If you sign a document without making it clear that it’s not to be legally binding, the other party could have a case in court if you back out. But things will be a little trickier if your MOU includes all the contents of a formal contract without any language to indicate it is not legally binding.īe wary about signing a document if both parties aren’t on the same page about what the agreement is. If you make it clear from the beginning that the document isn’t binding, then you can avoid legal troubles if one of you has to back out. The writing could say, “subject to formal contract” or “non-binding.” MOUs that are not legally binding will often include specific language to indicate that. It’s less important what you call the agreement and more important what the terms of it are.įirst, if you don’t want your MOU to be legally binding, both parties must be on the same page about that. Whether a memorandum of understanding (MOU) is a legally binding agreement depends largely on the contents and wording of the document. Two departments of a corporation or a government might come to a particular agreement and sign an MOU instead of a contract. In that case, they might use an MOU instead.Īnother example of when an MOU might come in handy is when the two parties are a part of the same organization. But there are times where international partners don’t want to make the terms of their agreement public. If two countries enter into a treaty together, it becomes public. One example of when an MOU might be preferable to a formal contract is in the situation of international relations. Parties could also use an MOU in a situation where they want to enter into a loose agreement but have no intention of ever entering into a legally binding contract. They’ll also note in the MOU that a formal contract is pending. In the MOU, they would write the names of the two parties, the hopeful end goal of the merger or acquisition, and any terms they’ve come to so far. The two companies could draft an MOU to accomplish that. The two firms might have more negotiating left to do, but they want to sign a document where they both indicate their intention to go forward with the deal.

One example of when an MOU might appear in a business setting is in the impending merger or acquisition involving two companies. Individuals, companies, and governments can all enter into MOUs. Two parties might enter into an MOU together if they are entering into negotiations for a business deal.

A memorandum of understanding (MOU) allows two parties to formalize some of the details for their business relationship before signing a legal contract.

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