December 30, 2022
Shreeja Ray

Memorandum of Understanding

What is a memorandum of understanding (MOU)?

A memorandum of understanding (MOU) is a formal agreement between two or more parties that spells out how they plan to work together. An MOU is used when two or more companies want to work together on a project or something similar. These agreements are used by the government to coordinate the work of different agencies.

Most MOUs are not legally binding and are less formal than contracts, which are. But when they do business, they are taken seriously. MOUs are stronger than a handshake or a "gentlemen's agreement." Often, they are the first steps a company takes toward making a legal contract.

The legal basis of MOUs

The Indian Contract Act of 1872 is the first law to back up MOUs. This document explains when and how a formal contract can be made, changed, or canceled. It goes into a lot of detail about many different kinds of agreements.

Section 10 of the act, called "What agreements are contracts," says what kinds of agreements are contracts. It says, "All agreements are contracts if they are made with the free consent of parties who are old enough to make contracts, for a legal consideration, and for a legal purpose, and if they are not explicitly declared to be void here."

The MOU must contain the following:

1. The names and addresses of all involved parties.

2. The agreement's effective date

A description of the MOU's objective.

4. The agreement's terms and conditions

5. Signatures from both parties Before signing a Memorandum of Understanding (MOU), it is essential that both parties understand and agree to its terms.

Before signing the MOU, it is best to consult a lawyer if any terms are unclear.

Positives and Negatives of an MOU


It can provide a framework for resolving disagreements by clearly defining the roles and responsibilities of each party. By clearly stating what each party expects from the other, the MOU serves as a template for any agreement, regardless of whether or not the parties intend to settle the matter in the future.


It can be challenging to enforce, and if one party breaches the contract, the other may have no legal recourse.

The primary disadvantage of consent forms is that they lack legal force. This can sometimes be advantageous, but neither party is required to adhere to the terms of the MOU, so they are free to walk away or modify their expectations.

Procedures Involved in Drafting an MOU

What steps are involved in the drafting and signing of a Memorandum of Understanding? The steps involved in drafting and executing a Memorandum of Understanding (MOU) can vary depending on the parties involved and the purpose of the MOU, so there is no standard response to this question. However, the typical steps involved in the creation of an MOU include the following:

1. In establishing an MOU, the parties establish objectives, requirements, etc.

2. Each side creates a Memorandum of Understanding. Then, a consensus is reached after examining the various points made in the draft.

3. Participants determine the timeline for the MOU's initiation and conclusion. In addition, they specify the conditions, such as noncompliance, that may result in the termination of the MOU.

4. The parties then detail their mutually agreed upon disclosure policy, terms of confidentiality, disclaimers, and confidential information.

5. The MOU is subsequently signed and approved by both parties.


Is an MOU valid in court?

If an MOU satisfies all the conditions for a contract, it might be regarded as legally binding. A legally binding agreement between two or more parties is called a contract, and it imposes obligations on the parties that they must uphold. An MOU must include each of the fundamental components of a contract, such as offer, acceptance, consideration, and a shared intention to be bound, in order for it to be considered legally binding.

How Do a Memorandum of Agreement and an MOU Differ?

A Memorandum of Agreement is different from a Memorandum of Understanding. Both of these documents, which set forth the terms and conditions of a partnership or other business arrangement, are legally binding. The main distinction between the two is that a MOA is more specific and detailed while an MOU is typically more general. An MOU can be used to create a contract between two parties where the terms are less specific and written more broadly than in a MOA.

Can an MOU be modified?

A MOU can be amended, yes. The agreement reached between the parties determines the procedure for amending an MOU. An MOU is a non-binding contract, so the parties are free to alter its terms at any time. It is best to put any modifications in writing and have everyone sign the updated contract, though. This will lessen the chance of any misunderstandings regarding the revised terms of the contract.


Memorandum on GST Input Tax Credit Issues: A Detailed Analysis
Classification of Disc-Pads / Brake-Pads under GST
GST Rate HSN Code for Products of Animal Origin, Not Elsewhere Specified or Included - Chapter 5

Related Blog Post