What Is a Memorandum of Agreement?

An agreement and a memorandum are universal in business, especially if parties share a similar objective. And a legal relationship between parties is necessary, so each party knows the stipulated terms. Hence, a written document called the memorandum of agreement describes or outlines the collaborative relationship between two or more parties to achieve a specific goal. Generally, the MOA is useful to establish joint agreements, service partnerships, and many more. And what’s written under the document decides whether there is monetary exchange involved or not.

A report found out that an employee under contract holds one out of five jobs in the US.

Also, a National Public Radio poll determined that 20% of American employees are under contract to work a particular project at a fixed period.

Moreover, Harvard Business Review stated that around 50% of managers and workers invest their time in collaborative projects and activities.

MOA: Why Is It Important?

Based on the Shell and Lego example introduced earlier, MOA is vital in getting new partnerships. Describing the business partnership with a supplier, competitor, or recruit is made possible by the memorandum. Also, a mutual understanding between parties shall commence after finalizing the agreement. And when the document is legally binding, there are rules to follow that would prevent conflicts. Most importantly, MOA’s primary purpose is to place the agreement into writing. That written form, signed by all parties, serves as evidence in case disputes lead to litigation.

Memorandum of Agreement vs. Contract

According to National Public Radio, one out of five jobs in the US involves a worker under contract. And since many contracts are at play, some people confuse the memorandum of agreement from a contract. Just remember that before agreements are binding, an oral discussion happens first. And to formalize a verbal agreement, you create an MOA. Meanwhile, the MOA is less formal compared to a contract. But sometimes, the MOA can be referred to as a contract when it is enforced by law. The most typical example is when the deal includes an exchange of money. Therefore, the MOA is known to outline relationships, whereas the contract is understood to involve money.

The Memorandum of Agreement’s Important Elements

What is inside the memorandum of agreement? Take note that there are common elements to recognize what makes up an MOA. Albeit the terms and arrangements of the components may differ from various agreements, just know that common denominators can be distinguished. And without further ado, these are the MOA’s important elements:

Introduction: Write an introductory statement that outlines authority. Remember that authorization matters when creating the terms of an agreement. Otherwise, no party might take the document’s content seriously. So be sure to introduce a summary of what the memorandum is about. Is it about a new project, special event, sponsorship, or any service? Nonetheless, that summary prepares anyone who reads it about what to expect.Purpose of the Agreement: Forming the memorandum is not for naught since it surely has a reason involved. In the agreement’s purpose section, indicate the name of parties, their contact information, and the scope of work. Setting a clear purpose prevents further questions, so you aim to feed your readers with the gist.Arrangement Details: Expound the partnership goals if necessary. Indeed, a summary may suffice, but clarifications also help. Maybe the agreement’s goal still needs a breakdown. Moreover, mention the arrangement information of the memorandum clearly. For example, what consequences will a party face if he or she cannot fulfill the expected duties?Roles and Responsibilities: Speaking of duties, incorporate a section specifically for the roles or responsibilities. Each party has a set of tasks to follow, and listing down every task is essential. Don’t forget to recall what responsibilities are needed to stipulate in the form. That way, no role expectation will be forgotten once everything is listed.Payment Schedule: Although payment plan schedules are optional, some instances need those. Calculate the amount of the payment or fund exchange, and show it in the document. Be sure to explain what the payment is for and how you derived it with that amount. After writing that part, proceed to jot down the dates and deadlines of when to collect payments.Agreement Duration: One party might ask about how long the MOA will be effective. Thus, write when the agreement officially starts and on what date it shall end. Many legally binding contracts and agreements are fixed at a specific period anyway. In fact, the National Public Radio stated that 20% of employees in the US that are working under contract engage in projects at a fixed period.Termination Details: Prepare for the worst circumstances like disputes, disagreements—you name it. Other parties might not keep their promise. Hence, the terms must include the termination of the contract or memorandum. What conditions will be involved in changing and terminating the MOA? Will there be fees to compensate? Clarify those concerns under termination details.Signatures: Lastly, validate the MOA by having all parties to sign. Those signatures are your basis that such people have read, understood, and promised to comply with everything written in the document. And this segment is usually placed at the bottommost part of the sheet.

