What is Memorandum of Understanding?

A memorandum of understanding (MoU) is a formal agreement but less formal than contracts. It is executed between two (bilateral) or more (multilateral) parties. The main purpose of this agreement is to establish official/partnership relationships. It is not legally binding on the parties. There is an existence of mutual respect between parties executing MoU.

It is a non binding agreement which defines the terms of an understanding. It creates guidelines for each party on the basis of which they will perform. It is very simple and flexible in comparison to contracts as it is a written document which is less formal and made for mutual arrangement between the parties involved.

Its main purpose is to provide a mutually agreed framework on the basis of which both the parties will work and achieve their defined goals. It is also known as letter of intent. To make an effective memorandum of understanding, a lot of time and attention should be devoted. There is no need of legally enforceable promises like contract. Co-operative relationship between parties is defined under this, which are ready to work together. It gives the detail of parties, date of execution and purpose of MoU.