Memorandum of Understanding (MoU), also known as ‘Letter of Intent,’ or ‘Letter of Understand,’ is a document between bilateral or more parties. The agreement’s purpose is to record the initial plans or understanding between the concerned parties before signing a legal contract. Businesses widely use MoU for an intended deal. It is a starting point of negotiations before the realization of a particular agreement between two or more parties.
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Necessary Clauses that a Memorandum of Understanding should have
Before learning about MoU’s top benefits for businesses, it is vital to understand the list of essential terms that an MoU should have.
- Details of the Party/Parties Involved
- Purpose of the agreement
- Scope of work as agreed by the parties
- Price or Cost Elements
- Non-Disclosure clauses in case of a failed dealing
- Signature of all the parties involved along with the date
It is crucial to take extra care while drafting the MoU to avoid any disagreements between the party/parties involved.
Top Benefits of Memorandum of Understand for Business
Here is a list of top benefits that your business can benefit by using a Memorandum of Understanding:
Establishes a mutual intent between the parties involved
In any business dealings, it becomes incredibly vital for both parties to agree on the common objectives. Here, the MoU plays an essential role in safeguarding the mutual objectives and goals. It not only facilitates excellent business relations but also prevents the chances of dealings to fail. As MoU states the terms and expectations of the parties involved, it ensures smooth negotiations until the final deal is signed.
Decreases the danger of ambiguity
Trust is a very crucial factor during any business dealings. But, there are chances of uncertainty and conflicts of interest between the parties involved. Business dealings can turn rocky when there’s any disagreement with your business partners on the deal’s objectives and terms.
MoU is, therefore, an important document that can safeguard the terms and objectives. Consequently, it helps to reduce the danger of uncertainty over a while. While drafting an MoU includes all the conditions discussed during the initial discussion to avoid conflicts of interest.
Records the initial discussions
The MoU is not a legally binding document. Though it is beneficial when a business partner or partners retract or have forgotten any of the discussed terms. An MoU records all the terms, conditions, and projections negotiated during the early stage of discussion. Therefore, it acts
a handy document to remind the business partner or partners about the agreed common objectives.
Ensures smooth business dealings
Entering into formal contracts can be costly as you’ll have to hire a professional lawyer. Legal agreements may not be necessary when the duration of the project is concise. It doesn’t mean that you should not safeguard your terms and details of the business deal.
Even many big and experienced business houses find it a daunting task to enter into a formal contract. It can be due to the nature of the work or the prolonged duration of the project. In such a scenario, the Memorandum of Understanding can be extremely useful.
An MoU prepares a framework for smooth business dealings by recording the prior agreements. Besides this, if you want to enter into a contract in the future, an MoU can come in handy. In case of any disagreements about the business objectives, an MoU can be referred to as a reminder.
It is always better to be safe than sorry, especially where monetary transactions are involved. Therefore it is advisable to draft a Letter of Intent to ensure the party/parties adhere to the mutual objectives.
MoU helps to facilitate smooth and friendly relationships with counterparts. Besides this, it also ensures smooth business dealings, so don’t underestimate the benefits of an MoU. Protect your business from disagreements that can eventually lead to monetary loss.