A memorandum of understanding (MOU) is defined as a nonbinding agreement between two or more parties that outlines the terms and details of an understanding.
This includes each parties’ overall requirements and responsibilities.
An MOU is seen as the first stage in the formation of a formal contract between two or more parties.
These contracts are used throughout many industries, between companies, authorities, regulators, and individuals.
At its core, an MOU is not legally binding though is viewed as a serious document in the eyes of most authorities.
An MOU is seen as an important step in any process given the level of time, energy and resources needed to draft an effective and fair document.
This step forces participating parties to reach a semblance of a mutual understanding.
An MOU helps all sides naturally mediate and figure out what is most important in moving toward an eventual future agreement that benefits both sides.
Memorandums of Understanding (MOU) Explained
It is best to think of an MOU as a formal letter of intent, which is a nonbinding agreement stating a binding agreement will soon follow.
MOUs are commonly used as part of international relations because, unlike treaties, they can be quickly crafted or signed, while also escaping public attention or scrutiny MOUs can also be used domestically and as a tool to modify existing treaties.
These agreements do share some common similarities. As mentioned above, MOUs are not legally binding.
While they do vary in complexity, each of these agreements ultimately reflect represents mutually accepted expectations between people, organizations or governments.
Of note, MOUs do not involve the exchange of money or finances.