Company Registration Compliances

Comprehension of the Format of Memorandum of Understanding

A Memorandum of Understanding (MOU) is a document between two or more parties that explains the proposed agreement between them. It is not legally binding but signals the readiness of the parties to move ahead with a contract.  This document is the starting point for negotiations as it defines the scope and purpose of the talks. MOUs are used to measure the intention of the parties involved before any official deal is signed between them. MOU is also known as a ‘letter of intent’. In this blog, you will get an overall understanding of the format of Memorandum of Understanding.

Features of Memorandum of Understanding

Individuals and organizations use MOUs in a variety of situations. Some of the important features of the Memorandum of Understanding are as follows:

• An MOU specifies the name and other details of the parties between whom memorandum of understanding is signed.
• It includes the purpose and the goals for which the memorandum is being signed.
• Memorandum of Understanding also specifies the plan for the meetings between the two parties.
• The amount of capital contribution to be made by both parties is also included in the memorandum.
• The memorandum also decides the persons who are going to take care of the day to day operations and keep the financial records of the future business or program.
• Once the memorandum is prepared and agreed upon by both the parties, it is signed by the authorized individuals representing each party.

How to write an MOU?

MOUs have a very distinctive drafting process. Following is the process of drafting an MOU:

• The first step is to determine the wants of the parties involved and what they are willing to negotiate on.
• Once the planning is done, the second step is to draft the initial MOU. Both the parties involved drafting their initial MOU.
• The third step is the negotiation phase in which guidelines are set by both the parties as per their requirements.
• Once negotiations are completed, a timeline for MOU is established. An overall timeline from the effect of Memorandum of Understanding until its expiry date is decided.
• The final step in drafting an MOU is to add restrictions, privacy statements, etc. by both the parties involved and then sign the final MOU.

Legality of MOU

Generally, MOU has no legal binding. However, if there is an exchange of money, then it may have legal implications. In order to be legally binding, MOUs must include the following:

• All the parties involved in the memorandum should be listed by their legal name, address, and business.
• MOU must identify itself as an MOU and not as a contract.
• For an MOU to be legally binding, it should clearly identify the purpose of the agreement. Moreover, a separate section of the intentions and goals of each party should be listed.
• The financial obligations of both parties should be decided.
• Finally, all the parties involved should sign the MOU.

Use of Language in Memorandum of Understanding

Language is the crucial factor that determines whether the MOU is legally binding or not. If the language used in MOU outlines the terms of the offer and is backed by considerations, then MOU will function as a legally enforceable contract. However, if it is clearly mentioned in the Memorandum that “This memorandum is no way a legally enforceable contract between parties mentioned above” there won’t be any legal binding. Therefore the use of language while drafting the format of Memorandum of Understanding becomes important.

What should be included in the Format of Memorandum of Understanding?

The content of the format of Memorandum of understanding includes:

• Purpose of entering into MOU.
• Responsibilities of both the parties involved in MOU.
• Meetings and the manner of reporting
• Technical and financial support
• Any sort of monetary consideration, if involved
• The person who is going to be responsible for managing the future operations
• Duration of MOU, from beginning till it expires
• Confidentiality clause between the parties involved
• Any sort of conditions which may drive the MOU towards termination
• Indemnity Clause etc

Stamp Duty on MOU

Generally, no stamp duty is payable on MOU. However, if an MOU incorporates an agreement to buy any immovable property worth more than Rs 100, it needs to be stamped before producing it in the court. A document on which stamp duty is paid, it can be admitted as evidence in the court. The document which is not properly stamped is not accepted as evidence by the court.

Conclusion

MOUs play an essential role in the business world. MOUs usually do not involve any exchange of money. Generally, MOUs are not legally binding. However, if there is an exchange of money it is considered as a legally binding contract.