How Does a Memorandum of Understanding Work?


Quick Answer

A memorandum of understanding refers to an agreement between two or more parties on a specific topic and includes the terms or details of the agreement. In most cases, this is considered a legally binding document and reflects the intent of all parties to adhere to the terms defined in the memorandum.

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Full Answer

A memorandum of understanding includes identification of all parties, a clear description of the topic of agreement, any defined objectives and a summary of the terms of the agreement. The memorandum also includes signatures from all parties. Most memorandums of agreement include four primary elements, consisting of offer, acceptance, consideration and the intent for all parties to be legally bound by the agreement.

In most cases, a memorandum of understanding is a precursor to a formal contract and reflects the intent of all parties to achieve legal agreement. Should one or more parties fail to meet the agreements as defined, a memorandum of agreement provides some legal protection for the other parties. Most documents include clear identification of expectations, defined timeline or duration of the agreement, and any contractual elements. The memorandum of understanding serves as a foundation for future contract definitions, while allowing efforts to proceed. For many business agreements, the memorandum of agreement allows multiple parties to move forward with work efforts while contractual negotiations proceed.

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