What is a Memorandum of Understanding
A Memorandum of Understanding is a document that details a bilateral or multilateral agreement between parties involved. Depending on the terminology used in the Memorandum of Understanding, the document can have the power of a binding contract.
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Memorandum of Understanding explained
There are a number of legal documents that are involved when registering and establishing a company. There are certain required documents, such as Memorandum and Articles of Association, without which a company cannot be formed. There are certain optional documents such as Memorandum of Understanding (MoU) which can be filed with the regulatory body when registering.
A Memorandum of Understanding is a type of document that shareholders use to detail the business objectives and various other activities of their company. The MoU also includes the following information;
- Shareholdings
- Transfer of shares
- Confidentiality
- Board structure
- Restrictive covenants
This document has similar information to that of a Shareholders Agreement thus it is used as a basis of the Shareholders Agreement. It is also an alternate document when parties involved are unable to establish a legal agreement, and as a result they use a document which has similar implications to a legal contract.
The main advantage of a MoU is that it does not need to follow the legal connotations of international law therefore allowing this document to be effective in most countries prior to legal or parliamentary approval. They are often required to alter existing contracts without enforcing any legal action.
