The memorandum of understanding (MOU) is a common agreement between startups who are pre-product and potential customers to define commitment, interest, terms, and pricing in writing prior to delivering the good or service. LOI and MOU agreements are used interchangeably and usually non-binding. At times the MOU is used in partnerships to define working relationships where no financial exchange is yet made. At times, in working with customers on large projects with multiple phases where the customer and business work together before payment and services are exchanged a MOU may be used before a LOI is used to define pricing and terms. This document is usually also used to clarify understanding of both the customer and founder and often used to show investors. Also see Letter of Intent (LOI).

A memorandum of understanding (MOU or MoU) is an agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract.

The MOU can be seen as the starting point for negotiations as it defines the scope and purpose of the talks. Such memoranda are most often seen in international treaty negotiations but also may be used in high-stakes business dealings such as merger talks.

An MOU is an expression of agreement to proceed. It indicates that the parties have reached an understanding and are moving forward. Although it is not legally binding, it is a serious declaration that a contract is imminent.

Under U.S. law, an MOU is the same as a letter of intent. In fact, arguably a memorandum of understanding, a memorandum of agreement, and a letter of intent are virtually indistinguishable. All communicate an agreement on a mutually beneficial goal and a desire to see it through to completion.

MOUs communicate the mutually accepted expectations of the people, organizations, or governments involved. They are most often used in international relations because, unlike treaties, they can be produced relatively quickly and in secret. They also are in use in many U.S. and state government agencies, particularly when major contracts are in the planning stages.

An MOU clearly outlines specific points of an understanding. It names the parties, describes the project on which they are agreeing, defines its scope, and details each party's roles and responsibilities.

While not a legally enforceable document, the MOU is a significant step because of the time and effort involved in negotiating and drafting an effective document. To produce an MOU, the participating parties need to reach a mutual understanding. In the process, each side learns what is most important to the others before moving forward.

The process often begins with each party effectively drafting its own best-case MOU. It considers its ideal or preferred outcome, what it believes it has to offer to the other parties, and what points may be non-negotiable on its side. This is each party's starting position for negotiations.

An MOU communicates the mutually accepted expectations of the people, organizations, or governments involved.

Not everyone agrees on the benefits of an MOU. During trade talks with a representative of China in Washington in April 2019, President Donald Trump was asked by a reporter how long he expected U.S.-China memorandums of understanding to last. "I don't like MOUs because they don't mean anything," the president replied. After some discussion, it was decided that any document that emerged from the talks would be called a trade agreement, never an MOU.