How to Make an Excellent Memorandum of Agreement

Since you already know that the MOA is widely used for defining cooperative relationships among parties, do you also know how to make that memorandum? You might need it one way or another, especially when a study reported how 50% of managers and employees usually invest time in collaborative activities and projects. If that many would use an MOA, then it is important and helpful at the same time. And to produce an excellent memorandum of agreement, simply follow these steps:

Step 1: Identify the Elements of Your MOA

Can you still recall the MOA elements discussed above? Start by writing down the elements based on your proposed agreement in a draft. So, you eventually write your agreement’s purpose, name of parties, roles or responsibilities, and so forth. Be sure it observes the right sequence, though, wherein it starts with the introduction down to the signatures. Most importantly, don’t mix up one element to another. Maybe you wrote the details for the agreement duration under the payment schedule section. And that is already wrong.

Step 2: Insert the Elements in a Template

Once you finish your draft, transfer the elements to the MOA template of choice. Remember that you have a variety of options to download here. Give time to explore and edit the format of templates for grabs first. However, don’t just simply copy and paste everything from the draft to your template. Pick only the essential details, and don’t include some unnecessary statements to the final template. If drafts have mistakes, then your final document must be corrected already.

Step 3: Observe a Positive and Professional Tone

Bear in mind that a memorandum of agreement is still an official document. So writing informal words or having incorrect spelling and poor grammar will not be tolerated. Be professional, like in writing a business letter. However, it doesn’t mean you have to be too technical with your terms and sentences because the other parties might no longer understand it. A professional yet understandable tone is what matters. And speaking of tone, review if MOA has a positive language. Don’t make documents where readers would feel threatened, afraid, or any other negative reaction from how you wrote those.

Step 4: Strive for Balance

Observe a sense of balance. No, it doesn’t mean that if one party has ten responsibilities, then the other should have that same number of responsibilities as well. Balance by writing, “both parties agree.” In other words, the agreement should not be one-sided. Mutual understanding is crucial to have each party sign the form anyway. More so, balance by making the expectations feasible. Maybe the terms are no longer realistic and are hard to fulfill, especially if it goes against the scope of authority.

Step 5: Be Specific

Indeed, writing a detailed letter is good. But not to the point where it is already wordy. Omit unnecessary words and be more direct. In fact, keeping it simple is acceptable, so long as the sentences are concise. Aim to answer the significant who, what, when, where, why, and how questions about your agreement. And the key is to reread all statements written in the document and specify certain words if you find wordy sentences.

Step 6: Evaluate and Polish the Form

Never skip the evaluation process. The last thing you would want to happen is having the MOA filled with errors. And when parties sign on agreements with mistakes, problems eventually rise. In addition, conduct reality checks if your statements are somehow factual or credible enough. Maybe you added statistics in explaining, yet they have incorrect figures. The same goes for checking how realistic your scope of work is. And if you feel like you have everything polished already, have the MOA signed.

FAQs

What is the difference between MOA and MOU?

The memorandum of understanding (MOU) is used particularly for simple agreements that aren’t legally binding. It can work where parties only have a handshake. Meanwhile, the MOA is more formal as it is a conditional agreement wherein parties anticipate for monetary exchange, services, and more.

What is the difference between MOA and AOA?

Although both documents are useful, they have different specific functions. The MOA is the main document of a company that outlines the essential details about their business. On the other hand, the articles of association (AOA) focuses more on the rules and stipulations made by the company.

Does the MOA need to be notarized?

It is safe to have the agreement notarized, but it doesn’t mean that notarizing it is required. Remember that the memorandum of an agreement already plans on agreeing. It is presumed to become a contract afterward. And contracts need not be notarized unless you want to.

A famous Henry Ford quote said, “Coming together is a beginning. Keeping together is progress. Working together is success.” With that said, having plenty of parties to work with still cannot bring success if everyone is not working together. But when you collaborate using a memorandum of agreement, every duty and responsibility of parties will be clearly defined. Allow the MOA to guide every party on how to achieve the common goal altogether.