It’s not unusual for nonprofit organizations to partner or collaborate with other organizations to accomplish a mutual purpose. Often, our nonprofit clients prefer to document these relationships with an MOU or Memorandum of Understanding. But just what is an MOU, and how is it different from a contract?
A contract is simply a legally binding agreement between two or more parties. In order to be legally binding, a contract must meet certain requirements:
Other times, the MOU will be too vague to show the necessary intent to be bound. An understanding that two organizations will collaborate on a project does not tell us anything what each organization is actually promising to do. In this situation, an MOU might serve as a basic framework for further discussions. Or the organizations involved may simply want to test the waters without creating any binding obligations. The MOU might even expressly state that the parties do not intend to be legally bound.
Like any other business relationship, it’s important for nonprofit organizations to recognize the purpose of the relationship and draft any relevant documents accordingly. Otherwise, nonprofits may find themselves in costly disputes because of misunderstandings with their partner organizations.
Have questions about your organization’s MOUs? Schedule a consultation with our nonprofit attorneys.