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How legally binding is a Memorandum of Understanding?

By Administrator | 22 November 2018

I’ve met a guy who seemed a good fit for a partner and we’ve signed a Memorandum of Understanding.

But it turned out he had very different ideas of how the business should be built. At some point he just distanced himself, doing nothing.

So I decided to terminate the MoU, as I’ve found another person who could take the role. But that guy now says that part of the company (which is not yet incorporated) belongs to him, and if I want him out, I need to buy him out.

To be honest, I’m shocked; especially as he didn’t invest any money, just a few hours in some not very productive meetings.

So it looks like by signing a MoU I’ve locked myself up, and this paper has some legal value, and a partner can still take advantage of you.

Am I right?

It is common for parties who have negotiated the key terms of a proposed relationship to enter into a preliminary written agreement, with the intention of recording their agreement in a more formal way in the future. These agreements are often referred to as a “memorandum of understanding” or “MoU”, “heads of agreement” or “term sheet”. Read more

Craig Yeung - SmartCompany - 22 November 2018


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