Top 5 FAQs about memorandums of understanding answered

1. When do you use a memorandum of understanding?

A memorandum of understanding, also known as heads of terms, is useful when parties want to establish a mutual understanding before entering into a legally binding contract. It is commonly used in commercial situations where parties are in the early stages of negotiation, such as for joint ventures, business sales, collaborations, or partnerships. The memorandum of understanding is used to document the key commercial terms and principles that are agreed upon between two parties in relation to a proposed transaction.

Entering into a memorandum of understanding can focus the parties' minds so that the most important issues and principles are discussed and agreed upon as early as possible in the negotiation process, speeding up the path to signature of a more formal, definitive agreement.

Find out more about when to use a memorandum of understanding by reading our comprehensive guide.

2. Who prepares the memorandum of understanding?

Typically, one of the parties involved in the deal prepares the memorandum of understanding. In larger or more formal arrangements, legal representatives may assist in drafting the document to ensure it accurately reflects the parties' intentions. If one of the parties is represented by an agent, the agent may also prepare the memorandum of understanding.

If you are looking to prepare your own memorandum of understanding, you can find our fully customisable template here.

3. What comes after the memorandum of understanding?

Following the signing of a memorandum of understanding, the parties usually proceed to draft a detailed, legally binding contract based on the agreed terms outlined in the memorandum of understanding. This contract formalises the agreement and includes specific obligations, responsibilities, and legal protections for each party. In some cases, further negotiations or adjustments to the terms may occur before the final contract is completed.

Docue’s legal contract templates can both be easily customised to suit the details of your specific transaction. For a more in-depth dive into the types of written contracts that typically follow a memorandum of understanding, check out this blog.

4. Is a memorandum of understanding legally binding?

A memorandum of understanding is typically not a legally binding document. It serves as a preliminary agreement between parties, outlining the main points of understanding before a formal contract is created. However, depending on the language used and the intentions of the parties, some elements of a memorandum of understanding may be enforceable in certain jurisdictions. It is essential to include a clear statement about whether the memorandum of understanding is intended to be legally binding to avoid potential misunderstandings.

5. Is a memorandum of understanding confidential?

While a memorandum of understanding itself is not inherently confidential, parties often include confidentiality clauses within the document to protect sensitive information. If confidentiality is essential but the terms of the memorandum of understanding have not yet been finalised, it may be better to draft a separate non-disclosure agreement (NDA) in the initial stages. On the other hand, if you are ready to create a memorandum of understanding, it’s important to explicitly state in the document that certain information is to remain confidential. This ensures that proprietary or sensitive information is legally protected.

For more tips on creating an effective memorandum of understanding, check out our 7 top things to consider when drafting one.

Why use Docue to create your own memorandum of understanding?

• Guided questions for seamless clarity and alignment: Docue’s memorandum of understanding template is designed to simplify the process for you. By asking you a series of tailored questions, Docue guides you to address key terms in the document, prompting you to think through essential details. If you're ever uncertain about an answer, this serves as the perfect opportunity to touch base with the other party and clarify the terms up front. This proactive approach helps you avoid unnecessary time and costs later, as there’s no need to revisit key points - they’ve already been discussed and agreed upon.

• An intuitive, user-friendly experience: Docue is built with ease of use in mind, so even those without a legal background can navigate the platform effortlessly. The intuitive interface makes the process feel straightforward, minimising complexity and ensuring you create a memorandum of understanding that meets all your needs without overwhelming you with jargon.

• A comprehensive, all-in-one solution for your memorandum of understanding needs: With Docue, you’re not just creating a document - you’re streamlining the entire process from start to finish. Create your memorandum of understanding, send it for e-signature, and securely store the finalised document, all within Docue’s platform. And when you’re ready to draft a formal business agreement, you can jump right in with Docue’s contract templates, pre-filled with your memorandum of understanding’s key terms, saving you from starting from scratch.

Ready to make your agreements faster, easier, and more secure? Sign up now to use Docue's memorandum of understanding template.