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Memorandum of Understanding

A Memorandum of Understanding (MOU) is a legal agreement among two or more parties. Companies and organizations use MOUs to establish an official partnership. Usually, MOUs are the initial steps towards a legal contract or an agreement. It is also known as the ‘letter of intent’, which is a non-binding written agreement that implies a binding contract to be followed.

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How does memorandum of understanding work for you?

This agreement is signed between service providers and the clients to mutually agree
upon terms and conditions that govern all transactions.

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How does an MOU Work?

An MOU is an expression of agreement to continue or proceed. It symbolizes that the parties have reached an agreement and progressing ahead with their business relationship. Although it is not legally binding, it is an earnest declaration that a contract is imminent.

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Benefits of MOU

Establishes a Common Intention

  • With any business dealing, it is paramount that both parties understand each other's goals and objectives.
  • An MOU can be a great asset to your business relations.
  • It is highly beneficial with clear terms and effective communication and dealings.

Reduces Risk of Uncertainty

  • Business negotiations can be rocky and uncertain at times. They can be particularly hazy at the beginning of relations between the parties.
  • There is nothing worse than disagreeing with the business partner over contract terms.
  • Hence, MOU’s provide a great safeguard to reduce the risk of uncertainty in expectations and objectives.

Records Prior Agreements

  • Often during negotiations, two or more parties agree on certain terms which would then appear in the future contract. If a party retracts or forgets these terms, MOU comes handy.
  • Although the document is not legally binding, it is useful as it records what has been agreed upon during negotiations.
  • Therefore, this provides a clear understanding of the parties as their common objectives.

The Ease of Ending Engagements

  • An MOU can facilitate positive relations between parties as terms are set out. An MOU is a great starting point that establishes what both parties want to achieve out of the agreement.
  • Therefore, if you want to exit the agreement after the contract is formed, a formal termination process must be ensured. This can be more complicated, stressful and sometimes expensive.

Provides a Framework for Future dealings

  • An MOU can put our minds at ease. Having the proposed terms already set out in a prior document provides a framework for future dealings.
  • The MOU can also be referred back to as a reminder of the parties’ objectives and intentions if any confusion arises.

Secures The Partnership:

The master service agreement envelopes an entire relationship between the business owner and the client, covering all facets of the agreement that is likely to emerge. Such a contract is an advantage for anyone beginning a long-standing association with a dealer or a client.

Time-Saving

A master service agreement promotes a structure to consider and work out terms and requirements. So, the same conditions need not be continuously bargained for deals that are identical or associated with one another.

Checklist requirements of an MOU

At a minimum, an MOU must be executed between a recipient and sub-recipient and a third-party service provider which includes the following information.

  • Agency Information:
  • Recipient’s or sub-recipients identification information with points of contact.
  • Service provider’s identifying information with points of contact.
  • The unconditional commitment of third party providers to provide service.
  • Description of services to be provided.
  • Provision of the scope of services.
  • Specific contract to be matched.
  • Duration of the contract.
  • Point-in-time number of clients receiving service.
  • Total clients receiving service over the grant term.
  • Qualification of persons providing service.
  • The estimated value of services provided.
  • Documentation of service match
  • Documentation requirements, and responsibilities of the service provider and recipient.
  • Standard timelines of the service provider and recipient for providing services to individuals.

Memorandum of Understanding (MOU) process in India

A MOU (Memorandum of Understanding) is nothing but an agreement executed between 2 or more willing parties, in the format of a formal document. An MoU is not legally binding on the parties. However, it indicates the willingness or intention of the parties involved, to proceed with the contract.

An MoU often defines the purpose and scope of a negotiation and hence, it can be regarded as the beginning point of the said negotiation or talk. More often than not, MOUs are seen in negotiations related to global treaties. They are also seen in business dealings involving high stakes (for example, merger talks).

Concerning MOU in India, several laws govern its functioning. Section 10 of the Indian Contract Act, 1872 lays down the fundamental necessities of a legally binding agreement or contract:

  • There must be an offer delivered by one party and received by another.
  • The consent of the parties must be free and not affected by fraud, coercion, or undue influence.
  • The parties must be qualified to enter into a contract. This means that they must be more than 18 years old, must be of sane mind, and not considered as insolvent/bankrupt.
  • There must be a lawful consideration.
  • There must be a lawful object.
  • There must be an intention to foster a legal relationship.

What is Included in an MOU?

  • An MOU precisely outlines particular points of an agreement. It identifies the parties, explains the project on which they are agreeing, determines its scope, and details each party’s role and responsibilities.
  • While not legally enforceable, the MOU is an important step because of the time and effort involved in negotiating and drafting an adequate document. To create an MOU, participating parties are required to reach a mutual understanding. In the process, each side receives what is more important to the other before proceeding forward.
  • In general, each party involved draft its own MoU, with favourable or best-case scenarios. It considers the selected or ideal outcome for the said party. It also includes what the party has to offer to the other party/ parties and the non-negotiable points from its purview. These will be the starting points with which the party goes ahead with the negotiations.

Stamp Duty on Memorandum of Understanding

Normally, no stamp duty is levied on Memorandum of Understanding. However, if the MOU consolidates an agreement to purchase fixed property, the worth of stamp duty should be more than Rs 100/- . To produce it in court, it should be stamped.

This arranges evidentiary value and is recognized as evidence in the court of law. If the document is not stamped properly, it will not be admitted as evidence by the court.

FAQs on Memorandum of Understanding

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Recent Updates

Andhra Pradesh Government Signs MoU with Amul

22-Jul-20: In an attempt to boost the cooperative dairy sector in the State, the Andhra Pradesh Government has signed an MoU with Amul. This is expected to change the fate of lakhs of women and dairy farmers, who depend on the cooperative dairy sector. This is an important step to make Andhra Pradesh a marketing hub for the Southern states.

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