Differences between letter of intent and memorandum of understanding

Details: Created on Thursday, 07 February 2013 14:12; Written by International Contracts Staff

Diferencias entre carta de intenciones y memorandum de entendimiento It is customary, in day to day business, to start writing negotiations in between parties when conducting any business purpose, whether buying, distribution or partnership agreements. This home for future consummation of binding mutual obligations can not be considered much less a contract itself, denominating legally as mere letters of intent or preliminary treatment.

A distinction has to be made very clearly as far as the effectiveness of such treatment preliminary binding and can advance even now they represent only simple conversations, writing minutes or crossover projects, offers and counteroffers in which the parties do not show their intent to be bound each other, but the only thing is that record to see the possibility of hiring in the future. Letter of Intents and Memorandum of Understanding (known as MOU´s) are drafts without binding efficiency and, at best, serve as mere interpretive elements in the event of needing to know the will of the parties to enforce when the business finally completed.

There are different types of Letters of Intent in international business. The most common are:

Without a certain formality, the Letter of Intent is ment to acknowledge the will of the parties to carry out in the near future all the steps necessary to perform a contract that gives way to a transaction in international business. It involves a reciprocal wills statement, without binding effect, but with high ethical value to the parties who sign.

Thus, among the purposes of the letters of intent we can include:

Clarifying the key points of an operation for the convenience of the parties.
The statement that the parties are currently negotiating.
Provides guarantees if the deal collapses during negotiation.

Although the terms refer to different documents, the differences are often formal, reflecting different styles of writing or business customs, and not a substantial difference in what Letters of Intent and Memorandum of Understanding pursue.

Depending on which document the number of signatories will differ: In a Memorandum of Understanding, more than two parties may be involved but for a Letter of Intent only two parties are involved. The first one of them imply that all the parties involved have to be signatories, while a letter of intent needs only the party which proposes the agreement to be a signatory.

Both documents define the intent of the parties: both, a Memorandum of Understanding and a Letter of intent describe an intention to take some action. From the business point of view, it is defined as an agreement between two parties before the agreement is finalized.

It is essentially a collection of key points of an agreement between the two parties who pretend to conduct a business transaction, especially when announcing a joint venture, Letters of Intent and Memorandum of Understanding are signed for the purpose of declaring that the various parties involved are negotiating a contract. It is simply the agreement signed prior to the final agreement.

Another characteristic is that both Memorandums of Understanding and Letters of intent can resemble a written contract but usually not binding on the parties in their entirety. However, the majority of these agreements, contain provisions that are binding, such as non-disclosure and non-compete agreements.

To obtain models of Letters of Intent in different languages, click here.