A memorandum of understanding (MoU) describes a bilateral or multilateral 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 in cases where parties either 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 or not 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 .

Memorandum of understanding is a first step in forming the contract that is bilateral in nature between two or more parties, organizations, or business concerns to establish a formal relationship. It is one step behind in forming the legal contract between the two organizations that is executed on e stamp paper. Memorandum of understanding is undertaken especially where legally implementable agreement cannot be done. Memorandum of understanding is more than likely to be used to change the already existing contracts. MOU are most commonly used between countries. It works on commonly established expectation and working towards common goals.