The MOU is often the first stage in the formation of a later formal contract. The term MOU is very common and is used for purposes and agreements within or between countries. However, this concept is still quite new in the Vietnamese business community. Join Marketing AI to find out what a MOU is and the difference between an MOU and a formal contract through the article below.

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What is MOU?

MOU is an acronym for the English word Memorandum of Understanding, also known as a memorandum of understanding. An MOU is a non-binding agreement between two (bilateral) or multiple (plurilateral) parties that includes details of requirements and responsibilities as well as understanding between the parties involved. MOUs are often used where the parties involved do not desire a legal commitment or where the parties cannot agree and create a legally enforceable agreement. An MOU can become a legal document if the following conditions are met:

The parties to the covenant need to be clear The purpose and content of the commitment need to be recognizedThe terms of the contract are confirmed by the parties involved Full signatures of the parties involved

After the initial draft was written, representatives of the parties met to negotiate and debate to come to a common agreement on the memorandum of understanding (Gif: Weerlig)

Difference between memorandum and contract

Memorandum of Understanding has some features similar to a contract, but there are significant differences between the two. A contract is a private, written agreement between two parties that is legally binding and enforceable by a judge.

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If there is a breach of contract, a party involved can suffer legal and extremely serious consequences. For that reason, contracts are necessary when there is any kind of transaction involving money because they help protect the interests and trust of both parties.

Memorandums usually include less detail and are more complex. The reason that parties choose MOUs is that they are simpler and more flexible than contracts. A well-written MOU reflects diplomatic understanding and creative analytical thinking. They also provide a mutually beneficial framework by which both entities can work to achieve common goals. An MOU is basically an agreement that two parties create before a negotiation document is finalized. It is an agreement before the official release of the contract.

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You may wonder why the two sides would go to great lengths to come up with a joint memorandum of understanding, especially considering that it is not an enforceable document. In some cases, a stakeholder is legally required to create a memorandum of understanding, such as when a housing authority negotiates with a tenant.

Although all stakeholders are responsible and put their heart into the design of the MOU, the operation process of the MOU is quite simple (Image: Behance)

But the MOU holds a lot of potential power because of the time and energy the stakeholder expends planning and establishing the memorandum of understanding. They require the parties to come to some kind of mutual agreement, and to do that, they must capture the needs and desires of both parties into a written agreement.

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In these types of situations, an MOU is an attractive option because of its simplicity and directness, without the complicated standard terms and conditions of contract law. In other words, the MOU does not require either party to invite attorneys and invite judges to review in the event of a dispute.

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So above are all the shares about what is a MOU? As well as how the MOU works in business. MOUs play an important role in commercial transactions, even in those between government and political parties. Memorandum of Understanding is a form of written communication that provides a powerful means of advancing business-critical ventures.