Techopedia Explains Memorandum of UnderstandingĪn MOU is a non-binding preliminary agreement that falls somewhere between a handshake deal and a legal contract.

This term is also known as memorandum of agreement (MOA) or as a letter of intent (LOI) in the United States. It is also used before or during the negotiation process to define a party’s initial position as a preliminary document that will be modified as the final deal is shaped. Although not legally binding, the MOU is a formal document that puts in writing the willingness of all parties to expedite the deal and move the contract forward. When the parties have reached an understanding that is acceptable by each of them, the MOU can be used to document all of the most important stances for each party. The MOU is often the starting point for negotiations, and is used to sketch out the purpose and scope of the forthcoming deal and make sure all parties are on the same page. Additionally, an MOU may be issued by smaller local businesses and municipalities (counties or townships, for example.) This is more expeditious than other forms of documentation and is used both by corporations (usually in high-stakes business dealings such as mergers) and by international agencies or nations (such as during treaty negotiations). An MOU indicates that a legal contract will be forthcoming.

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