MOU & What They Achieve

MOU & WHAT THEY ACHIEVE

Hey, What Happened? Didn’t We Sign the Memorandum of Understanding (MOU)?

You eventually “ink” a contract with your business partner after many months of doing your due diligence and having engaged in rigorous negotiation. You are sitting in your favourite coffee shop enjoying a cup of latte while daydreaming about the brand-new Ferrari that you are going to be able to buy now that your company is thriving. Suddenly, you get an email that says the deal is off, and so, your fantasy of a lovely Ferrari dissipates as quickly as the coffee in your cup.

Your first thought is, “How can they do that? We have signed the MOU!” You have obeyed the cardinal “Getting It In Writing” rule and assumed that the deal is sealed. Can you still be left high and dry by the dishonourable reneging party with no legal recourse?

Very often in the business world, legalistic sounding papers like “MOU” and “letter of intent” (LOI) are bandied about. But are these documents worth the paper they are printed on? What are the consequences if one party breaches the MOU or LOI?  In many cases, the answer is not much. While a breach of a contract typically results in a lawsuit and the awarding of damages to the innocent party, a breach of a MOU or LOI usually does not. This is because the documents are not legally binding. They are more like letters of intent, non-binding agreements to negotiate in good faith.

What Exactly Is A “MOU”?

An MOU is typically used at the early stage of negotiations for an intended business transaction between parties. At this point, parties usually have yet to agree on all the essential terms of their transaction but still wish to set out its broad framework. An MOU is a document that outlines the understanding between two or more parties.

MOUs are often non-binding because they are preliminary agreements subject to a written contract. This incompleteness usually indicates the parties’ intention not to create legally binding relations until the enforcement of a formal contract or agreement.

The common uses of MOUs are:

  • to set out the general intent of the parties to prevent any misunderstandings;
  • to set out the critical points of a complex transaction to help to ensure that all parties are on the same page with regards to what is expected of them;
  • to provide safeguards in case the business deal collapses during negotiations;
  • to provide tangible proof of the business deal to potential investors.

What Must A “MOU” contain?

There is no hard and fast rule regarding what should be addressed in an MOU. 

As a general rule of thumb, an MOU should include the following information:

  • the general intention of the parties;
  • an overview of the business transaction;
  • the critical points of a complex transaction (e.g. price, quality and deadlines);
  • safeguards in case negotiations fail (e.g. confidentiality, non-disclosure and good faith).

Even though a MOU is not legally binding, it is still an essential document since the MOU records the understanding between the parties of the transaction and their intention. The purpose of a MOU is to foster collaboration, respect, and understanding among all parties involved in a transaction so that all parties can derive mutual benefit from the transaction.

If you’re need help drafting an MOU,  contact us via Lawyer Anywhere. We can help ensure that your MOU is as legally binding as possible.

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Susan Tan

Senior Legal Executive

Qualifications:

With more than 10 years of experience in the financial industry, Susan Tan, who joined us from one of the leading corporate and investment banks in Singapore, provides invaluable expertise and knowledge in corporate secretarial.

She is conversant and familiar with the local regulations and requirements for business entities in Singapore.

As a member of our team, Susan is responsible for maintaining and updating the Company’s statutory registers and records, filing all necessary documents and forms with the Accounting & Corporate Regulatory Authority (ACRA), Ad-hoc assignments such as allotment and transfer of shares, amendment of Company’s Constitution and submission of Annual Return to ACRA.

Apart from corporate secretarial work, Susan has considerable experience and expertise in compliance advisory matters, making her a valuable member of our firm.