A memorandum of understanding, or MoU, is a non-binding document to show commitment and understanding of responsibilities for an agreement made between two parties. MoUs are essentially used when two parties want to write down their general understanding of a potential transaction they want to engage in.
MoUs are typically made by governmental organizations, non-governmental organizations and corporate entities when partnering with other organizations to document terms and conditions, transactions and negotiations.
There are different types of MoUs used for different types of contracts or services. Here are some major types of MoUs used by businesses:
An MoU for a joint venture agreement is used in the early stages of negotiation between two or more parties. It is also called a co-venture agreement. A joint venture agreement is a temporary business contract between two or more parties to help work towards a common goal. The agreement defines all responsibilities of the parties involved.
There are two main types of joint ventures – contractual and general joint ventures.
A service contract is a legally binding agreement between a service provider and a client which outlines the terms and conditions of the services that will be provided. For example, construction contractors use a service agreement to detail the renovations that they are making to a client's home and to outline how they will be paid for it. Similarly, a business can use a service contract to hire a temporary freelancer or contractor.
A service agreement MoU would detail the services that will be provided to a business in a non-binding document. They are typically used during preliminary negotiations.
An outsourcing agreement is a contract formed between two or more parties, generally a company and a service provider. The service provider promises to deliver specified services, which is outsourced by the company. All outsourcing MoUs contain the following elements: