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When you've found the right business partner but you still need to sort out the nitty-gritty for a formal contract, a Memorandum of Understanding helps you get the deal off the ground. With this document, both parties agree to work toward working together. Maybe you're partnering for a one-time project, or starting a long-term relationship. A Memorandum of Understanding allows you to lay out the terms in writing.

Use a Memorandum of Understanding if:
  • You're a business owner about to partner with another business
  • You own a small business and commonly partner with others.
  • Another business has asked to work with your business.
Memorandum of Understanding basics:

You probably need time to settle on all the details of your new business relationship. A Memorandum of Understanding helps you fill in the gap between the handshakes and the signatures. In the meantime, you can work out your terms, and get some assurances that your project is moving forward. You're both business pros, but you'll still need to negotiate.

There are a few biggies to take care of first-like terms of payment. Who's doing what in this partnership? What are your deadlines? What's this project all about? Sketch it out in a Memorandum of Understanding and you're already halfway there. Keep in mind that a Memorandum of Understanding is not a substitute for a legal contract, and may or may not be binding. Consult an attorney if you have questions.

The thing to remember is that a Memorandum of Understanding isn't a contract, per se. It's more a general framework of an agreement to come later. That said, a Memorandum of Understanding doescarry with it some significant weight. It shows that both parties intend to enter a formal agreement in the near future, but are waiting on either some additional details or a certain event to happen first.

Sometimes, a Memorandum of Understanding isn't enforceable

Generally, a Memorandum of Understanding is much less formal than a written Contract but is more formal than a mere handshake. A Memorandum of Understanding oftentimes is not binding on the Parties because it is missing at least one of the Four Elements required for a written Contract to be enforceable. In determining whether or not a Memorandum of Understanding (or any written agreement) will be enforceable, courts will examine the following elements of a contract, including: (1) Whether or not there an Offer? (2) Whether or not the offer was Accepted? (3) Whether or not consideration was exchanged by the Parties (i.e., money for services); and, (4) Whether or not it was the Intention of the Parties to enter into an agreement with legal consequences? Typically, a Memorandum of Understanding does not include an exchange of money and so, it will not be enforceable.You may want to consult one of the attorneys we've contracted with that can advise you at a significantly reduced rate (or as included with your membership package) to help determine the enforceability of a Memorandum of Understanding.

Other documents for you and your business

If you're using a Memorandum of Understanding, chances are you might need one of the following:

  • General Contract for Services
  • Partnership Agreement
  • Consulting Agreement
  • Non-Disclosure Agreement

If you have any questions about what's right for you and your business, we can connect you with a lawyer for quick answers or a document review.

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