Widely used at the beginning of deals involving the negotiation of equity interests, the MOU, an abbreviation for Memorandum of Understanding, is a written document that aims to guide the expectations of the parties and define the directions of a negotiation, outlining the prospects for, for example, a future M&A process.
In summary, it is a preliminary agreement, by which the buyer, seller and any third parties stipulate and formalize in writing all the negotiations already discussed. This measure aims to ensure mutual interest and cooperation between the parties, as long as commitment, foreseeability and exclusivity, preventing the negotiation from being undone.
Despite the MOU being focused on the short term and not being mandatory, it is just one of the first stages of negotiation, and should be complemented by other more detailed documents. Despite this, the MOU may or may not be binding. If not, it doesn’t hinder the parties from eventually negotiating with third parties.
Therefore, the MOU works as a general initial document that clarifiy and formalize the intentions for a future contract in itself, determining, among other items, the rights and obligations of each party within a business relationship. The content of the MOU will differ according to the nature and objectives of each transaction.
On the other hand, in addition to serving to align expectations between the parties, the MOU also has the bias of bringing more security to the negotiation, highlighting possible points of conflict, as well as the ways to avoid and/or resolve them.
It is worth mentioning that the MOU has no legal provision in Brazilian law. The parties are free in settling on what has been agreed and there are no mandatory clauses. Because of this, it is minimally recommended to comply with the legal precepts of the Civil Code for the validity of the legal business, especially regarding the requirements of good faith, capable parties and lawful subject.
However, practice suggests that, among the content of the most used clauses are: (i) delimitation of the scope of the transaction; (ii) explanation of the purpose of the transaction; (iii) the duties of each party; (iv) the rights and obligations of each party; (v) values; (vi) eventual contingencies and the ways for solution; and (vii) guarantees, among others.
Count on our team of experts for any clarification regarding the matter.
