When Do You Need A Memorandum Of Understanding?

When you’re beginning to establish a commercial arrangement between two or more parties, it is important to set out the key terms of your agreement in order to minimise the risk of misunderstandings. 

If it’s too early to put together a formal legal agreement, it’s still wise to keep a record of the key terms you’ve agreed upon in an informal document.

In cases like these, you could put together a Memorandum of Understanding (MOU).This is an informal legal document that sets out your shared goals and what parties are expecting to get out of the commercial partnership.  

And, when you’re ready to enter into a more formal agreement, you can turn this MOU into a formal contract.

What Is A Memorandum Of Understanding?

A MOU is a document that outlines the key terms and frameworks of a commercial arrangement. It is often used as a stepping stone for more detailed contracts formed later in the relationship — serving as a basis to facilitate negotiations. 

Generally, it is not a legally binding contract.

Instead, a MOU is an “agree to agree” document — setting out an intention to carry out a promise in the future. It can then form the basis of more detailed contractual agreements later down the track. 

Why Do I Need A Memorandum Of Understanding?

The main reason to draft a MOU is to create a document that you can rely upon in future negotiations with a commercial business partner. 

A MOU will:

• Set out your shared goals and expectations. A MOU will state who the parties are in a commercial relationship, and what they are agreeing upon. It can include shared goals, expectations for you and your business partner, and other key terms relevant to the relationship.

• Serve as a base for future contracts and negotiations. You can look back on a MOU as you begin to draft up formal contracts — particularly if you and your business partners dispute key aspects of the arrangement. It’s a good reference point for future discussions and negotiations. 

What Is Included In A Memorandum Of Understanding?

The details of your Memorandum of Understanding will vary depending on the nature of your particular business relationship.

However, a MOU will generally include clauses addressing:

• The purpose of the commercial arrangement

• The goals and expectations of each party

• The roles and responsibilities of each party

• Dispute resolution processes

• Expected timeframes

Need Help?

Having an experienced lawyer draft your Memorandum of Understanding will ensure that you have a clear and strong document setting out the key points of your commercial arrangement.

At Sprintlaw, we focus on drafting comprehensive, easy-to-understand and user-friendly MOUs for businesses.

Feel free to get in touch with us to get things started on your Memorandum of Understanding! Our friendly team can be reached at 1800 730 617 or at team@sprintlaw.com.au.

Aidan Watt

Aidan is a lawyer at Sprintlaw, with experience working at both a market-leading corporate firm and a specialist intellectual property law firm.