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A memorandum of understanding is a type of agreement between two or more parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used either in cases where parties do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. It is a more formal alternative to a gentlemen's agreement.
Whether a document constitutes a binding contract depends only on the presence or absence of well-defined legal elements in the text proper of the document. The required elements are offer and acceptance, consideration, and the intention to be legally bound. In the US, the specifics can differ slightly depending on whether the contract is for goods or services.
Many companies and government agencies use MoUs to define a relationship between departments, agencies or closely held companies.