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Difference between Letter of Intent and Memorandum of Understanding

Difference between MOU and Letter of Intent

Letter of Intent (LOI)

In many business transactions the parties negotiate and sign Letter of Intent (LOI), to ensure that they get preliminary terms of an agreement before spending time and money on any kind of agreement. It may be formal or informal. The idea of LOI begins as a proposal from one party to another which is then negotiated and modified so that the final LOI reflects both parties’ expectations on the deal.

If the party cannot agree on LOI it quickly shows that they will not be successful in completing business transactions. LOI can be used in any type of deal:
# A lease arrangement
# The purchase and sale of property
# The purchase and sale of the stock and assets of business

LOI contain specific information:

# Identification of parties
# Identification of property or business that is the subject to the transaction
# Financial terms
# The parameters for a study period or required due diligence information
# A closing date
# Financing specifics

It may be binding and non- binding. Binding is one in which party agree that letter has a binding effect for enforcing it legally and in case of non binding it does not include any legal effect.

Memorandum of Understanding (MOU)

MOU outlines the details of an agreement between two or more parties who intend to work together toward common goals and objectives. MOU is less complex and detailed than a contract, while providing a framework.
Many companies and government agencies use MOUs to define a relationship between departments, agencies and closely held companies.

Essentials of MOU:

# Name of the Parties involved
# Purpose of entering
# Roles and responsibilities
# Terms and conditions
# Project goals and key services to be provided
# Resources contributed by each party
# Signature of all the parties involved

MOU is a kind of formal agreement which carry a degree of seriousness and mutual respect towards party to the MOU. It is first step towards the legal contract.
Hence what we conclude about MOU is that it holds a lot of power because of the time, energy and resources needed to draft an effective and fair document.


Basis Letter of Intent (LOI) Memorandum of Understanding (MOU)
Nature of parties In LOI two parties are involved. In MOU more than two parties may get involved.
Binding or not It may or may not be binding and carries low weight in court of law. It is binding and carries weight in court of law.
Legal Enforceability It carries low weightage in court of law. It is legally enforceable and carries weightage in court of law.
Signatories An LOI, will list the terms, actions, and conditions that have been agreed upon by both parties, but is signed only by the party that forwarded the initial proposal. The terms, actions, and conditions listed in an MOU are signed by all parties that are in agreement.
Uses LOI is commonly used to define the points that have been agreed between a buyer and a seller prior to finalizing the deal with a contract signed by both parties. MOUs are used to define the parameters under which parties in agreement will work together, which is often in the form of a joint venture or partnership.
Continuance LOI is often converted into a contract later, thus have limited use. MOU often continue to stay at its form until the completion of the task or project.

These two terms have not much difference the main difference that we conclude from above  

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