Memorandum of Understanding
This document is necessary when parties want to set out their preliminary understandings and intentions for a proposed transaction in a document. This is usually done in an early stage of negotiations when the terms of the transaction. This may be done before or after the completion of due diligence, and before committing to legally binding agreements. As such, the document is simpler and lacks more complex terms and conditions.
Terms of a memorandum of understanding may or may not be binding in nature. Regardless of its binding nature, a memorandum of understanding is much better than a gentleman’s handshake.