What is a Memorandum of Understanding?

Memorandum of Understanding or MoU is a formal and official statement of an agreement which is usually used in business between two or more parties regarding an agreement related to work in particular and used for certain things. 

Memorandum of Understanding is not just an ordinary agreement because it is intended as a statement of several important components and elements. Before creating MoU, it is important to identify and understand the goals to be achieved as well as the intended examples. 

Memorandum of Understanding Meaning

Memorandum of Understanding is an agreement between two or more parties which is stated in a written and formal form. In Indonesia, there are several terms used to refer Memorandum of Understanding, such as nota kesepakatan, perjanjian kerjasama and nota kesepahaman. 

The purpose of MoU is believed to be the first step in the process of negotiation and transaction form of the collaboration. Memorandum of Understanding has a complete explanation regarding both parties concerned in the agreement, although it is not a binding agreement. 

A Memorandum of Understanding is a preliminary agreement that ensures all parties involved in a collaborative agreement. By knowing all the conditions that must be met in order to participate in a cooperative relationship, all the participants will learn the importance of each other. 

Sometimes there are pirates who create an agreement in MoU which includes the international to create legal relations. Therefore there are also several legal consequences and reasons in MoU, especially for parties who violate the agreement. 

What is Memorandum of Understanding According to Experts

These are the Memorandum of Understanding definition according to experts:

Erman Rajagukguk

Memorandum of Understanding referred to as a document containing mutual understanding between the parties. Before the agreement is made, all the contents of MoU should be entered as a contract so that it has binding force between the parties. 

Munir Fuady

Memorandum of Understanding is an agreement in the preliminary stage, meaning that there will be a continuation process of it. This Memorandum of Understanding conveys the existence of it as a letter with the form of principal agreement related to anything, usually happens in a business partnership. 

Characteristics of Memorandum of Understanding

There are some characteristics to recognize the Memorandum of Understanding, here are some of them.

• In general, MoU is not complicated and concise, commonly found to contain only a page. 
• It contains principal matters, but some of them also contain general matters. 
• MoU is a preliminary, followed by another agreement whose contents appear in detail.
• It is intended for a short period from a month to a year. 
• If there is no further follow up to the agreement in detail, then the MoU is canceled. 
• In general, a Memorandum of Understanding is made in the form of an underhand agreement in the most common form. 
• It is used as the basis of an agreement both for the benefit of many parties, such as investors, shareholders, the government and so on. 

Purpose of Memorandum of Understanding

There are some purpose of Memorandum of Understanding, which are:

Ease of Cancellation 

In an unclear business situation, it is possible for a deal to be canceled. Therefore, MoU is made due to the lack of certainty regarding the cooperative agreement, even though both parties felt the need to follow up regarding the future collaboration. 

Temporary Bonds 

The occurrence of an agreement through the signing of the contract takes time as the negotiations are sufficient. Therefore MoU is made as the temporary bond for both parties before signing the contract. 

Considerations in the Agreement 

Sometimes there is a condition where the existence of collaboration raises doubts from the parties, therefore before the contract is made, MoU is used as a temporary agreement. 

Big Picture Deal

The executive creates the general detail in the MoU, while the detailed content and technical aspects of the agreement is carried out by expert staff.  

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Structure and Content of Memorandum of Understanding

The Memorandum of Understanding has a certain structure and content which is a provision that must be considered when creating an MoU. Some of the fixed structures are title, introduction and conclusion. Meanwhile the other things that are included in the contents of the MoU are as follows.

Title 

In general, the title is accompanied by the letterhead, logo and important information of the company. It is included as a representation of the agreement, besides it also shows all the parties involved in the agreement. 

Introduction 

The introduction contains the details regarding the place and time of the emergence of negotiations. There is also information regarding the detailed identity of the parties and a brief description of the collaborative agreement that will be carried out later. 

Objectives 

The most important part of the MoU contains the objectives, scope of the agreement, provisions, powers, and wills of each party. Including the period of the agreement and other important matters. 

Conclusion

In general, the conclusion contains information which states that the agreement has been made by both parties. All the making of the agreement is without any coercion and pressure from any party.

Signature 

The MoU will not be valid without signatures of both parties. The signed party is the one who is bound by the agreement. In addition to the signature, to strengthen the legal force it is usually followed by stamp duty. 

Memorandum of Understanding Example 

Difference between MoU and Contract

MoU is a document containing a pre-contract agreement which can be temporarily made by two parties. Even so, if there is no further continuation then the collaboration could be canceled.

Meanwhile, a contract is an agreement document made based on the awareness of each party in establishing and implementing cooperation. There are provisions related to contract as regulated by the Civil Code (KUHPerdata) with a legal consequences for every violations.   

Conclusion

Before creating Memorandum of Understanding (MoU), it is necessary to understand the concept of it also on how to make an MoU correctly, therefore it is easy to read. 

MoU is a temporary document before the actual contract used in running a business. The purpose of using MoU is to ensure the agreement between two parties who are about to work together and partners in business. 

This is a brief explanation of Memorandum of Understanding, starting from the definition, the benefits, the characteristics, to the examples of MoU. Sampoerna University provides a clear understanding of important terms in the business world, Sampoerna University and the Faculty of Business are ready to produce reliable Indonesian businessmen. Sampoerna University applies an international curriculum which teaches students not only the knowledge but also the theory of business. Students are encouraged to practice the knowledge they got in the facilities with international quality teaching staff which are provided in Sampoerna University for all students. 

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Reference

Merdeka.com