Legal Guide

What is a Memorandum of Understanding between Two partners?

by Bhavya Choudhary · 3 min read

memorandum of understanding between two partners

Introduction

  • A memorandum of understanding between two partners is an agreement in a verbal form, or a written form helps to establish the initial obligations and duties of partners entering a partnership agreement.
  • A memorandum of understanding between two partners is not legally binding but also helps in building the trust and foundation of any partnership, providing a smooth working environment and relationship.
  • It outlines collaboration and the type of business that partners may choose to enter in the future. The amount of capital contribution and the duration will be mentioned in the memorandum of understanding between the two partners.
  • The contribution and the desired outcome can be set through a memorandum of understanding between two partners, which mentions  how the partnership will function and be managed.

What is a MOU?

  • A memorandum of understanding between two partners is an agreement to help reach a mutual decision in terms and conditions. It is also known as a “letter of intent.”
  • The terms and conditions may or may not be negotiated when the memorandum of understanding between two partners is made, but the roles and responsibilities are elaborated.
  • It helps in understanding the intentions of both parties before entering into a much more serious contract in the future. It is more of an initial discussion between the parties.
  • It also can be kept undisclosed if the partners want to keep it that way to avoid any compromise with sensitive information.
  • It is not a legal document but holds a significant position in the eyes of the law.

What are the Features of a Memorandum of Understanding between two partners?

A memorandum of understanding between two partners consists of important contents which should be mentioned in the agreement. These are as follows:

  • Partner identification: The memorandum of understanding between two partners must contain every detail of both the parties, such as the name and address between whom the agreement is being signed.
  • The goal and purpose: The goals and purpose for creating the memorandum of understanding between two partners should be specified and elaborated to avoid any conflicts in the future.
  • The duration of the agreement: The agreement should have the time and dates from which it will start and end.
  • Termination clause: The memorandum of understanding between two partners must specify the circumstances on which it can be closed or terminated.
  • Planning and meeting: The agreement contains the specific dates on which the meeting will be held, and the partners can choose their ones accordingly with discussion. (It can be monthly, quarterly, etc.).
  • Maintenance of financial records: The partners in a memorandum of understanding should maintain a financial record or practice bookkeeping for every transaction made through the partnership. It should specify the dates and nature of the transaction. The person who has the authority to take such decisions should be specified in the memorandum of understanding.
  • The management responsibilities: The memorandum of understanding between two partners must specify different kinds of responsibilities and duties of every partner and how they should be organized for better efficiency. The remuneration aspect is also clarified with added information.
  • Attested and approved: The partners may go through each point thoroughly before signing and finalizing the agreement to avoid future disputes. When the parties agree, the memorandum of understanding between two partners should be dated and signed by the authorized personnel appointed to act on behalf of the organization.

The legal value and Stamp Duty of MOU

  • The memorandum of understanding between two partners is not legally enforceable. Such contracts are non-binding and are only the initial discussion agreement between parties formed to arrive at a mutual base.
  • This helps in future contract making as the memorandum of understanding between two partners helps in deciphering the intention of both parties.
  • A clause that mentions indemnification, jurisdiction, law, enforceability, and termination can make the agreement legally binding.
  • It is governed by the Indian Contract Act, 1872; if the conditions under this act are not fulfilled, then the memorandum of understanding between two partners is of no legal value and is non-binding.
  • The stamp duty for a memorandum of understanding is not mandatory, but in case the purchase value is more than Rs 100 for any immovable property transaction, then it’s presented in court and stamped.
  • The document of a memorandum of understanding between two partners can be used as evidence in the Court of Law only if it is properly stamped under legal provisions. It may help in solving litigation.
  • Specific Relief Act, 1963, provides certain kinds of assistance to the organization if compensation is not received in monetary terms. It can be done only if it fulfills every condition under the Indian Contract Act, 1872. However, it is suggested to talk to a lawyer about the Act conditions and what needs to be fulfilled to understand the process in a better way.

Importance of Memorandum of Understanding

  • The main advantage is that the partners do not have to enter into any serious agreement right away, but with the memorandum of understanding between two partners, they can establish goals and duties and talk about their desired outcomes as well as express every detail clearly with no hesitation.
  • The chances of future disputes become negligible as the terms and conditions are discussed before any formal agreement.
  • The parties become aware of every responsibility and intention of the other party, and this settles down any query through simple mutual consent.
  • It is convenient and easy to frame for both parties as the clause can be changed or altered accordingly.

Conclusion

It is mostly used as a significant initial point for any partnership and business. The memorandum of understanding between two partners provides utmost clarity on roles, duties, and obligations, which are formally written to address different types of situations. 

It helps in formalizing the mutual decision of both parties without any conflicts, and in case of any litigation, the parties can talk to a lawyer and solve their queries. 

The memorandum of understanding is a tool for initial structure in partnership before the actual agreement is made. It covers every detail of management and coordination to make the process clear and specific. Drafting an MOU can be a complicated process, so an individual can consult a lawyer before initiating the process.

Bhavya Choudhary

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Bhavya Choudhary

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