There seems to be some confusion about the role, scope and purpose of an MOU (or Memorandum of Understanding). I’ve signed many MOUs over the years with Chinese investors, partners, associations and companies and I’ve found them to be a very useful step in the process of reaching an initial agreement, outlining the
intentions of all parties and setting out the scope of a potential future business relationship.
It also has the added benefit of creating an ideal opportunity for smiles, handshakes, a signing ceremony (or my favourite, a ribbon cutting ceremony – see below), photographs and posts on social media which is a great way of taking the relationship forward. I therefore often recommend the drafting of an MOU as a helpful first step. It often gets described as “an agreement to move towards another agreement” but that’s fine when you’re simply trying to create momentum between two parties who are still engaged in the trust-building process.
In this context, an MOU is not:
- An enforceable legally binding document
- A contract
- A deal
- A transaction
- A terms sheet
- An agreement which, if breached, would lead to any legal proceedings or consequences
The dictionary describes an “MOU” as “a document that describes the general principles of an agreement between parties, but does not amount to a substantive contract”. That sounds perfect to me. Next time you want to create some momentum or purpose to your discussions with a Chinese party, why not draft an MOU!