A Memorandum of Understanding (MOU), also referred to as a Letter of Intent (LOI) or Letter of Agreement (LOA), is a formal yet non-binding agreement between two or more parties. It outlines present intentions, roles, and objectives, serving as a mutual acknowledgment of potential outcomes and processes. While not legally enforceable like contracts, MOUs indicate a commitment to work together in good faith, often toward establishing a binding agreement.

Unlike contracts, MOUs should not create legal obligations that result in liability for non-compliance. The main distinctions between MOUs and contracts are as follows:

• Legally Binding: Contracts are legal documents that bind all parties to specified terms, including performance of duties and obligations. In contrast, MOUs, while structured and formal, are not enforceable.
• Financial Obligations: Contracts often involve the exchange of goods or services for monetary payments, whereas MOUs should lack financial commitments.
• Dispute Resolution: Contracts may contain specific legal dispute resolution provisions, whereas MOUs rely on the parties’ mutual cooperation and good faith.

MOUs also should not include deliverables or specific confidentiality terms, intellectual property terms, or research activities.

Purpose of MOUs

The purpose of an MOU is to clarify the functional aspects and objectives in a collaboration. MOUs are particularly beneficial in the early stages, outlining intentions and shaping the relationship, which can later evolve into a legally binding commitment.

Primary functions of MOUs are:

• Clarifying Intentions: MOUs help align parties on their shared objectives, goals and areas of collaboration. They ensure the parties are aligned on their purpose and desired outcomes. 
• Establishing a Preliminary Framework: Before a detailed contract is drafted, an MOU lays the groundwork for collaboration or joint effort, particularly in academic, scientific, or research fields where a formal relationship is anticipated but not yet legally defined.
• Facilitate Transparent Communications: An MOU is instrumental in promoting transparency and understanding among parties. It aids in setting clear expectations, minimizing potential misunderstandings, and fostering a cooperative atmosphere.
• Strategic Planning and Alignment: MOUs are useful for strategic planning, helping parties to align their efforts and resources towards a common goal. Alignment is important for the successful execution of joint initiatives and collaborative projects.

While MOUs can be suitable in specific situations, contracts are generally favored due to their binding nature and definitive terms. Contracts provide clear-cut and upfront agreement on details, covering aspects, such as academic programs, confidentiality, intellectual property, research, etc. The preference toward contracts ensures well-defined goals, objectives and obligations and alignment between the parties for their collaboration.

Legal Affairs provides guidance in determining when an MOU may be appropriate.

To align with Georgia Tech’s legal standards, Legal Affairs has also crafted standard MOU templates that can be tailored to achieve your specific strategic objectives. 

For additional guidance on MOUs or to draft an MOU for your initiative, please contact Legal Affairs at Ask Legal.

Explore our Contracts Legal Topic for more on contracts, and our Signature Authority Legal Topic for details on signature authority.