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It’s easy to confuse a contract with a memorandum of understanding (MoU). After all, both talk about agreements, and they’re made between two or more parties. In this article, we’ll clarify the difference between the two so you’ll know exactly which one to use for your upcoming deal.

Defining Each Aspect

Let’s start with a brief definition for each.

Memorandums of Understanding

A memorandum of understanding (MoU) is a written document that describes the agreement between two or more parties concerning their contemplated relationship. MoUs are signed by all the parties involved, so it carries the tone of mutual respect while documenting a relationship of goodwill between the parties. It puts into writing each party’s intentions and actions, although most of the time, it doesn’t detail an implementation process. An MoU can be entered into by two parties (bilateral) or more than two parties (multilateral). It can serve as a preliminary document before crafting a formal contract.


A contract is a written or spoken agreement that two or more parties enter into after the acceptance of an offer. It involves the exchange of something of value as an act of sealing the deal. This “something of value” is known as “consideration.”

When Is Each Used?

A memorandum of understanding is generally used when two or more parties mutually agree on a particular matter and would need to put their agreement in writing to outline a relationship in general terms, but do not want to ...
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If you have an entrepreneurial spirit, you may have dreamt of being your own boss someday or building a company from the ground up. Starting your own company or going into business with a partner is a major endeavor, not to be taken lightly. In a business partnership, you and your partner can split the profits any way you want, as long as you both agree to the terms of the arrangement. When business partners start a new company, they typically bring different skills and assets to the table. It is not uncommon for one partner or partners to bring in cash and the others to bring managerial experience or industry knowledge. The key issue here is then how to appropriately compensate each partner and where to allocate the liability. The legal aspects of running a business can be intimidating, so that is why you should consult with an experienced business law attorney before embarking on this type of endeavor. In order to avoid any disputes when a company becomes successful, fails, or if there is a third party lawsuit, it is imperative to consult an attorney to properly allocate profits—and liability—to minimize harm later on.

Limited Liability Companies and Profit Sharing

Limited liability companies (LLCs) are an ideal way to share profits and distribute liability between partners (or as known in LLCs: “members”). LLCs are incredibly flexible and can be custom designed for your business’ specific needs. LLCs can be designed in the following ways:

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