Legal Advice

Advantages And Disadvantages of MoU

Check out the advantages and disadvantages of the MoU presented, which everyone should know about.

Drafting a memorandum of understanding majorly allows 2 parties to come to the same page regarding the terms and conditions of the agreement. The process generally occurs in the sophisticated treaty or contract negotiation stage. Lets see the Advantages and Disadvantages of MoU.

Basics You Need to Know About Memorandum of Understanding:

The memorandum of understanding is ideally a written agreement signed by 2 or more parties that outline the basic terms for a more binding contract to come. A memorandum of understanding is not legally enforceable, but it is ideally a formal contract or treaty during the negotiation.

The memorandum of understanding functions as for the pre-agreement, which outlines the parties given in the agreement as per the terms and conditions of the agreement and the expected responsibilities for the 2 parties. The government agencies generally use a memorandum of understanding to negotiate treaties in international relations. Even businesses use this memorandum of understanding.

The Working of the Memorandum of Understanding

There are 2 parties involved in a contract negotiation outline the terms and conditions of the given agreement. The memorandum of understanding will record that both the parties have come to a common point of agreement and have a mutual understanding on a standard line of action with the intent that further negotiation and discussions are likely to follow. The terms and conditions are written down in a formal agreement signed by both parties. The memorandum of agreement is nearly the same as a letter of intent. The only difference here is that the letter of intent deals with only 2 parties. You should also know that a memorandum of understanding is not enforceable by the law, but only some language in the document can make it more legitimate.

Advantages of MoU:

Helps You Establish One Common Intention

Today businesses deal with several challenges, and both parties must understand each other’s goals and objectives. It can be challenging at times, but a memorandum of understanding is one of the best assets you can have if you run a business. Your business is likely to fail if you do not clearly understand the terms and conditions besides clear communication. It is the only reason why you should have a memorandum of understanding in the first place.

Parties are most likely to set out the requirements and expectations. It will establish a shared intention for all the agreements or engagements in the future. So you would wonder if there is any difference between a memorandum of understanding and a formal contract. The significant difference here is that a memorandum of understanding is not binding legally while a contract is legally binding. The memorandum of understanding should not contain all the terms or promises in the agreement.

Minimizes the Risk of Uncertainty

Business negotiations can be challenging and also, at times, uncertain. They can be hazy, particularly at the start of the relationship between some parties. Nothing is worse than disagreeing with the business partner over some contract terms. But the memorandum of understanding provides a great way to safeguard or reduce the risk of uncertainty and reduce expectations and objectives.

It is beneficial, especially for the commercial partnership and relations where the engagement is over for a long time. Setting clear ambitions or goals in the initial negotiation can avoid disagreement between 2 parties. It can also minimize the risk of uncertainty when drafting a formal contract. It is mainly because the parties have already set out and agreed upon the proposed terms.


Minimize the Prior Agreements

During the negotiation course, 2 or even more parties are likely to agree on some terms and conditions which would appear in the future contract. Things change when one of the parties forgets or likes to turn from the terms and conditions. This is where the memorandum of understanding comes into the picture.

Even if the document is not legally binding, it is helpful as it records what has been available during the negotiation phase. Hence it offers a clear understanding between various parties as to the common objective. Above all, a memorandum is beneficial as it allows the parties to communicate all secret information safely. It is precious in partnership formation.

The Easy Ending of the Engagement

The memorandum of understanding can facilitate positive relations between different parties as the terms are already present. If you are unsure about whether you want to engage in relations with the other party or not, you have to go for the memorandum of understanding. A Memorandum of understanding is one of the best places to start, as it establishes what the parties want to achieve from this agreement.

Exiting the agreement is easy if you learn that the objectives do not align with your objectives. Hence a formal termination process should be followed, and it can be more stressful, complex, and costly at times.

Disadvantages of MoU

Not Legally Enforceable

The memorandum of understanding is a nonbinding agreement, which means neither party is liable to suffer all the consequences for not following the agreed terms and conditions. It differs from the memorandum of agreement, which either party can challenge in court.

Can Be Confusing

Depending on how the memorandum of understanding is written, some of the memoranda of understanding have technical terms enforced by the judge if the terms are stipulated. Several memoranda of understanding can include all the disclaimers that the terms of the agreement are not meant to be binding contractually and should not be interpreted.

Add to the Negotiation Time

Negotiating the terms in any memorandum of understanding may add to the time it takes to finalize any contract. There will likely be a great degree of back and forth as both parties negotiate the contract terms. It might present some challenges if you have a limited deadline.

Above all, you might be wondering if it is necessary to get into a memorandum of understanding or not while you need to know that it is essential. It would be best if you did not underestimate the benefits of using the memorandum of understanding.


Get in touch with the professionals at Vakilsearch who can help to provide you with the right direction of making a MoU which is legally approved. 

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