Memorandum of Understanding (Formation of a Company)

This template is a Memorandum of Understanding (MOU) for use where two parties want to form a company to run a business together. It is intended for situations where the parties have reached a preliminary deal, but have not yet negotiated the full legal and commercial terms.

The MOU is intended to be followed by a more detailed document, most commonly a shareholders’ agreement, which would then govern the commercial and shareholder arrangements and replace and supersede the MOU.

What This Memorandum of Understanding Does

It sets out the parties’ current understanding and assumptions while negotiations continue. It also provides limited protection by stating that certain “boilerplate” provisions are binding, while other provisions are not.

What It Covers

This MOU does not make provision for any work to be carried out, or for steps to be taken, pending signature of the definitive contract. It proceeds on the assumption that a company will be formed as the business vehicle and that a business plan will be agreed.

The binding provisions are intended to protect the parties until the definitive binding contract is signed. The document includes provisions dealing with matters such as confidentiality and intellectual property rights, non-solicitation, lockout, costs, inadequacy of damages, third party rights, and law and jurisdiction.

When To Use This Memorandum of Understanding

Use this template where you want to record agreed headline terms and assumptions for a proposed joint venture company, but the parties are not ready to enter into the definitive contract that will govern the arrangement.

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

How The Memorandum of Understanding Is Set Out

The MOU contains clauses covering the proposed commercial terms and assumptions, ongoing negotiations, and a set of “boilerplate” protections (some of which are stated to be binding).

It also includes schedules for key company formation and share details:

• Schedule 1 – Company Formation Details
• Schedule 2 – Details of Ordinary Shares

Options In Square Brackets

Optional phrases and 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.

What Else You May Need

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

Memorandum of Understanding (Formation of a Company) is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.