Checklist: 6 steps to creating an effective MOU to close deals quickly

When negotiating a commercial deal, clarity and speed are essential for success. A well-crafted MOU (also known as heads of terms) helps both parties establish a solid foundation by defining key terms early in the process. Whether you’re entering into a joint venture, business sale, or partnership, using a customisable MOU template can simplify negotiations and save time.

In this guide, our legal experts outline 6 simple steps to help you create an effective MOU. Plus, we’ll show you how to get started with a professional MOU template.

What is a memorandum of understanding (MOU)?

An MOU, also known as heads of terms, is a preliminary document that outlines the key commercial terms agreed upon by two parties before entering into a formal, legally binding contract. It is commonly used in negotiations for:

• Joint ventures

• Business acquisitions

• Partnerships

• Collaborative projects

An MOU ensures both parties are aligned early in the process, reducing misunderstandings and paving the way for smoother contract negotiations. You can find our full comprehensive guide to creating an MOU via this link.

When should you use an MOU?

MOUs are particularly useful in the early stages of negotiation. They are ideal when you need to:

• Establish mutual understanding without committing to a binding contract.

• Focus discussions on key principles, expediting the process of drafting a definitive agreement.

• Avoid costly misunderstandings by documenting agreed terms upfront.

For example, if you’re collaborating on a new business venture, an MOU allows both parties to align on objectives, responsibilities, and expectations before committing to a long-term contract. You can find out more about MOUs by reading these FAQs answered by our legal experts.

Why use an MOU template?

Creating an MOU for the first time can feel daunting, but using a lawyer-drafted MOU template ensures you address essential terms with minimal hassle. A template simplifies the process, offering pre-drafted sections that are easily customisable to suit your specific transaction.

Docue’s MOU template, for example, guides you through key areas like:

• The purpose and status of the MOU

• Key commercial terms

• The roles and responsibilities of each party

• Confidentiality provisions (if applicable)

This structured approach ensures your MOU is clear, comprehensive, and aligned with your goals. You can find Docue’s MOU template here.

How to write an MOU: 6 Steps to creating an effective pre-contract agreement

1. Define the purpose of the MOU

Start by clearly stating the objective of the MOU (also known as heads of terms).

Why is this document being created and what is the broad scope of the deal? Provide a brief description of the agreement, outlining the purpose and goals for each party.

Whether it's for a joint venture, partnership, or business sale, outline the goals both parties aim to achieve.

2. Focus on key commercial terms

The MOU should clearly define the essential commercial arrangements. This section forms the foundation of the MOU and must provide a concise overview of the key business terms, including timelines, obligations, and deliverables. Below are critical commercial terms to include:

• Outcomes and deliverables: Outline the key expected outcomes and any deliverables to ensure each party gains a mutual understanding of what will be achieved.

• Timeframes, milestones and deadlines: Where applicable, include deadlines for key actions or milestones. Clear timeframes provide structure and help maintain alignment between the parties.

• Funding or payment terms: Detail the financial arrangements, including payment amounts, schedules, and any conditions for releasing funds. This ensures transparency and avoids confusion over financial obligations.

Clearly defined commercial elements are essential to establish a mutual understanding of the contractual terms that will eventually become legally binding, therefore reducing the risk of future disputes.

3. Identify the roles and responsibilities

To achieve the overall objective, its crucial to detail the specific obligations of each party. This sets a clear pathway for each party to understand its duties, and subsequently prevents misalignment during the contract drafting and negotiation process.

If the objective of the agreement relies on certain conditions, such as one of the parties providing specific resources or expertise, then ensure this is clearly outlined in the MOU. For example, one party may supply certain resources while the other provides funding or support, which each have their own distinct responsibilities that come with such consideration.

4. Clearly state any terms that are intended to be legally binding (if applicable)

MOUs are typically not legally binding. However, certain provisions can be made legally binding if clearly defined and agreed upon by both parties. For example, if sensitive information is being shared during negotiations, it is essential to include confidentiality terms in the MOU to ensure such information is protected.

Without legally binding confidentiality clauses, it may be difficult to prevent the other party from disclosing or misusing the information if the deal falls through. Similarly, if both parties agree to refrain from engaging with competitors during the negotiation period, including exclusivity terms as legally binding provisions is crucial. These terms help safeguard your business interests during the early stages.

When including legally binding terms in an MOU:

• Clearly label binding provisions: Ensure that any terms intended to be legally binding, such as confidentiality or exclusivity clauses, are explicitly identified as such.

• Secure mutual acceptance: Confirm that all parties acknowledge and agree to the binding nature of these terms.

By incorporating confidentiality and/or exclusivity provisions into your MOU, you can protect sensitive information and encourage commitment throughout the negotiation process.

If the MOU has not been finalised and key terms remain undecided, consider using a non-disclosure agreement (NDA) to protect confidential information. A unilateral NDA is suitable if only one party is sharing information, while a mutual NDA is appropriate for two-way exchanges. For more information about NDAs, check out this guide.

5. Specify the legal documents to follow

After signing an MOU, the parties will proceed to draft a legally binding contract that formalises the agreed terms. To speed up the process and gain mutual clarity on the next steps, clearly outline any legal agreements required to formalise the arrangement in the MOU. This ensures both parties are aligned on next steps and understand the contracts needed to solidify their commitments.

Examples of follow-up documents include:

• Service Agreement: Outlines services, delivery terms, and payment arrangements.

• Partnership Agreement: Defines partner roles, responsibilities, and profit-sharing terms.

• Collaboration Agreement: Details roles, resources, and project guidelines for joint ventures.

• Share Purchase Agreement (SPA): Governs the sale and transfer of company shares.

Listing these documents in the MOU, and stating which party will draft them sets clear expectations for transitioning from discussions to an enforceable agreement.

6. Sign and execute the MOU

Once all terms are agreed upon, both parties should sign the MOU to confirm their understanding and commitment.

Signing the MOU formalises the document and reflects the intentions of both parties, particularly for any legally binding provisions. For convenience, you can use Docue’s e-sign feature to sign and send the MOU to the other party for their signature.

Executing the MOU marks each party's agreement to the terms and solidifies the foundation for a more detailed, final contract. Ensure that both parties retain a signed copy for record-keeping. Signed MOUs can be securely stored in Docue Drive and easily retrieved when drafting the follow-up contract.

By signing and executing the MOU, you establish a clear, mutual agreement and take a key step toward finalising your business arrangement.

Why use Docue to create an MOU?

Docue’s MOU template is designed to make your life easier, whether you’re new to contract drafting or an experienced professional. Here’s why it stands out:

• Guided questions for clarity: Docue prompts you to address key terms upfront, ensuring the MOU reflects the parties’ intentions.

• Intuitive, user-friendly interface: Draft, edit, and finalise your MOU with ease, even if you don’t have a legal background.

• Comprehensive solution: Create, sign electronically, and securely store your MOU, then transition seamlessly to formal contracts with pre-filled templates.

Docue’s MOU template prompts you to follow each of the above key steps - so why wait? Sign up now to create, send and sign your MOU today.