Heads of Terms For the Formation and Running of a Company

Memorandum of Understanding (Formation of a Company)

CO.CF.18

This form of Memorandum of Understanding (Formation of a Company) (“MOU”) is designed to be used where two parties wish to form a company in order to run a business together. They have reached a preliminary deal but have yet to negotiate the full legal and commercial terms and other details which will comprise the whole arrangement. 

This MOU is designed to be followed by a much more detailed document – most likely to be a shareholders’ agreement - as the formal contract. That contract would then definitively govern the commercial and shareholder arrangements in question, and it would replace and supersede the MOU.

This form of MOU does not make provision for any work to be carried out, or indeed for anything to be done pending signature of a definitive contract, however there is an assumption that a company (as the business vehicle) will be formed and a business plan agreed.

Until the definitive binding contract is signed, the parties will need protection from each other in certain respects, and the MOU achieves this by making certain of its provisions binding. In this template, most of the provisions are of a “boilerplate” nature and those provisions (but not other provisions) are stated to be binding in order to protect the parties.

This template might instead be headed “Heads of Terms” if that is preferred by the parties to it, since the heading itself does not affect its legal status or effect. (Its status and effect is determined by its content.)

This template should be read in conjunction with our Company Formation Checklist as well as our Shareholder Agreement templates.

This Memorandum of Understanding (Formation of a Company) contains the following clauses:

  1. Definitions and Interpretation,
  2. Introduction,
  3. Commercial Terms for Proposed Transactions and Assumptions,
  4. Ongoing Negotiations,
  5. Confidentiality and Intellectual Property Rights,
  6. Non-Solicitation,
  7. Lockout,
  8. Costs,
  9. Inadequacy of Damages,
  10. Third Party Rights,
  11. Law and Jurisdiction

Schedule 1 – Company Formation Details

Schedule 2 – Details of Ordinary Shares

Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.

This agreement is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.

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