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What is a MOU? Comparing MOU with Official Contract

RSL Group – MOU is a form of confirmation or pre-contract that represents the rights and responsibilities of the participating parties, thereby confirming the contents of an official contract to be signed in the future. The article below will provide basic information about MOUs and the difference between MOUs and official contracts.

I. What is a MOU?

1. Concepts

MOU is the abbreviation for Memorandum of Understanding. MOU is defined as a non-legally binding agreement between parties expressing consensus on a certain purpose. These minutes can be bilateral or multilateral, simply showing the willingness of each party to participate in cooperation towards a formal contract, but still ensuring seriousness and mutual respect between the parties. 

2. The role of MOU in business operations

Typically, an MOU is the first step toward a legal contract. In particular, each memorandum of understanding will stipulate many terms such as work requirements, rights and obligations of related parties and understanding of participating parties.

What is a MOU? Comparing MOU with Official Contract - RSL Group-1
What is a MOU? Comparing MOU with Official Contract 3

The MOU defines the accepted expectations of the participating parties as they work together toward a common goal. It can be seen that the memorandum of understanding is not legally binding partly because none of the participating parties wants to resolve the specific issues of the binding agreement and they do not involve the exchange of exchange money and property.

In international commercial transactions, a memorandum of understanding plays a role as an informal record, document or tool, serving as the basis for a future contract (if any). A memorandum of understanding between companies is a non-binding contractual document between the parties, except for confidential and non-competitive agreements.

3. Validity and binding of a MOU

A MOU is a document expressing an agreement between two or more parties. For an MOU to be binding, it must have the following basic contents:

  • Clearly state information and purpose
  • A detailed summary of the provisions of the covenant agreement
  • Full signatures of relevant parties
  • Have complete information on the parties participating in the covenant

The parties involved in signing the MOU need to fully meet the requirements, the signatory can consider the memorandum of understanding as a replacement contract so that the parties will be able to use it in case of lawsuit cases, or two parties disagree when working with each other.

II. Comparing MOU and Official Contract

1. Similarities 

Firstly, both of these documents aim to bring about a common agreement, expressing commitments and terms on rights and obligations. During the cooperation process, when any dispute or violation occurs, the parties involved can use the MOU and contract as legal evidence to reclaim their rights.

Secondly, both the MOU and the contract are established based on the voluntariness and agreement between the two parties. Common goals have been stipulated for long-term, persistent and strong cooperation.

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The provincial leaders congratulated and witnessed Goertek Corporation and Kinh Bac City Development Holding Corporation signing the memorandum of understanding on the land lease at Nam Son – Hap Linh Industrial Park, Bac Ninh province, Vietnam

2. Differences

Firstly, an MOU is an agreement between the parties, not legally binding, essentially an agreement that the two parties create before a negotiation document is completed. It is an agreement before making an official contract. A contract is a written, private agreement between the parties that is legally binding.

Secondly, a MOU in reality often includes a few complex details, is used simply and flexibly, and provides a framework for what the parties need to do as long as they ensure common interests and goals. Meanwhile, because it has the highest legality, the official contract is authenticated by law. If the provisions of this document are violated, the violating party must pay contract compensation costs.

In summary, although a complete MOU does not have much legal value, it still holds the necessary potential power and is a perfect choice to help the parties reach potential agreements in the future.

Above, RSL Group has introduced an overview of the MOU and compared the MOU with the official contract, hoping to provide useful information to readers. See more articles here