A Guide To Memorandums Of Understanding In Malaysia (+Free Sample)

When exploring a potential business partnership, joint venture, or corporate collaboration in Malaysia, a Memorandum of Understanding (MOU) is often used as a first step to show commitment before formalising the relationship with a contract. 

To those unsure if an MOU is what they need, read this guide to the end as we explain:  

• what an MOU is and how it differs from similar agreements 

• when and why you should use an MOU 

• whether MOUs are legally binding under Malaysian law 

• what essential clauses every MOU should include, and 

• answers to frequently asked legal questions on MOUs 

Click here to skip to our free MOU sample, but we highly recommend you read the whole thing! 

Defining a Memorandum of Understanding (MOU) 

An MOU is commonly used as a non-binding legal document between two or more parties to document intentions, key terms, and expectations as a precursor to a more detailed and legally binding contract. 

In Malaysia, MOUs are primarily governed by the Contracts Act 1950, but several other laws also influence their usage: 

• Electronic Commerce Act 2006 – Recognises e-signatures and digital contracts. 

• Evidence Act 1950 – Governs the admissibility of MOUs in legal proceedings. 

• Companies Act 2016 – Ensures company reps have the authority to sign an MOU. 

• Personal Data Protection Act 2010 (PDPA) – Regulates the collection, processing, and disclosure of personal data during negotiations. 

However, as we explain below, MOUs can sometimes be legally enforceable under specific circumstances. 

Legal enforceability of MOUs in Malaysia 

Although MOUs are generally not legally binding under Malaysian contract law, Charles Grenier Sdn Bhd v. Lau Wing Hong [1997] 1 CLJ 625 established that courts consider parties’ intention to create legal relations and specific language used when determining enforceability.

If certain clauses of an MOU fulfil the legal elements of a contract as set out in Section 10 of the Contracts Act 1950, they may be legally enforceable, namely: 

• offer and acceptance 

• consideration 

• intention to create legal relations, and 

• certainty of terms 

Therefore, even if the MOU states it is “non-binding,” certain clauses may still be legally enforceable if they are drafted and accepted by both parties. For more information, read our guide to legal enforceability of MOUs in Malaysia.

Case law

In Baldah Toyyibah (Prasarana) Kelantan Sdn Bhd v. Dae Hanguru Infra Sdn Bhd & Another Appeal [2020] 5 CLJ 27, the Court of Appeal held that when the terms are clear and the parties have acted upon them, the court may hold that the MOU is enforceable. 

MOU vs MOA vs Contract

Though often used interchangeably, each serves different purposes in a business or legal context as shown in the table below:: 

Criteria	Memorandum of Understanding	Memorandum of Agreement	Contract
Legal Enforceability	Generally not binding	More likely to be binding	Fully binding and enforceable in court
Purpose	To outline preliminary intentions	To record agreed terms before a formal contract	To create clear, enforceable obligations
Formality	Informal to semi-formal	More formal than MOU	Fully formal, requires legal enforceability
Typical Use	Early-stage collaboration, JV talks, feasibility studies	Pre-agreed terms before contract; public-private partnerships	Final business agreements – supply, employment, lease, sale
Common Clauses	Purpose, confidentiality, non-binding clause, timeframe	Scope of work, obligations, deliverables, confidentiality	Payment terms, liabilities, warranties, indemnities, termination

Based on the table above: 

• MOUs are for when you’re just starting discussions and want to set expectations without being legally bound. 
• MOAs are for when you’ve agreed on the structure but need something short of a full contract. 
• Contracts are for when you need full legal enforceability with clear rights and remedies. 

Key clauses in MOUs 

Every MOU should be tailored to its purpose—but eight essential clauses help define the boundaries, responsibilities, and expectations between parties tend to appear in most MOUs. 

1. Purpose of Collaboration – Defines the reason for the MOU (e.g., joint venture, R&D, investment, market expansion).
2. Confidentiality Obligations – Protects sensitive information; often legally binding.
3. Duration and Termination – Specifies validity period and termination conditions.
4. Responsibilities of Each Party – Outlines roles, resources, and contributions.
5. Cost Allocation – Clarifies cost-sharing, reimbursements, or individual expenses.
6. Dispute Resolution (Optional) – Defines mediation, arbitration, or legal processes.
7. Non-Binding Clause – States the MOU isn’t legally binding, except for specific clauses.
8. Exclusivity/Non-Circumvention – Restricts engagement with competitors or third parties.

Together, these clauses ensure all parties have a clear understanding of their roles, obligations, and limitations.

Why use an MOU? 

Keeping in mind an MOU is used when parties are still exploring possibilities or defining the terms of a collaboration, here are common reasons MOUs are used: 

• show intent that parties are committed to working together in good faith even if things aren’t finalised
• provide a framework for open discussions, without the pressure or formality of a binding agreement
• aligns all sides on purpose, scope, and objectives before time and resources are invested in a full contract
• avoid misunderstandings and clarify who’s doing what 

Even though an MOU isn’t always legally binding, breaching it can still damage credibility, reputation, and future partnerships. 

Use cases for MOUs 

Use Case	How an MOU Can Help
Business partnership	Clarify roles, responsibilities, and expectations
Joint venture	Define contributions, profit-sharing, and exit strategies upfront
Company acquisition	Align on key terms before investing time in due diligenc
Supplying goods/services	Agree on pricing, delivery, and quality expectations
Property or land purchase	Outline terms like price and conditions
Rental agreement	Ensure lease terms, responsibilities, and conditions are clear
Technology collaboration	You want to establish cooperation terms, IP ownership, and project scope.
Investment/funding round	You need to align on valuation, funding terms, and expectations before finalizing legal documents.

Free MOU sample

Click the link below to access our library of free legal templates. Be sure to tailor the document to fit your specific requirements!

E-Templates

Takeaways for businesses 

Since an MOU can be legally enforceable, we strongly recommend treating it with the same care as any other legal document. Make sure the clauses are clear, fair, and balanced to set the foundation for a strong business relationship. 

We hope you find our free MOU template useful! However, if you need help tailoring it to your specific needs or ensuring it’s properly worded, feel free to get in touch for assistance. 

Maybe it’s just us lawyers being overly cautious—but hey, that’s what we’re paid for! 

FAQs on MOUs in Malaysia 

Question	Answer
What’s the difference between an MOU and a Partnership Agreement?	A Partnership Agreement is a legally binding document that governs the rights and obligations of partners in a business partnership under the Partnership Act 1961. An MOU, on the other hand, is more of a pre-partnership understanding — it sets the tone for future discussions, collaboration, or evaluation. MOUs don’t confer any ownership or profit-sharing rights unless explicitly stated.
What should the scope of an MOU include?	The scope should clearly define: The purpose of the collaboration The key areas to be covered (e.g. R&D, joint marketing, investment terms) The expected contributions or roles and responsibilities of each party The timeframe or duration Any territory or target market the arrangement covers This ensures both parties know exactly what’s in (and out) of the arrangement.
What are the most important clauses in an MOU?	The key clauses in an effective MOU include: Purpose Clause – What the parties intend to achieve Obligations – Each party’s role or deliverables Term and Termination – Duration and how it ends Confidentiality – To protect sensitive information Non-Binding Clause – To state clearly that it’s not legally binding (if applicable) Cost Allocation – Who bears which costs Governing Law – Usually Malaysian law Dispute Resolution – Optional but helpful Exclusivity / Non-Circumvention – If relevant Signatory Authority – Ensure valid representatives are signing