Memorandums of Understanding

A memorandum of understanding (MOU), also sometimes referred to as a Letter of Intent (LOI) is a document that describes an arrangement between two or more parties. It is a more formal alternative to a gentlemen’s agreement. MOU’s are generally not legally binding, but they do indicate the establishment of an informal business relationship.

An MOU often precedes a definitive, legally binding agreement. MOU’s are commonly used in Cyprus law once negotiations of a merger or acquisition have been concluded with a certain degree of certainty. A formal letter is drafted once the parties feel comfortable setting out in written form the main terms on which they wish to proceed with their transaction.

MOU’s are not intended to be legally binding however if an exclusivity or confidentiality clause is inserted then the document may become legally binding.The period of time each clause is legally binding depends on the circumstances of each provision.

Generally MOU’s are used for the following purposes:

if you are interested in signing an agreement with another business
to formalise on-going discussions with another business
to record what has been agreed, before a legally enforceable agreement is drawn up
to protect your valuable business information and key employees

Most MOU’s contain some standard terms and the rest greatly varies depending on the parties’ particular relationship, needs and the project at hand. some of the general terms are:

Specified activities;
Timing for implementation of activities;
Upfront expense and continuing costs;
Each party’s roles and responsibilities;
Deadline for activities;
Term of agreement;
Confidentiality provisions;
Non-solicitation of clients, customers or the other party’s employees;
Ownership of any Intellectual Property or other results;
Allocation of revenues; and
Insurance and indemnification

Except for some standard terms generally found in all MOUs, MOUs vary greatly and are drafted to fit the particular parties’ needs and objectives for the relationship. Some general provisions commonly found in MOUs include:

Identity of parties and contact information;
A description of the project or the background of the project; why the MOU is being entered into at this particular time;
Specified activities;
Timing for implementation of activities;
Upfront expense and continuing costs;
Each party’s roles and responsibilities;
Deadline for activities;
Term of agreement;
Confidentiality provisions;
Non-solicitation of clients, customers or the other party’s employees;
Ownership of any Intellectual Property or other results;
Allocation of revenues; and
Insurance and indemnification

This type of agreement can be terminated at any time by giving notice to the other party. At vasileou Law we recommend signing an MOU that expressly states ‘this document is not legally binding’ before any formal document is signed. In addition to MOU’s we also recommend conducting a legal due diligence once a MOU is signed before any legally binding transaction is entered into.