Why You Should Opt for an MOU (And Not a Contract)

Have you noticed that we all ‘sign’ various forms of contracts daily? Yes, whether we know it or not. A routine click on the ordinary ‘I agree’ button, found in most privacy forms, is one of those regular contracts that people make every day.

On the other hand, thousands of people sign more formal contracts daily. Sadly, in some cases, the results are disastrous.

How can we take advantage of the benefits offered by perfectly crafted memorandums of understanding to sidestep the perils of a legal contract and get a much better deal?

Here are a few facts on the matter to help you make an informed decision.

MOUs Record Prior Agreements

In the course of negotiations, the parties in a deal usually agree on specific terms. Most likely, such articles will appear in the structure of a future contract.

What happens then, when one of these parties either retracts or forgets to adhere to the agreed terms?

A memorandum of understanding works perfectly well to remedy this.  Even though the document is not legally binding, the MOU is quite useful in the sense that it is a clear record of the terms settled upon by both parties during negotiations.

Excellent as a Future Framework

It can be daunting to enter into a contract when the project is relatively complex or meant to extend over a long period. This is true even when a reasonably experienced business is in the picture.

In such a situation, a memorandum of understanding can be the needed savior, relieving you of needless worries and anxieties.

How is this possible?

An MOU can have the proposed terms of the agreement readily set out in a prior document. In turn, this offers the perfect framework for all future dealings by the parties.

 Establishes a Common Intention

A memorandum of understanding can be a significant asset to the business relations of various parties. In all such relationships, the parties need to understand each other’s objectives and goals.

This is only possible if, from the outset, these parties work to initiate effective communication strategies.

Moreover, the terms of such mutual communication should always be clear. Unless this happens, the dealings between the subjects will often fail.

In the ideal situation, the parties should use a well-structured MOU. It is, thus, easier to establish a common intention. Typically, this leads to better, healthier relations between the partners.

The bonus comes in the form of a long term engagement between the parties.

Enhances Secrecy

An MOU is, thus, the perfect instrument for stoking a clear understanding and harmony between all parties with particular reference to their common objectives.

An MOU is also beneficial because it facilitates safer communication between the parties by protecting confidential information.

Further, the MOU is particularly valuable as a document that works well to encourage the formation of enduring partnerships between the parties.

Simple and Direct

Memorandums of understanding are powerful because they require little time and energy to plan or write. Moreover, MOUs usually require the parties involved to reach mutual consensus. To do that, the parties must take stock of their needs as well as wants. For this to work best, every detail must be put down on paper.

In most situations, MOUs generally appeal to users because they are direct and straightforward. They don’t come with many conditions or intimidating terms that is a characteristic of contracts. Put simply, MOUs don’t require the parties to pull up their sleeves, so-to-speak, and ready themselves for combative legal engagements. Notably, this is also a typical characteristic of most contractual agreements.

Minimizes Risk of Uncertainty

The murky world of intricate business negotiations is often rocky and uncertain.  Especially when such relations are just beginning, things can get particularly hazy.

Overall, most business partners will experience nothing worse than having a bitter disagreement ensue over the terms of a contract.

This is precisely where a memorandum of understanding comes into the picture.

MOUs can act as a beautiful safeguard in such situations. To a large extent, it also reduces the risk of uncertainty regarding the objectives and expectations of all parties.

An MOU is specifically beneficial in relations that require prolonged engagements or partnerships that are strictly commercial. Ordinarily, to avoid bitter disagreements between parties, it is best to set out the parties’ clear ambitions and prospects in the initial stage of the negotiations.

Moreover, doing this can drastically minimize the risk of uncertainties when the process of drafting the formal contract kicks in later.

An MOU works well primarily because the proposed terms for the agreement are already outlined and agreed upon by the participating parties.

Friendlier, More Bipartisan

Most companies prefer a memorandum of understanding over a contract because an MOU is a friendlier, more bipartisan symbol of a working document.

Indeed, an MOU is often preferred for sealing agreements made between charities and nonprofit organizations on issues like the use of space and information-sharing. In some cases, MOUs are used where the parties do not want a legal commitment or cannot come up with a legally enforceable document.

Makes it Easier to Exit Agreements

As noted, a memorandum of understanding can greatly facilitate excellent relations between parties. This works precisely as the terms are set out.

As a key participant in a potential agreement, are you unsure about the wisdom of engaging with the other party in a lasting deal?

Yes, an MOU will likely offer the solace you are seeking. The document is always a fantastic starting point since, from the outset, it establishes what the parties want out of the agreement.

In case you determine that your objectives with the partner will not align, it is much easier to exit the agreement. In contrast, this is more difficult to do if you are dealing with a contract since the latter is legally binding in a court of law.

Indeed, if you desire to exit the agreement after signing a contract, you would be compelled to adhere to a formal, legalistic process of termination. Generally, this is a complex, energy-sapping, and costly route to take.

Helps Parties Read from the Same Script

In this way, a memorandum of understanding works well as a valid basis for a contract that would follow in the future.

Further, the MOU can later serve as a vivid reminder of the objectives and intentions of the parties. This helps to eliminate any traces of confusion and uncertainty in the future.

Finally, it is always best to stay safe in high risk, complex situations. Having an advance MOU document ready is the perfect strategy to guarantee that, going forward, the parties will always read from the same script.

Clarifies the Rationale for Engagement

Even though each party must infuse some thought into the making of a memorandum of understanding, the overall process for drafting one is straightforward.

Typically, each party must determine what they are bringing on the table. They need to spell out what they expect from the other side. All these must be done from the planning stage.

Moreover, the parties must clarify what they are willing to negotiate as well as the rationale for engaging in the MOU. The big point? Such processes, which are clearly outlined in the MOU, don’t require the high level of engagement that a contract demands.

Such factors make MOUs quite popular.

Cost-Saving

A memorandum of understanding can save parties the cost of drafting a full-blown binding document. Further, an MOU comes with the advantage of letting the parties test a watered-down agreement before a contractual engagement.

An MOU document is usually made up of a few pages of text, written in plain English. This is less likely to kill the party mood, compared to a lengthy contract document that features a tortuous legal language, covering more extensive areas of the agreement.

MOU is Perfect for Corporate Agreements

In the corporate world, most companies use memorandums of understanding in situations where they want to achieve a specific business objective without committing to the common binding principles of accountability.

Think of this illustration:

Company A is licensed to explore specific natural resources while company B is experienced in the technological aspects of such exploratory activities. The companies are set to work together for the first time.

Both of these companies are willing to collaborate on a pilot project. This would enable them to explore the commercial potential of the project before entering into a substantive agreement.

While preparing for this, the parties discern that they need a minimum framework as well as a formal understanding to work.

In this situation, an MOU, rather than a contract, is what would serve best as the starting point for a long term relationship between the two companies.

Conclusion

Many people consider a memorandum of understanding as unnecessary. Regardless of such perceptions, if you plan to enter into a lasting agreement with a party, it is wise to consider using an MOU.

Never underestimate the value of the MOU in sealing lasting deals. In business relations, for instance, an MOU is crucial in helping the parties to establish closer links based on collective intentions.

It is wise, in such circumstances, to consult a business lawyer who can help you kick start the process of drafting the best MOU that serves your interests.

Without a doubt, you can always use an MOU to enjoy a significant advantage rather than jump into the murky world of binding, contractual agreement without a thought-out plan.

 

Shawn