MOU stands as a full form of for Memorandum of Understanding. It is a formal agreement between two or more parties, which represents mutual consent on an issue. This type of document does not imply a legal commitment on the part of the parties; however, it contains all important details and has a high degree of mutual respect and seriousness. It can be considered as the first step to a legal contract and serves as a basis for making a formal contract later on.
MOU Full Form | What is the Full Form of MOU?
In the US, MOU is called a Letter of Intent (LOI). It is widely used in international agreements as it can be created and ratified in a short time frame. It is also used to modify the existing legal deals.
Many companies and government agencies use MOUs to indicate a relationship between departments, agencies or closely held companies.
A comprehensive MOU should set a clear roadmap to its parties on how to move from the Intention Stage to the Contract Stage. It should address the following points:
- Identity of the parties involved
- Definition of the project
- Duration of the project
- Responsibilities and contribution to the project from the side of each party
- Funding for the project
- Detailed terms and conditions before proceeding to contract stage
- Division of share capital between parties
- Number of board members appointed by each party
- Explicit signatures with dates.
MOU in Private Companies-
MOU act as a milestone towards the realization of a project with the input of different parties. It is used at the Intention stage of the project.
If any company considers launching a new project or service by inviting new ventures for the same, it will incorporate a new company held jointly, by implying MOU between the companies, commonly named as joint venture agreement which occurs during the Contract Stage
MOU in Government & Public Affairs
MOU can be used between a government agency and national or multinational agencies. India is witnessing numerous MOUs signed with other countries for socio-economic, infrastructural, industrial, agricultural, medical, technological developments.
Difference between MOA and MOU
MOU- Is the first step of mutual understanding between parties to exercise any activity together.
MOA is a conditional agreement written between parties to work together on an agreed project.
Advantages of MOU
- It is simple and direct and doesn’t involve the terms and conditions as laid down in a legally binding contract. Due to the informal yet seriousness of MOU, sincere attention is devoted to framing an effective MOU to arrive at an agreement
- If one business intends to collaborate with another business, the parties may wish to first analyze their extent of convergence before spending significant amounts of time and legal fees on preparing a more detailed binding agreement.
- MOU’s are usually less time consuming and avoid the legal implications as involved in a contract.