Benefits of signing a memorandum of understanding

 What is a memorandum of understanding?

We place a MOU between a handshake deal and a contract. Perhaps a better definition would refer to a MOU as a preliminary written agreement outlining the future contract’s primary terms or framework. A memorandum of understanding remains a powerful tool, as it creates a platform for agreement between two consenting parties.

When preparing a MOU, it is advisable to note that the document cannot pass for a legally binding contract. Nevertheless, it still serves the purpose because there is much resemblance in its contents to a formal contract. As such, and depending on how the words are crafted, there are instances when an MOU is legally binding and enforceable.

Under what circumstances can you use a MOU?

Usually, a memorandum of understanding is helpful when entering commercial partnerships. Such a document establishes the different expectations and goals of the partnership. With a MOU, the parties involved get a clear description of their obligations and rights to one another. 

So, let us look at the circumstances when you may need to use an MOU.

You will find a MOU helpful in case:

• You are not interested in any form of legal ties.
• You are looking for a mutual partnership.
• You intend to highlight common goals for a buyer-supplier relationship.

Is signing a memorandum of understanding beneficial?

Of course, the first question before you even go through the trouble of preparing an MOU is the advantages of preparing a memorandum of understanding. 

Here are some of the benefits you will get from signing a memorandum of understanding:

Establish a common intention

Just as with any business deal, understanding the goals and objectives between the involved parties is significant. Still, it can be a daunting task at times. Signing a MOU can make it easy to strengthen the business ties. 

Most business deals fail due to the absence of effective communication and unambiguous terms. And that’s where it becomes necessary to sign a MOU. With such a document, the agreeing parties have the needed clarity about their expectations and requirements for the partnership. Resultantly, they identify a common intention, which they can build up in the future.

Establish a common intention

Let’s face the truth—at times, business negotiations are uncertain and rocky. In fact, most deals are significantly hazy during the initial stages. The last thing you would want prospecting for a business deal is you disagreeing with your partner. A well-crafted MOU safeguards all the parties’ interests, thus lowering uncertainty in the objectives and expectations. Usually, MOUs are beneficial when dealing with commercial relations and partnerships that are projected to last long. 

Having well-stipulated ambitions and prospects, especially during the initial negotiations, will help you avoid instances of disagreement with your partner. In addition, signing an MOU reduces the uncertainty and risk when preparing a contract in the future. The rationale is that the document sets out all the proposed terms agreeable by both parties.

Keep a record of prior agreement

Usually, when negotiating a business or mutual deal, you should agree on some terms with your partner. Such terms are often captured in the final contract. So, what would happen in case one of the parties does not remember the terms or retracts? That’s when a memorandum of understanding becomes useful.

A MOU acts as a foundational document for a future contract. Even though such a document isn’t legally binding, it is highly beneficial as a records keeper because it highlights everything the parties involved agreed upon. Therefore, with an MOU, you can always refer to any agreements entered in the past as the parties clearly understand their shared goals and objectives.

Governs engagements

Have you ever entered into an engagement and later found out it wasn’t favorable for you? It is natural to find yourself in such conditions. As highlighted, a memorandum of understanding facilitates your relationship with the other individual. As an initial document when setting out a commercial partnership, a MOU establishes the goals and objectives that the parties should work towards accomplishing.

The MOU makes it easy to terminate the engagement because it is not legally binding, as with the case of a contract. However, the terms of exit must be stipulated and discussed amongst the parties. In this case, you do not have to worry about the stress, cost, and complexity that comes with terminating a contract.

Conclusion

When entering into any form of partnership, it is critical to ensure that all parties have a clear understanding of the agreement’s intentions, objectives, and terms of engagement. Thus, preparing a memorandum of understanding can save you a lot of frustration and stress that comes with such partnerships. Besides laying out a foundation for future contracts, an MOU will help both parties understand the objectives and intentions of the project, make it easy to exit it, and keep a record of all the agreement’s terms.