What is MOU? Outstanding advantages and differences from formal contracts
What is MOU ? Nowadays, the term MOU is becoming more popular and requires businesses to approach it to understand the meaning and operation of this document. Let's immediately learn with 1C Vietnam the concept of MOU, the difference with business contracts and how it works.
1. General introduction to MOU
1.1 What is MOU?
MOU, abbreviated in English as Memorandum of Understanding, is understood as an official document with an agreement between two or more related parties. MOU helps businesses communicate professionally and create trust with stakeholders. In addition, MOU is also used in international diplomacy and corporate business relations to create a foundation for official development in the future.
The MOU document was drafted in a short time, thereby allowing for quick and convenient cooperation because the MOU document does not have too many constraints, so both parties are very open and share their intentions. upcoming.
However, when using MOU there are also some limitations. Because they are not binding, especially legally, the commitments in the MOU document are meaningless and in each case can become a double-edged sword. Therefore, for situations where enforceability is important, MOU does not seem to be the optimal choice.
1.2 Compare MOU and official contract
Basically, MOU and formal contract are quite similar. However, in some aspects related to regulations and agreements, MOU and official contract also have many differences.
MOU | Official contract |
There are fewer regulations and are simpler and more flexible than formal contracts. | Expressed in written form, full terms and conditions according to the law. |
If a dispute occurs, the MOU does not require both parties to go to court to resolve it. Therefore, MOU helps businesses save costs if any controversy or disagreement occurs. | There is privacy between two parties if signed bilaterally or by many parties if signed multilaterally. |
Legally binding. | Legally binding and enforceable by law. |
The regulations are not as specific and detailed as a formal contract. | The regulations are more specific and detailed than the memorandum of understanding. |
If there is another more reasonable agreement, it can be amended in the memorandum of understanding. | Once the contract has been signed, the signed conventions cannot be changed. |
2. Outstanding advantages of MOU used in business
Nowadays, MOUs are becoming increasingly popular in the business world. So what are the advantages of MOU? Below are the outstanding advantages of MOU for businesses:
2.1 MOUs are often more flexible than formal contracts
Flexibility is the first outstanding advantage when using MOU in business. In today's global business context, flexibly applying new methods to reduce time and procedures is the key to defeating competitors.
Thanks to the advantage of not needing to draft detailed documents, an MOU helps businesses negotiate cooperation agreements and sign contracts quickly.
2.2 MOU helps parties quickly reach an agreement
MOU helps relevant parties come to an agreement quickly and draft it immediately based on dialogue between the parties. If the official contract requires strictness and consideration of many factors related to the law, the MOU memorandum is quite simple, not complicated, and not time-consuming.
2.3 MOUs are usually less binding
If the official contract is legally valid, the MOU helps both parties be more open and can be adjusted many times. This is also considered one of the advantages that makes MOU increasingly popular in business and chosen by many businesses.
3. How MOUs work in business
In business, MOU is often used in the following way:
Step 1: Determine the goal of cooperation
Participating parties usually after discussion will come up with clear goals about what they want to cooperate in the future. This goal will often involve developing a common product, or conducting research in a field or market expansion, and moreover, a merger between two companies.
Step 2: Prepare MOU
An MOU is drafted for the purpose of committing and expressing the intention of cooperation between the parties. In an MOU there is often information such as: related parties, goals, deadlines, conditions for cooperation to take place,...
Step 3: Sign the MOU
After the parties complete the drafting and the agreement is accepted, it will proceed to the signing step.
Step 4: Evaluate the process
Once signed, the memorandum of understanding is put into action. Stakeholders will implement, evaluate, monitor and take additional action for each phase to ensure that all their goals are achievable in the future.
4. The role of MOU in business operations
4.1 Determine goals and commitments
MOU helps parties clearly define the goals they want to achieve through business cooperation. Commitments in the MOU demonstrate the agreement and acceptance of the partners on the goals and scope of the cooperative project.
4.2 Start a cooperative relationship
MOU is often the first step for business cooperation between parties. Instead of having to wait for detailed contracts to be drawn up, MOU allows parties to begin cooperation immediately after reaching a basic agreement. This saves time and facilitates the start of a project or business activity.
4.3 Create trust and respect
Signing the MOU demonstrates the commitment and professionalism of the partners in the business relationship. This creates a base of trust and respect between them. MOU helps clearly define the terms and conditions of cooperation, minimizing the risk of misunderstandings and disputes in the future.
Thus, MOU plays an extremely important role in determining goals, starting cooperative relationships and creating trust and respect between partners in business activities. This helps create a solid basis for effective and sustainable cooperation.
The above article has answered what is MOU ? Advantages of using MOU in business and highlights compared to formal contracts. From there, businesses will have a way to use the MOU memorandum appropriately. In addition, to update more information on corporate governance, don't forget to follow the articles on 1C Vietnam's website!