Memorandum of Understanding (MOU)
An informal record, document or instrument that serves as the basis if a future contract. A Memorandum of Understanding between companies is a document like a contract but not binding on the parties, except when confidentiality and non-competition agreements are included. It is essentially a collection of key points of an agreement between two parties that are negotiating a contract; in this respect a Memorandum of Understanding is simply the agreement signed prior to the final contract. Memorandums of Understanding are also known for its acronym MOU. Main purposes of a Memorandum of Understanding for in international trade transactions are:
- The statement that the parties are currently negotiating.
- Clarifying the key points of an operation for the convenience of the parties.
- Assess the interest of the other party to carry out the business.
- Collect the advances that occur in each of the negotiations.
- Provides guarantees if the deal collapses during negotiation.
Another characteristic of the Memorandum of Understanding is that can resemble a written contract but usually not binding on the parties in their entirety. However, the majority of these agreements, contain provisions that are binding, such as non-disclosure and non-compete agreements. The two Memorandums of Understanding more used in international transactions are the Memorandum of Understanding for International Distribution and the Memorandum of Understanding for Joint Venture.