A Memorandum of Understanding (MOU) is a written agreement to continue or proceed, showing that parties have agreed and are moving forward in their business relationship. It signals that a contract is likely, though not legally binding.
An MOU drafting clearly outlines specific points of the agreement.
It identifies the parties, explains the project, defines its scope, and details each party’s roles and responsibilities.
Though not legally enforceable, an MOU is important due to the time and effort involved in negotiation and drafting.
Drafting an MOU for a service agreement requires mutual understanding, ensuring each side receives what matters most to the other before moving forward.
Typically, each party drafts its own MOU for business, focusing on favorable or best-case outcomes.
The MOU covers the ideal outcome for each party, what they offer, and any non-negotiable points.
These points serve as starting grounds for negotiations.
Types of Memorandum of Understanding
There are two main kinds of Memorandums of Understanding:
Bilateral Memorandum of Understanding
Multilateral Memorandum of Understanding
MOU Agreement Format
Please refer below for the sample format of a partial Memorandum of Understanding (MOU) Agreement:
Legal Considerations of a Memorandum of Understanding (MoU) Agreement
It should mention the names, addresses, and business details (if applicable) of all the parties involved.
The MoU for Service Agreement must clearly mention that it is not intended to function as a formal contract.
The purpose of the MoU for Service Agreement should be clearly outlined. Additionally, the intentions and expectations of each party should be described in separate sections.
This section should also specify financial obligations, including which party will handle finances and the manner in which financial matters will be conducted.
All involved parties must duly sign the MoU for Service Agreement.
When these elements are properly included, the Memorandum of Understanding (MoU) holds the potential to become a legally binding document. However, for this to be the case, the wording in the MoU must clearly establish the agreed terms and be backed by consideration.
When Is an MOU Agreement Used?
Establishing a payment schedule, particularly when such details are not covered in the main contract.
Clarifying the objectives and intentions of organisations in relation to a potential or existing contract through an MoU of company.
Defining transactional terms, where businesses may use an MoU online as an addition or amendment to a formal legal agreement, such as a property sale or prenuptial arrangement.
Serving as an information memorandum, which provides clarity on the knowledge and understanding the parties share regarding a particular issue or project.
Features of a Memorandum of Understanding (MoU) Agreement
Clearly identify all the parties involved by stating their names and other necessary details.
Purpose and objectives of the MoU should be clearly mentioned without any ambiguity.
Outline how often the parties will meet.
Specify the amount of financial contribution expected from each party.
Indicate who holds the authority to make significant financial decisions.
Maintain proper record-keeping of the financial aspects.
Mention who will handle the daily management of the programme.
Signed and dated by authorised representatives of each party.
Include start and end dates of the agreement and termination conditions.
Advantages and Disadvantages of a Memorandum of Understanding (MoU)
Advantages:
Greater Flexibility
Promotes Cooperation
Early Consensus
Cost-Effective
Disadvantages:
Not Legally Binding
Hard to Enforce
Possibility of Confusion
Limited Legal Safeguards
Example of a Memorandum of Understanding (MoU)
A typical example of an MoU is when two organisations decide to work together on a research initiative. This MoU would clearly define the project’s objectives, specify the duties and contributions expected from each party, and establish the schedule or deadlines for the project's completion.
Difference Between an MOU and an MOA
Full Form: MOU stands for Memorandum of Understanding, whereas MOA stands for Memorandum of Agreement.
Legal Status: An MOU is usually non-binding or partially binding; an MOA is legally binding and creates enforceable obligations.
Intention: MOU conveys intent to cooperate; MOA signifies commitment to agreed terms.
Enforceability: MOUs are not generally enforceable; MOAs are enforceable in a court of law.
Specificity: MOUs are broad and high-level; MOAs are detailed and precise.
Flexibility: MOUs are flexible and informal; MOAs are rigid and formal.
Total Clients Over Term: Cumulative client numbers projected.
Qualifications of Service Providers: Minimum qualifications or licenses.
Estimated Service Value: Total projected worth of services offered.
Service Match Documentation: Proof services align with agreement terms.
Documentation and Responsibilities: Each party’s duty in maintaining records.
Timelines for Service Delivery: Defined delivery schedule and deadlines.
Steps for Drafting a Memorandum of Understanding (MOU) Agreement
Identifying Objectives: Each party sets goals and negotiable terms.
