A Memorandum of Understanding MoU describes a bilateral or multilateral agreement between two or more parties.

It expresses a convergence of wills between the parties, indicating an intended common line of action.

A memorandum of understanding (MOU) may be used as a confirmation of agreed upon terms when an oral agreement has not been reduced to a formal contract. It may also be a contract used to set forth the basic principles and guidelines under which the parties will work together to accomplish their goals.

It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement.

It is a more formal alternative to a term sheet.

Whether a document constitutes a binding contract depends only on the presence or absence of well-defined legal elements in the text proper of the document, the so-called four corners.

The required elements are: offer and acceptance, consideration, and the intention to be legally bound animus contrahendi.

In the U.S., the specifics can differ slightly depending on whether the contract is for goods (falls under the Uniform Commercial Code [UCC]) or services (falls under the common law of the state).

Inside a company or government agency

Many companies and government agencies use MoUs to define a relationship between departments, agencies or closely held companies.