they are also employed in merger talks of two businesses where the stakes are rather high.
Part 2: How Does A Memorandum of Understanding Work?
A memorandum of understanding, in the simplest terms, is used when there is no implication for a legal commitment or where the parties involved are not able to enter into a legally enforceable agreement, yet are interested and willing to proceed further.
It does not mean that the parties have agreed to a contract. However, it indicates that a contract can be expected soon.
A memorandum of understanding can be seen as the same as a letter of intent. In fact, these two are even legally the same in US law and are hardly distinguishable outside of the US law.
They are commonly used in high stake projects and international treaties because they can be created quickly and can be kept a secret among all parties involved.
Part 3: What should be included in an MOU?
An MOU means that all parties involved should have mutual understanding about the project that they are agreeing to discuss. Each MOU is unique, yet generally a MOU shall include:
An MOU shall state the parties that are involved in the project.
Scope of Work:
An MOU shall specify the project details and the work scope to clear confusion or doubts. Work schedule should be included within.
Terms of collaboration:
This section should detail the activities to be performed and which partners will perform them, as well as the funds and other resources that each partner brings to the agreement.
Roles and Responsibilities:
The MOU shall also describe the roles and responsibilities of each party towards the other and towards the project. This helps all parties involved understand what is expected of them.
The MOU shall lay out how each party may resolve disputes if there are any in the long term.
Purpose of the Commercial Partnership and Common Goals:
It’s important to make sure all parties involved are understanding their common goals when entering into the MOU. Purpose of the commercial partnership shall be clearly stated in the MOU too.
Since a memorandum of understanding is only the first step of a proposal showing the intent of all parties involved to move forward, it does not have to include a lot of other components.
Furthermore, since the memorandum of understanding is not legally binding, there is no need to mention any jurisdiction or applicable laws on it.
Part 4: How to Create a Memorandum of Understanding?
Before creating a Memorandum of Understanding, it’s important to make sure if an MOU is suitable for the needs of all parties involved. Each party shall decide what they’re willing to negotiate on by entering into an MOU, and which part of the MOU they’d like to be legally binding.
Once negotiations are completed, parties may set up a timeline regarding when will the MOU take effect, when will it expire, and issues related to its termination, as well as adding restrictions, disclaimers, privacy statements, etc..
Now you have all the answers about Memorandum of Understanding. Can’t wait to draft one for your business?
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MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (MOU), hereinafter referred to as the Memorandum, entered into on ________________________, by and between ________________________ residing at ________________________, ________________________, ________________________ ________________________, hereinafter referred to as the "First Party," and ________________________ residing at ________________________, ________________________, ________________________ ________________________, hereinafter referred to as the "Second Party," and collectively known as the "Parties" for the purpose of establishing and achieving various goals and objective relating to the ________________________ .
WHEREAS, the aforementioned Parties desire to enter into the herein described agreement in which they shall work together to accomplish the goals and objectives set forth;
AND WHEREAS, the Parties are desirous to enter an understanding, thus setting out all necessary working arrangements that both Parties agree shall be necessary to complete this ________________________;
The aforementioned ________________________ has been established with the following intended mission in mind:
PURPOSE AND SCOPE
The Parties intend for this Memorandum of Understanding to provide the cornerstone and structure for any and all possibly impending binding contract which may be related to the ________________________.
The Parties shall endeavor to work together to develop and establish policies and procedures that will promote and sustain a market for ________________________, and intend to maintain a product and/or services that meets or exceeds all business and industry standards.
RESPONSIBILITIES AND OBLIGATIONS OF THE PARTIES
It is the desire and the wish of the aforementioned Parties to this MOU Agreement that this document should not and thus shall not establish nor create any form or manner of a formal agreement or indenture, but rather an agreement between the Parties to work together in such a manner that would promote a genuine atmosphere of collaboration and alliance in the support of an effective and efficient partnership and leadership meant to maintain, safeguard and sustain sound and optimal managerial, financial and administrative commitment with regards to all matters related to the ________________________ .
The above outlined scope and objective shall be contingent on the Parties obtaining the necessary funds required for the ________________________ as described within any grant or business loan
application, if any. Responsibilities under this Memorandum of Understanding may coincide with the grant period.
TERMS OF UNDERSTANDING
The term of this Memorandum of Understanding shall be for a period of ________________________ from the aforementioned effective date and maybe extended upon written mutual agreement of both Parties.
AMENDMENT OR CANCELLATION OF THIS MEMORANDUM
This Memorandum of Understanding may be amended or modified at any time in writing by mutual consent of both parties.
In addition, the Memorandum of Understanding may be cancelled by either party with ________________________ days advance written notice, with the exception where cause for cancellation may include, but is not limited to, a material and significant breach of any of the provisions contained herein, when it may be cancelled upon delivery of written notice to the other party.