Initial Draft Preparation: Compiles agreed points into a draft.
Defining Mediation Guidelines: Includes mediation process for disputes.
Agreement on Key Terms: Fixes duration, termination terms, and conditions.
Final Review and Signing: Finalise document and execute with signatures.
Memorandum of Understanding (MoU) – Process in India
An MoU records the mutual intent of parties to collaborate. Though typically non-binding, it defines scope and objectives of discussions and leads to future contracts.
Legal Aspects of Online MOUs in India
A valid offer and acceptance must exist.
Free consent from all parties involved.
Legal competence (18+ years, sound mind, not bankrupt).
Lawful consideration must exist.
The object must not violate public policy or law.
Intention to form a legal relationship should be clear.
Stamp Duty on MOU of Company
Normally, MOUs are not subject to stamp duty. But if they include a promise to purchase immovable property worth over ₹100 and are to be produced in court, stamp duty must be paid.
Properly stamped MOUs are admissible in court. Unstamped MOUs are not accepted as evidence.
Basic Contents of Memorandum of Understanding
Introduction: Names and background of parties involved.
Term and Termination: Duration and exit conditions.
Confidentiality: Non-disclosure obligations.
Intellectual Property: IP ownership and rights usage.
Dispute Resolution: Mediation, arbitration or legal routes.
Governing Law: Laws applicable to the agreement.
Signatures: Must be signed by authorised signatories.
Legal Validity of MOU in India
Not a Contract: MOUs are generally not legally binding.
Legal Significance: Can become binding if signed with obligations and consideration.
Pre-Contract Document: Often used as a base for final contract.
Admissible in Court: Can act as evidence of intent.
Required by Law: Some laws require filing of MOUs (e.g. Competition Act).
Enforceability of Memorandum of Understanding (MoU) as per Law
Must show intention to create legal relations.
Must define clear and complete terms.
Should follow statutory requirements (e.g., registration).
Performance by both parties increases enforceability.
Remedies like damages or termination must be clearly outlined.
MOUs in Government Agencies and International Relations
In international law, MOUs become treaties if registered with the UN. In India and UK, MOUs are used across government agencies to promote cooperation.
Govt Example: On 3 March 2023, NADA and NCERT signed an MoU to promote sports.
International Example: On 4 March 2023, India and Mexico signed an MoU for joint R&D in clean energy, aerospace, healthcare, etc.
Memorandum of Understanding vs Similar Documents
MoU: Non-binding, used to outline cooperation or future agreements.
Letter of Intent (LOI): Indicates seriousness; not legally enforceable.
Contract: Legally binding with clear obligations and enforceable in court.
In Summary:
MoU: Early stage, not binding.
LOI: Shows interest, not binding.
Contract: Finalised agreement, legally binding.
Why Choose Sperso Filings for Your Memorandum of Understanding (MoU) Drafting?
We handle documentation for 1000+ companies monthly using expert legal professionals and tech-driven workflows.
We ensure full compliance with government norms and streamline the process for ease.
We offer two free rounds of edits in our base price.
Our legal experts will revise and share the MoU for your approval.
Example of an MoU
Suppose two companies decide to work together on a research project. The MoU they sign would clearly state:
The purpose and goals of the project
The roles and responsibilities of each company
The expected timeline to complete the project
This helps both companies stay clear on their commitments before signing a formal contract.
FAQs on MOU Drafting
Generally, no. But certain clauses can be made binding if specified.
Yes, but usually not enforceable like a contract unless stated.
Businesses, organizations, governments, and individuals planning collaboration.
An MOU shows intent; an MOA (Memorandum of Agreement) is legally binding.
Specify purpose, parties, scope, terms, duration, and sign digitally.
It clarifies roles and reduces future disputes in collaborations.
Introduction, objectives, roles, responsibilities, term, termination, and signatures.
Not always. Needed if it involves property or financial commitments.
It can serve as evidence but is not enforceable like a contract.
Business MOU, Government MOU, International MOU, and Academic MOU.
To outline mutual understanding before signing a formal contract.
Yes, from all involved parties.
Yes, notarisation adds authenticity but is not always mandatory.
As specified in the document—usually 6 months to 3 years.
It's still valid but has limited enforceability in disputes.
A document showing intent to buy/sell property before the final agreement.