In today’s fast-paced business world, businesses start to recognise the value of collaboration over competition. Through collaboration, businesses can pool their resources, expertise, and network to achieve mutually beneficial outcomes.
While it’s exciting to verbally discuss the collaboration and the benefits it can bring, a successful collaboration depends on a clear understanding of each party’s roles, responsibilities, and expectations. Failing to do so will only result in wasted time, efforts, and energy. Hence, a well written memorandum of agreement (“MOA”) plays a crucial role in strengthening business relationships and collaboration.
An MOA is a legally binding document that outlines the terms and conditions of collaboration between the parties. It includes the scope of the collaboration, the responsibilities and obligations of each party, payment, timelines, intellectual property, confidentiality and other essential terms. It provides a framework for decision-making, communication, and conflict resolution. An MOA ensuring that all parties are aligned in their understandings and working towards the same goals.
An MOA helps to establish trust and credibility between the parties, particularly if one party is contributing significant investment or if the parties are collaborating for the first time. By clearly defining each party’s obligations and responsibilities, it reduces the risk of one-party taking advantage of the other party and helps to minimise misunderstandings and disputes that may arise during the collaboration.
It’s important to note that an MOA is different from other legal documents commonly used in business collaborations, such as a Memorandum of Understanding (MOU) or a Joint Venture (JV) agreement. An MOU is a less formal document that outlines the points of initial negotiations between parties and is usually non-binding (although it can also be made legally binding if that is the intention of the parties). On the other hand, a JV agreement is a formal agreement that usually creates a separate legal entity such as a joint venture company for the purposes of a complex and long-term collaboration. For much simpler, one-off transaction, a JV will be similar to a collaboration for a project, where parties usually do not set up a JV company as such. That’s when parties sign an MOA, which is a suitable legal document for businesses if the collaborations are short to mid-term and do not require the creation of a separate legal entity.
By establishing clear expectations and providing a legal framework for the collaboration, an MOA helps to build trust and credibility, protects the interests of all parties involved, and mitigates risks and uncertainties, leading to a successful collaboration.
*****
About the author:
This article was written by Wong Shen Ming, Corporate Associate – law firm in Kuala Lumpur, Malaysia.
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.
