Have you heard of MoU? Usually an organization or company will use this document in an agreement. This document is also mandatory and formal in corporate and organizational cooperation agreements. In addition, Singapore’s High Court in Bassatne Mohamed v Rifaat El Gohary argued that the MOU was a legally binding contract. The court will not limit the label of the document (that the MOU is not binding), but instead examines the language of the document and the surrounding evidence to determine its legal effect.
So, before making an MoU make sure you understand what are the important things in the MoU. This article will discuss in full how the MoU needs to be properly and correctly drafted.
Definition of MoU
MoU stands for Memorandum of Understanding. An MoU is an official document in an agreement made by both parties. Moreover, Singapore Legal Advice states that the MoU is a document that records the general understanding and preliminary plans between parties, prior to entering into a formal contract. In addition, the MoU is also known by several designations, such as:
- Letter of Intent;
- Letter of Understanding;
- Heads of Agreement;
- Memorandum of Agreement; or
- Term Sheet
The agreement to be agreed will be contained in this document. So, an MoU is a contract that will be morally binding on an agreement and the agreement cannot be easily cancelled.
Beyond this, the MoU is divided into three types that have legal consequences if in the period of agreement there are parties who violate and harm other parties. These legal consequences arise through the following considerations:
- So that each party to the agreement is spared any disobedience; cancellation of an unclear agreement from either party.
- There are no financial or non-financially disadvantaged parties.
- In order to maintain personal information during the life of the agreement.
What is the Function of MOU?
So, what exactly is the function of the MoU? Why does this document need to be properly and correctly organized if there will be another document that will describe an agreement in detail? Here we explain the function if the company provides an MoU before proceeding with the agreement to a more formal document.
1. Reaching a mutual agreement
In a business agreement, it is important that both parties understand the goals to be achieved through the agreement made. Do not let in a cooperation agreement, it even harms one of the parties. Therefore, this document is a solution so that both parties know the expectations to be achieved through the cooperation.
2. Avoid the risk of uncertainty
Often in an agreement there is a risk of uncertainty that either party will experience. Therefore, the function of the MoU is as a medium to reduce such uncertainty. Both sides will understand what each other’s goals are.
By knowing what is approved and disapproved, both parties will find a middle ground to equally achieve their expectations. Once both parties understand the agreement in it, it will continue regarding the contract and will be legally bound.
3. Note the agreement in the initial negotiations in MoU
Although the MoU is not a legally binding document, it will record what was agreed upon during negotiations in order for it to enter into a contract. This will help each party to remember the things that have been agreed upon.
4. Can cancel the agreement easily
If both parties have not made a formal contract, then the agreement can be void in accordance with mutual agreement without having to go through various complicated legal processes.
5. Become a framework between agreements and contracts
The MoU is a document that will provide an overview of the agreement to be agreed on both sides. So, this document is able to convince those who may still be undecided on the deal before drafting a contract.
Contents Contained in the MoU
Before drafting an MoU, it’s a good thing to understand what the contents contained in this document. By drafting this document properly and correctly, then your business will look professional and serious about the cooperation that will run. Here is the content in a good and correct MoU:
This title writes down what agreement the two sides will agree on. Make sure you write the title clearly, concisely, and densely. In addition, also include the company logo to make the document more accurate.
The opening section is the section that will list the time the MoU was made, the place to sign the agreement, and the position of each party involved must be clearly written. In addition, points of approval are also listed in this section.
3. Substance of MoU
It is very important to write down what the purpose and purpose of the agreement is in the MoU. In addition, you can also include the scope of activities, design activities, and the period of time that both parties have agreed. Do not forget to also include details of the costs that will be used during the cooperation period.
This section describes the closing sentence that is conveyed simply and easily understood by everyone.
This section will contain the clear name and signature of each party involved in this cooperation.
Now you know how the Memorandum of Understanding (MoU) should be written properly and correctly. By making this document in accordance with the format, your business associates will judge that the business you run is serious about doing the cooperation.
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