The Parties acknowledge and understand that they must be able to fulfill their responsibilities under this Memorandum of Understanding in accordance with the provisions of the law and regulations that govern their activities. Nothing in the Memorandum is intended to negate or otherwise render ineffective any such provisions or operating procedures. The parties assume full responsibility for their performance under the terms of this Memorandum.
If at any time either party is unable to perform their duties or responsibilities under this Memorandum of Understanding consistent with such party's statutory and regulatory mandates, the affected party shall immediately provide written notice to the other party to establish a date for resolution of the matter.
LIMITATION OF LIABILITY
No rights or limitation of rights shall arise or be assumed between the Parties as a result of the terms of this Memorandum of Understanding.
ARBITRATION/MEDIATION DISPUTE RESOLUTION
The Parties to this Memorandum of Understanding agree that should any dispute arise through any aspect of this relationship, including, but not limited to, any matters, disputes or claims, the parties shall confer in good faith to promptly resolve any dispute. In the event that the parties are unable to resolve the issue or dispute between them, then the matter shall be mediated and/or arbitrated in an attempt to resolve any and all issues between the parties.
The parties agree that any claim or dispute that arises from for through this agreement, the relationship or obligations contemplated or outlined within this agreement, if not resolved through mediation, shall then go to and be resolved through final and binding arbitration. Any decision reached by the Arbitrator shall be final and binding and, if required, may be entered as a judgment in any court having jurisdiction.
In the event that any court having jurisdiction should determine that any portion of this Agreement to be invalid or unenforceable, only that portion shall be deemed invalid and not effective, while the balance of this Agreement shall remain in full effect and enforceable. This Agreement shall be interpreted and governed by and in accordance with the Federal Arbitration Act 9 U.S.C. §1-16.
Any notice or communication required or permitted under this Memorandum shall be sufficiently given if delivered in person or by certified mail, return receipt requested, to the address set forth in the opening paragraph or to such address as one may have furnished to the other in writing.
This Memorandum of Understanding shall be governed by and construed in accordance with the laws of the State of ________________________.
In the event that any provision of this Memorandum of Understanding shall be deemed to be severable or invalid, and if any term, condition, phrase or portion of this Memorandum shall be determined to be unlawful or otherwise unenforceable, the remainder of the Memorandum shall remain in full force and effect, so long as the clause severed does not affect the intent of the parties. If a court should find that any provision of this Memorandum to be invalid or unenforceable, but that by limiting said provision it would become valid and enforceable, then said provision shall be deemed to be written, construed and enforced as so limited.
Neither party to this Memorandum of Understanding may assign or transfer the responsibilities or agreement made herein without the prior written consent of the non-assigning party, which approval shall not be unreasonably withheld.
The herein contained Memorandum of Understanding constitutes the entire understanding of the Parties pertaining to all matters contemplated hereunder at this time. The Parties signing this MOU desire or intend that any implementing contract, license, or other agreement entered into between the Parties subsequent hereto shall supersede and preempt any conflicting provision of this Memorandum of Understanding whether written or oral.
FURTHERMORE, the Parties to this MOU have mutually acknowledged and agreed to the following:
- The Parties to this MOU shall work together in a cooperative and coordinated effort, and in such a manner and fashion to bring about the achievement and fulfillment of the goals and objectives of this ________________________.
- It is not the intent of this MOU to restrict the Parties to this Agreement from their involvement or participation with any other public or private individuals, agencies or organizations.
- The Parties to this MOU shall mutually contribute and take part in any and all phases of the planning and development of this ________________________, to the fullest extent possible.
- It is not the intent or purpose of this MOU to create any rights, benefits and/or trust responsibilities by or between the parties.
- The MOU shall in no way hold or obligate either Party to supply or transfer funds to maintain and/or sustain the ________________________.
- Should there be any need or cause for the reimbursement or the contribution of any funds to or in support of the ________________________, it shall then be controlled in accordance with ________________________ governing laws, regulations and/or procedures.
- In the event that contributed funds should become necessary, any such endeavor shall be outlined in a separate and mutually agreed upon written agreement by the Parties or representatives of the Parties in accordance with current governing laws and regulations, and in no way does this MOU provide such right or authority.
- The Parties to this MOU have the right to individually or jointly terminate their participation in this Agreement provided that advanced written notice is delivered to the other party.
- Upon the signing of this MOU by both Parties, this Agreement shall be in full force and effect.
AUTHORIZATION AND EXECUTION
The signing of this Memorandum of Understanding does not constitute a formal undertaking, and as such it simply intends that the signatories shall strive to reach, to the best of their abilities, the goals and objectives stated in this MOU.
This Agreement shall be signed by ________________________ and ________________________ and shall be effective as of the date first written above.
(First Party Signature)
(Second Party Signature)