Beyond Handshakes: Why Having an MOU Isn’t Enough When Doing Business

by | Feb 13, 2024 | Business, Contracts, Featured, Law, MOU

Beyond Handshakes: Why Having an MOU Isn’t Enough When Doing Business


In the fast-paced world of business, forging partnerships and collaborations is crucial for growth and success. Often, the first step in forming these alliances is a Memorandum of Understanding (MOU). This non-binding document outlines broad intentions and goals, paving the way for further discussion and potential collaboration. However, while an MOU serves a valuable purpose in initiating partnerships, it’s crucial to understand that it alone is not enough to ensure a smooth and successful business relationship. Here’s why:

1. Limited Legal Enforceability:

The essence of an MOU lies in its non-binding nature. MOUs are considered preliminary documents that are not intended to create legal obligations, like a gentlemen’s agreement, expressing goodwill and shared vision, but it lacks the legal teeth to enforce specific obligations or consequences for non-compliance. This means that if disagreements arise or one party fails to uphold their stated intentions, the MOU offers little recourse beyond potentially damaging the relationship.

There are MOUs that are legally binding; so, it is important to read carefully your MOU.

2. Lack of Specificity:

MOUs typically focus on broad strokes, outlining general intent, framework of a partnership, general goals and areas of collaboration. While this flexibility is useful for initial discussions, it often lacks the necessary specificity. Key details like roles, responsibilities, timelines, deliverables, and dispute resolution mechanisms are often absent, leaving room for misinterpretations and confusion down the line.

3. Unforeseen Circumstances:

The business landscape is inherently dynamic, and situations can evolve in unpredictable ways. An MOU, based on initial assumptions and intentions, may not be equipped to handle unexpected challenges or changes in circumstances. This can lead to frustration, conflict, and ultimately, the breakdown of the partnership.

4. Misaligned Expectations:

Even with good intentions, different parties can interpret the same MOU language differently. This can lead to misaligned expectations around deliverables, timelines, or overall commitment, fostering frustration and resentment. Without a more concrete agreement, these differing expectations can be difficult to reconcile and hinder the partnership’s progress.

5. Limited Dispute Resolution:

MOUs rarely outline clear mechanisms for resolving disputes. When disagreements arise, the lack of a defined process can lead to lengthy and costly negotiations or, in the worst-case scenario, complete breakdown of the collaboration.

6. Inadequate Risk Mitigation:

Business partnerships inherently involve a degree of risk, ranging from financial considerations to reputational concerns. MOUs alone may not provide sufficient mechanisms for risk mitigation, leaving parties exposed to unforeseen challenges and liabilities. Formal contracts, on the other hand, typically include provisions for risk allocation, dispute resolution, and indemnification, offering greater protection and clarity for all parties involved. By neglecting to formalize their agreements through comprehensive contracts, businesses may find themselves ill-equipped to manage risks effectively, increasing the likelihood of costly setbacks.

7. Long-Term Viability:

As business relationships evolve and circumstances change, the initial terms outlined in an MOU may no longer suffice to meet the needs of all parties involved. Without a formal contract that can adapt to changing dynamics and provide mechanisms for amendment and termination, partnerships may become strained or untenable over time. Formal contracts offer the flexibility and durability needed to sustain long-term collaborations, enabling parties to navigate challenges and capitalize on opportunities while safeguarding their interests.

Alternatives to Consider:

While MOUs have their place in initiating conversations, relying solely on them for complex business partnerships is risky. Consider these alternatives for a more robust foundation:

  • Formal Contracts
  • Service Level Agreements (SLAs): Establish concrete metrics and performance standards for specific services rendered, ensuring accountability and transparency.
  • Joint Venture Agreements: Create a formalized legal entity for complex and long-term partnerships, outlining ownership, governance, and profit-sharing structures.



MOUs can be valuable tools for exploring potential partnerships, but they should not be considered the end point. To build secure and successful business relationships, it’s crucial to move beyond the non-binding agreement and create a more robust framework through contracts, SLAs, or joint venture agreements. By investing time and effort in crafting a detailed and legally enforceable agreement, you can mitigate risks, avoid misunderstandings, and set your partnership up for long-term success. Remember, effective collaboration is built on shared goals, clear expectations, and a commitment to navigating inevitable challenges together.

Additional Considerations:

  • Seek legal counsel when drafting contracts or other agreements to ensure they are tailored to your specific needs and comply with relevant laws.
  • Regularly review and update your agreements to reflect evolving circumstances and ensure they remain aligned with your partnership’s goals.
  • Prioritize open communication and transparent negotiation throughout the partnership lifecycle to foster trust and understanding.


By understanding the limitations of MOUs and actively seeking more robust agreements, you can build stronger, more resilient business relationships that pave the way for mutual success.

NIK ERMAN NIK ROSELI Commercial Lawyer

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