Memorandum of Understanding: Commercial Transactions

by Practical Law Commercial Transactions

A memorandum of understanding (MOU), also known as a letter of intent (LOI), term sheet, or less frequently in the US, heads of agreement or heads of terms, for a commercial transaction. This Standard Document functions as a preliminary agreement that sets out the principal terms of a proposed transaction, helping parties efficiently negotiate a definitive agreement. It is structured to clearly distinguish between the nonbinding commercial understandings of the parties, such as price and quantity, and the legally binding obligations that govern the negotiation period such as due diligence, confidentiality, governing law, no third-party beneficiaries, and the allocation of expenses. The MOU sets a framework for the parties to proceed with discussions aimed at executing a definitive agreement, helping to identify potential deal breakers early in the process and focus negotiations. This Standard Document has integrated notes with important explanations and drafting tips.