Legal terms can get confusing and can detract from the nature of an agreement or arrangement. When it comes to a memorandum of agreement and a memorandum of understanding, the terms can be used interchangeably. The reason for this is because there are more similarities than differences. Still, there is one distinct difference between an MOA and MOU. In this article, we’ll explain the differences between a memorandum of agreement and memorandum of understanding.
What is a MOA?
A MOA is a document that conveys a consensus between two parties to cooperate to achieve an agreed objective. It is a document saying that the parties agree to work together on certain conditions before signing the final agreement.
What is a MOU?
A MOU is a non-binding document that records proposed terms of an agreement. It outlines a relationship of cooperation between two or more parties and gives commercial certainty despite not being legally binding.
Key similarities
Legally Binding
Memorandums do not intend to create a binding relationship. Suppose a party fails to carry out a promise under a memorandum. In that case, the other party cannot legally enforce those promises. However, a MOU or MOA can be legally binding documents if they satisfy the formation requirements under contract law. These include intention, consideration, certainty. In effect, a legally enforceable memorandum will hold parties liable for any commitments made to each other. In other words, if the objective is to bind parties to the terms, a MOA and MOU can be legally enforceable. It all depends on the language used in the document.
Content
Every MOA and MOU is unique to the project, relationship and arrangement. However, certain features are consistent in a MOA and MOU. The standard features include:
- name of the parties to the MOU or MOA;
- purpose of the MOU or MOA;
- when the relationship begins and ends;
- disclaimers;
- financial obligations to each party;
- options to include clauses; and
- jurisdiction and governing laws.
Key difference
Purpose
The critical difference between a MOU and MOA is its purpose. The purpose of a MOA is to write down the parties’ confirmation that they agree to work together. For instance, if A and B decide to start a cake business, the MOA would outline that A agrees to work with B, and B agrees to work with A on a cake business.
On the other hand, the purpose of a MOU is to outline what the parties understand about the agreement. For instance, if A and B sign a MOU on their cake business, the MOU may outline that A and B’s collaboration is solely to make cakes and the location of their business.
Additionally, a MOU serves a range of purposes which include:
- structuring a framework for future negotiations;
- outlining all parties’ general commitment to cooperate;
- stating the details of the agreement; and
- identifying regulatory and dispute resolution arrangements.
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Need further assistance?
Due to there being minimal differences between a MOA and MOU, some people use the terms interchangeably. It is okay to do so. On the other hand, some may distinguish the two memorandums. Thus, it is essential to understand the differences between the two.
We recommend you seek legal advice from our lawyers before signing any MOA or MOU to ensure that you are not legally bound to the terms of the document. If you are interested in drafting a MOU, see here.
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