What lies in between a legally binding agreement and a “gentleman’s agreement? It is the MOU or Memorandum of Understanding! Although not legally binding in its nature, an MOU is considered a serious and formal agreement, often used to establish partnerships. It can be used to communicate a mutual understanding of business to be conducted and can serve as guidelines for a formal contract later.
For example…
Take Paul and Daniel, who are food scientists. They want to create a salad product that when opened will automatically dress itself with the salad dressing contained in the packaging. Daniel agrees to work on the prototype of such a container that can dress salads while Paul works on the salad ingredients. They establish a MOU to outline each other’s responsibilities and plans for their partnership. Although not legally binding, the MOU sets up the terms under which the partners agree to work including both financial and commercial terms.
