# Understanding MOUs: Key Features and Differences From MOAs

## What Is a Memorandum of Understanding (MOU)?

A Memorandum of Understanding (MOU) serves as a formal document outlining an agreement between two or more parties. While an MOU is generally not legally binding, its ultimate enforceability relies on the specific intent and language included. Regardless, it reflects the parties' commitment to advance toward a more formal contract. 

MOUs are often utilized to define the framework and objectives for upcoming negotiations, serving as an essential precursor in both international treaty discussions and significant business transactions like [mergers](https://www.investopedia.com/terms/m/merger.asp).

### Key Takeaways

*   A Memorandum of Understanding (MOU) is a formal agreement that outlines broad terms and indicates parties' intention to move forward with a contract, though it is not always legally binding.
*   MOUs are commonly used in international negotiations and government planning as they are less formal than treaties and can be developed quickly.
*   The primary advantage of an MOU is that it allows parties to clearly state their objectives, reducing uncertainty and preventing future disputes before entering a binding agreement.
*   While drafting an MOU can be time-consuming, it serves as an essential blueprint for any potential legal contracts and clarifies parties' expectations and responsibilities.
*   Unlike a Memorandum of Agreement (MOA), which details specific actions and responsibilities, an MOU generally describes broader concepts and mutual goals.

![Memorandum of Understanding (MOU)](https://www.investopedia.com/thmb/R-ZUMydPRc1VHNRjgVXi5a-HJrk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MOU_source-6dcbdc0897664f2ca0b866d6b2a06f26.jpg)

*— Investopedia / Nez Riaz*

## Understanding the Functionality of an MOU

An MOU shows that parties agree to move forward after reaching an understanding. Although it is not always legally binding, it is a serious declaration that a contract is imminent.

Under U.S. law, an MOU is similar to a [letter of intent](https://www.investopedia.com/terms/l/letterofintent.asp). In fact, arguably a memorandum of understanding, a memorandum of agreement, and a letter of intent are all similar documents. All communicate an agreement on a mutually beneficial goal and a desire to see it through to completion.

### Key Considerations for an MOU

An MOU isn't always legally binding, but it helps parties prepare for a future contract by outlining key concepts and expectations. Communicating in clear terms what each party hopes to gain from an agreement can be essential to the smooth execution of signing a legal contract in the future.

MOUs communicate the mutually accepted expectations of the people, organizations, or [governments](https://www.investopedia.com/articles/investing/102413/why-and-when-do-countries-default.asp) involved. They are most often used in international relations because, unlike [treaties](https://www.investopedia.com/terms/t/taxtreaty.asp), they can be produced relatively quickly and in secret.

They are also used in many U.S. and state government agencies, particularly when major contracts are in the planning stages.

## Essential Elements of an MOU

An MOU clearly outlines specific points of understanding. It names the parties, describes the project on which they are agreeing, defines its scope, and details each party's roles and responsibilities.

While not always legally enforceable, an MOU is a significant step because of the time and effort involved in negotiating and drafting an effective document.

To [create an MOU](https://www.investopedia.com/ask/answers/042715/what-difference-between-letter-intent-and-memorandum-understanding.asp), the participating parties need to reach a mutual understanding. In the process, each side learns what is most important to the others before moving forward.

> **Important**
>
> An MOU communicates the mutually accepted expectations of the people, organizations, or governments involved.

Each party starts by drafting its ideal MOU, considering its goals, offers, and non-negotiable points.

## Weighing the Pros and Cons of MOUs

An MOU lets all parties clearly express their objectives, reducing uncertainty and preventing future [disputes](https://www.investopedia.com/terms/l/litigation-risk.asp).

Furthermore, by clearly laying out what each party expects of the other, an MOU provides a blueprint for any contract both parties may or may not wish to draw up in the future.

The biggest drawback of an MOU, depending on your point of view, is that it is not necessarily legally binding.

While in some cases this may be a benefit, since neither party is required to do what they say in the MOU, they can simply walk away or change their expectations. Of course, this all depends on the intent and legal language of the MOU.

Creating an MOU can be time-consuming, and if one party changes its requirements, it could waste resources.

## Is an MOU Legally Binding?

An MOU is a legal document, but it's not always legally binding. Often, it signals that a contract is close. The specific intent and language of the agreement will determine whether it is actually binding or not.

## What Is the Difference Between an MOU and an MOA?

An MOU is a document that describes very broad concepts of mutual understanding, goals, and plans shared by the parties. An MOA details the specific responsibilities and actions each party will take to achieve their goals.

## How Do You Write an MOU?

Usually, a lawyer will draft an MOU. An MOU should clearly state the following: what parties are involved, the context of the agreement, the proposed date of when the agreement will become effective, the contact details of all relevant parties, the broad purpose of the agreement, and what each party is hoping to achieve, as well as a space for all necessary signatures.

## Why Is an MOU Important?

An MOU is important because it allows each party to clearly state their objectives and what they expect from one another. Drafting an MOU can help solve any disputes before each party enters into a full, legally binding contract.

## The Bottom Line

A memorandum of understanding (MOU) is a starting point of negotiations between multiple parties to signal the intent of doing business or coming to an agreement. It simplifies a legal contract by establishing the key objectives and goals.