Documents · Compared
Letter of intent against MOU
A letter of intent is written by one party and addressed to the other, setting out what that party intends to do and on what terms. A memorandum of understanding is signed by both and records a shared position. Neither is normally binding, though specific clauses inside either one usually are.
The two are used almost interchangeably in practice, and the choice still says something. One is a proposal on letterhead; the other is a joint statement that both names sit under.
Nuwan Madhusanka · Co-founder
5 min read · Published
| Letter of intent | Memorandum of understanding | |
|---|---|---|
| Who writes it | One party, on their own letterhead | Both, usually drafted jointly |
| Who signs | The sender, sometimes countersigned to acknowledge | Every party named in it |
| Voice | I intend, we propose | The parties understand, the parties will |
| Typical setting | An acquisition, a large purchase, a tender shortlist | A partnership, a research collaboration, a shared programme |
| Usually binding parts | Confidentiality, exclusivity, costs, governing law | The same, plus any funding or resourcing commitment |
| What follows | A share or asset agreement, or a supply contract | A services agreement, a grant deed or a joint venture |
Direction of travel is the real difference
Reading one of each side by side, the thing that separates them is not content but voice. A letter of intent points one way. It is a document the sender controls, phrased as their position, and the recipient's role is to accept it, reject it or negotiate. That asymmetry is useful when one side is clearly leading, such as a buyer approaching a seller or a head contractor shortlisting a subcontractor, because it puts a marker down without pretending both sides have equal input yet. A memorandum reads flat: both names at the top, both signatures at the bottom, and language that describes a joint position. That suits partners of roughly equal standing and reads badly when one side plainly wrote the whole thing.
What is binding inside a document that is not
Both documents carry the same trap. A page headed non binding will still contain clauses everybody expects to bite: confidentiality over what is shared during talks, exclusivity stopping one side shopping the deal, an allocation of costs if talks collapse, sometimes a standstill on other negotiations, and always the choice of governing law. Those have to be marked out expressly, in their own clause, saying which numbered paragraphs bind and which do not. Leaving it implicit produces the worst outcome available, which is a dispute about whether the non binding document was binding, fought before anybody has reached the actual deal. Say it plainly and put the binding clauses together so a reader can see them in one place.
When one is genuinely better than the other
Send a letter of intent when speed matters and the terms are still yours to set. It can go out the same day, it does not need the other side's drafting time, and it creates a dated record of what was offered. Use a memorandum when the relationship itself is the point, when three or more parties are involved, or when the document will be shown to somebody outside the deal, such as a funder, a board or a regulator, because a jointly signed page reads as agreement and a letter reads as a request. Community and government work leans heavily towards the memorandum for that reason, and corporate transactions lean towards the letter.
The mistakes that cause trouble later
Three recur. Writing operational detail into a document nobody intended to bind, so that the eventual contract contradicts it and a counterparty argues the earlier version governs. Signing without a sunset clause, which leaves an exclusivity obligation running indefinitely because nobody wrote down when it lapses. And describing money loosely, with phrases such as approximately, in the order of or subject to adjustment, in a paragraph that also happens to sit in the binding half. Each of those is fixed by a single sentence at drafting time and by nothing at all afterwards, which is the usual shape of pre contract problems. A fourth, less common but expensive, is naming the wrong entity. Groups sign in the name of the trading brand rather than the company that will actually contract, and the eventual agreement then has to explain who the earlier document was talking about. Check the registered name and the company number before the letter goes out, not after the deal has been agreed in principle and everybody has stopped paying attention to the front page.
What comes next, and how to hand over cleanly
Whichever one goes out, it should name the document that will replace it and roughly when. That does two jobs: it signals that nobody is treating this as the final word, and it gives the negotiation a shape. The cleanest handover states that on execution of the final agreement, the earlier document ceases to have effect except for the clauses that were expressed to survive, and lists them. Without that line, two documents sit in the file describing the same relationship in slightly different words, and the one that surfaces in a dispute is whichever one suits the party who finds it first.
Questions people ask
Can a letter of intent be binding by accident?
Yes, and it is the most common way these documents cause harm. If the wording reads like a promise, the terms are complete enough to perform and both sides act on it, a court can find a contract regardless of the heading. Marking the document clearly and avoiding operational commitments is what keeps intention and effect aligned.
Should the recipient countersign a letter of intent?
Only if you want acknowledgement rather than acceptance, and the letter should say which. A countersignature saying received and noted is safe. One placed under a line reading agreed and accepted turns a one way statement into a two way document, and at that point you have written a memorandum with the wrong heading on it.
Is an MOU ever used with more than two parties?
Frequently, and it is one of the better reasons to choose it. Three councils sharing a facility, or a university, a hospital and a charity running a programme together, need one page that everybody signs rather than a web of letters. The drafting cost rises with each party, since every obligation has to say who owes it.
Does either document need consideration?
Not for the parts that are not intended to bind. The binding clauses do need it, or the document has to be executed as a deed, which is why confidentiality and exclusivity provisions in a serious transaction are sometimes carved into a short deed of their own rather than left inside a letter that nobody executed formally.
How long should one of these run for?
Long enough to do the work and no longer. Four to eight weeks is typical for exclusivity in a small transaction, with a stated expiry date rather than a period counted from an event people will later disagree about. Include a right to extend by written agreement, so a slow bank does not force a renegotiation of the whole page.
Can a letter of intent be withdrawn?
The non binding parts can be, since they were only ever a statement of intention. The binding parts continue according to their own terms, so withdrawing does not release the sender from confidentiality or from a costs undertaking. Withdrawal should be in writing and dated, because the date is what fixes when any exclusivity period stopped running.
Make one with documents
The button opens the generator with this use case already described. Change the wording to match your own.
Create a document with OneCraftRelated questions
- MOU against contractAn MOU is usually not binding, but a contract can be found inside one. The tests that decide it, and how to mark the clauses meant to have force.
- What is a heads of agreement?A heads of agreement summarises the main commercial terms before the long form contract is drafted. What it holds, what binds, and how it differs by region.
- What is a term sheet?A term sheet sets out the terms of an investment before the long form documents are drafted. What each standard heading means and which parts actually bind.
- Binding against non-binding agreementsWhat makes an agreement binding is not the heading on the page. The signals courts look at, what subject to contract means, and how to mark clauses that bind.
Step by step in the builder: Create a document with AI.
Written and checked by the OneCraft team. Last checked .