A Memorandum of Understanding or MoU is a written document containing key points that serve as the foundation for negotiations and as an initial reference before drafting an official agreement related to business cooperation.
An MoU cannot be created carelessly because it functions as a preliminary agreement. Both parties involved must understand the role of the MoU in legal terms and the essential elements that must be included in it.
Understanding the fundamentals of an MoU will help ensure cooperation runs more clearly and in a structured direction. Let’s take a closer look at MoUs below.
What Is an MoU?
An MoU or Memorandum of Understanding is a written document that serves as an initial agreement between two or more parties. Although an MoU is not legally binding, it clearly reflects the intention of the parties involved to establish cooperation.
In Indonesia, an MoU is also known as a memorandum of agreement, memorandum of understanding, cooperation agreement, or preliminary agreement. In practice, MoUs are widely used in business or formal activities as the starting point for negotiations. The document allows parties to conduct a feasibility study before drafting a more detailed and legally binding contract.
Although it does not carry legal power, an MoU is considered morally binding, which means the involved parties typically cannot cancel the agreement easily.
Differences Between an MoU and a Contract Agreement
Before signing any cooperation document, it is important to understand the difference between an MoU and a contract agreement. Although they may appear similar, they differ in function, scope, and legal power.
1. Legal Power
An MoU is not specifically regulated in legislation, meaning it is only bound by commitment and moral responsibility from the involved parties. On the other hand, a contract agreement is regulated under the Indonesian Civil Code and has clear legal power, making each party legally bound under the law.
2. Document Content
An MoU contains only the key points that must be acknowledged by the parties involved, while a contract agreement includes more detailed information such as rights, obligations, responsibilities, consequences, and additional provisions.
Characteristics of an MoU
Before drafting a more formal cooperation agreement, it is important to recognize the traits that distinguish an MoU from a standard contract and make it a preferred early stage of business collaboration.
Characteristics of an MoU include:
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States the willingness of each party to cooperate.
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Acts as a preliminary document that may later be followed by a more detailed agreement.
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Generally concise, sometimes only one page.
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Contains general and essential points as an expression of intent to cooperate.
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Does not impose specific obligations on the parties involved.
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Temporary in nature—an MoU automatically becomes void if there is no follow-up, but can be extended if all parties agree.
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Does not highlight legal sanctions for involved parties.
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Typically created in the form of a private agreement.
Types of MoUs
MoUs may differ depending on the location or nationality of the parties involved. The types include:
1. International MoU
An international MoU is created between parties from different countries, for example, one party from Indonesia and the other from abroad. This form is commonly used when the Indonesian government collaborates with foreign governments, legal entities, or corporations.
2. National MoU
A national MoU is created between parties located in the same country, whether between Indonesian individuals and/or Indonesian legal entities. For example, an MoU between a local government and a company or between individuals from different regions in Indonesia.
Purposes of Drafting an MoU
Before entering a formal contract, an MoU serves as an initial step to ensure that the cooperation progresses more clearly. The main purposes include:
1. Minimizing Losses in Case of Cancellation
An MoU helps prevent difficulties if an agreement must later be canceled, especially if business prospects are still uncertain or undecided.
2. Binding Both Parties Before Signing a Contract
If the contract negotiation process takes a long time, an MoU serves as a temporary binding agreement within a specified period before the official contract is signed.
3. Providing Time for Consideration
An MoU can also function as a temporary agreement that provides the parties involved time to evaluate before proceeding to a formal contract.
What Does an MoU Contain?
Generally, an MoU contains statements of agreement between the parties involved and their commitment to work together to achieve specific objectives. The essential parts include:
1. Title
The title must be agreed upon by all parties and reflect the participating parties and the nature of the agreement. While there is no fixed writing format, the title should be clear, concise, and include the relevant organizational logos.
2. Opening
The opening includes the day, date, month, year, and location of signing. It should also mention the positions of the parties involved as well as the considerations or points of agreement.
3. MoU Substance
This section contains the purpose of the agreement, scope and implementation activities, duration of agreement, and cost arrangements. It should also include provisions related to changes or delegation.
4. Closing
The closing should contain simple and clear statements for easy understanding.
5. Signatures of the Parties Involved
This section provides space for signatures and names of all parties. Signing must follow the agreed terms.
Sample MoU
To better understand the structure and content of an MoU, below is an example that can be used as a reference:
MEMORANDUM OF UNDERSTANDING (MoU)
Between PT. XYZ and CIVX Agency
The undersigned:
Name: xxx xxxxx
Position: xxx xxx xxx
Acting as the representative of PT. XYZ, hereinafter referred to as the First Party
Name: xxx xxxx
Position: xxx xxx xxx
Acting as the representative of CIVX Agency, hereinafter referred to as the Second Party
On the day xxx, date (dd/mm/yyyy), both parties agree to collaborate by entering into an MoU containing:
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The First Party agrees to use the services of the Second Party for xxx xxx at a cost of Rp xxx xxx (xxx xxx rupiah).
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The Second Party agrees to carry out xxx xxx according to the agreed terms for the benefit of the First Party for the approved duration.
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The First Party will act as xxx for all results produced by the Second Party.
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The Second Party is responsible for ensuring that all deliverables meet the agreed-upon quality.
This MoU is made and agreed upon by both parties.
FIRST PARTY SECOND PARTY
xxx xxxx xxx xxxx
The format of an MoU may be adjusted to suit the intended business collaboration. The language can also be adapted to match the scope of cooperation agreed upon by the parties.
Understanding the definitions, types, purposes, and sample structure of an MoU will help ensure a clearer, safer, and more directed partnership.
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