Know the Differences Between MoU dan Agreement to Prevent Misunderstandings
A particular company has never been separated from legal affairs since its inception. Entrepreneurs need legal cooperation with business partners in an MoU or agreement. Although this practice is a standard practice in the business world, there are still many who do not realize that there are significant differences between MoU and agreement.
What is MoU?
A Memorandum of Understanding (MoU) is a pre-contract agreement. In short, the MoU is a preliminary agreement before releasing the next agreement which is more detailed, official, and binding.
Entrepreneurs make MoUs provide opportunities for business partners before entering into more serious agreements. Business partners can conduct a feasibility study first during the MoU period.
Once agreed, the entrepreneur will make a letter of agreement with more detailed clauses that are binding on both parties for the duration of the cooperation.
The MoU has the following characteristics:
- The clause contains basic matters concerning the business of the agreement;
- The MoU is the cornerstone of a soon-to-be-bound agreement;
- It is temporary and has a deadline;
- It is informal, so employers are not required to make detailed agreements;
- The MoU is made to avoid risks or difficulties when canceling cooperation due to doubts between the two parties.
What is an Agreement?
The definition of an agreement is in Article 1313 of the Civil Code (Indonesian: KUHPer), which is an act in which one or more people bind themselves to one or more other people. In the business context, both parties, both entrepreneurs and business partners, promise to cooperate and are stated in a letter of agreement.
The agreement letter must fulfill several requirements as stated in Article 1320 of the Civil Code. The following are the terms of the agreement:
- There is an agreement between two or more parties, meaning that the agreement is not made based on an element of coercion or oversight;
- Both parties must be considered capable of entering into an engagement, otherwise, the agreement is automatically rendered null and void;
- The existence of the type of object in the agreement, especially goods or services that can be traded;
- Made based on a lawful and pure cause. The agreement has no legal force if it is made based on false or prohibited reasons.
4 Differences Between MoU and Agreement That You Need to Know
The basic differences between MoU and agreement can be understood from the two definitions and terms described above. However, there are other indicators of differences in MoUs and agreements that must be understood by entrepreneurs so as not to make mistakes in writing their letters.
Here are 4 differences that you need to understand.
1. Contract Certainty
One of the characteristics of the MoU is a basis of certainty. The point is, that the MoU is only made to state the seriousness of all parties in cooperating. Either party can refuse to sign a contract or withdraw from cooperation as long as the MoU has not reached the deadline.
An agreement is a contract and contains many agreed clauses in it. Either party cannot easily withdraw from the agreement. The reason is that both parties have signed the agreement as a form of a statement that they are ready to carry out all the contents of the agreement.
2. Attachment Characteristics
The MoU is not binding. Therefore, both parties cannot demand each other fulfill the agreement in the MoU. They simply do not continue in the agreement stage if one of the parties does not implement the MoU.
The agreement is binding on both parties. They can sue each other if the clause is not implemented, even leading to a lawsuit.
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3. Content or Clause
The clauses in the MoU are simple because they only discuss the basic and general nature of the agreement. Unlike the MoU, the agreement letter contains specific things related to the cooperation that has been agreed upon. The agreement can also contain attachments containing several things that need to be explained in more detail.
4. Ease of Cancellation
One of the parties to the MoU can withdraw from the cooperation if there is any doubt during the feasibility study process. This advantage cannot be found in a letter of agreement.
Both parties must carry out the entire contents of the clauses in the agreement letter, including the cancellation of cooperation. Therefore, one of the parties does not easily withdraw because there are legal consequences that must be borne by the violator if there is a violation of the clause.
Legal Force of MoU and Agreement
The last indicator of differences between MoUs and agreements that need to be known in this article is their legal force. An MoU is only a wish to cooperate that is made in writing and has not been signed, so there is no legal binding yet. The two sides only built initial relationships as the basis for the cooperation agreement in the MoU.
On the other hand, an agreement has strong legal force so it is coercive and can bind both parties. They have to fulfill the agreement if they don’t want to accept the legal consequences of their violation.
The MoU can only be binding if it already contains the elements of the agreement. In addition, both parties may regard the MoU as an agreement. This depends on the material and clauses made by each party in making the MOU.
Despite the differences, MoUs and agreements both require a signature to be more formal and legal. So, what if the agreement is made through an online meeting? They can sign digitally. Digital signatures are considered legal according to the law starting more than 10 years ago.
Now that you know the differences between MoU and agreement that can be essential for your business, use the AdIns Digital Signature to simplify the MoU or agreement’s signing process. You and your partner business don’t have to waste any more time with this app if your companies are far from each other. Contact AdIns now to receive the benefits of this digital signature app right now.