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Memorandum of understanding

Memorandum of Understanding - an Overview

A Memorandum of Understanding (MOU) is a written agreement to continue or proceed. It indicates that the parties have come to an agreement and are moving on in their business relationship. It is an earnest declaration that a contract is imminent, even if it is not legally binding.

  • 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.

Benefits of Memorandum Of Understanding

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

  • 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.

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 to 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 business relationship between two parties, 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.


  • 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 of Memorandum of Understanding

At a minimum, an MOU must be executed between a recipient and subrecipient 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 MOUs in India, several laws govern its functioning. Section 10 of the Indian Contract Act of 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.

FAQ about Memorandum-of-Understanding