What is a good structure for a partnership MOU?


1

When two or more people are evaluating a business model, they may desire to have a MOU (memorandum of understanding) to document their expectations about how they will share responsibilities and rewards, should they formalize the business through filing its incorporation.

What kinds of elements should go in that MOU?

I think perhaps:

  • nature of the business
  • split of ownership
  • split of decision-making
  • tie-breaker processes for decisions
  • some language regarding stopping / people quitting / non-performance
  • initial money to pay bills

I envision these being sections of a MOU letter, that all parties sign. This document is not strictly binding, but as typical to an MOU it does set expectations about what will go formally into writing for articles of incorporation, etc.

Getting Started Incorporation Partnership Documentation Best Practices

asked Aug 17 '13 at 00:09
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New Alexandria
221 points
  • have you googled "startup MOU"? Can you elaborate which ones did not suit your requirements? "docstoc MOU" also returns quite a few. – Jim Galley 7 years ago
  • Shall we think then that there is no value to have a Q&A that handles this topic, so that our community can present its expert opinion on the matter? – New Alexandria 7 years ago
  • Every contractual document has its basic components with additional addendums to address specific conditions. What is "good" is based on individual interpretations / conditions and likely not relevant to a large population. If a specific point in a MOU is of question, referencing the specific part and asking a question about that will likely gain more answers vs. a broad question. Consider rephrasing the question to narrow the scope. – Jim Galley 7 years ago

1 Answer


1

This may not be the answer you want to hear ... and to spend time negotiating an MOU describing the split of equity in a future company you may or may not wish to found together after you have discussed the business model is not necessarily the greatest use of your time.

Typically finding a business partner is like dating: you will often flirt with and date a few people before deciding you have 'the one' to get together with. To take the analogy further, what would you think of someone who wanted to negotiate the pre-nuptual agreement before going on the first date? That's what the 'negotiate the MOU while evaluating a business model' sounds like to an experienced businessperson. Let's decide to get married FIRST, then negotiate the pre-nup!

If you do decide to negotiate an MOU, here's some quick feedback on the points you raise:

  • split of ownership: absolutely figure this out: typically through an agreed founder share split and a vesting agreement
  • nature of the business: you want to be flexible as a startup: don't lock this into a piece of paper: agree to be flexible and work together as you go
  • split of decision-making: this is typically done by assigning roles in the corporation, typically based on competence: the head of sales (growth hacker) may decide on which marketing activities to undertake, while the lead developer (hacker) may decide which features to put in first: however, if you need to refer a signed MOU to settle disagreements on how a decision is being taken ('you said in the MOU that you would let me decide this') you're already in trouble. Compromise like rational human beings ... or run for the hills if you can't!!
  • tie-breaker for decisions: on a corporate level, the person who is the CEO typically is the tie-breaker, because they are who the board/investors will fire when the company screws up, while the lead developer will keep their job: their neck is closer to the knife, they get final decision: but if you have to use your 'I'm the CEO power' to reach a decision, you're already in trouble, and look for the hills (see above)
  • people stopping/quitting/non-performance: easily dealt with through vesting (see first point)
  • initial money to pay bills: easily dealt with by setting a modest price per share, e.g., $0.001 and selling, e.g., 1,000,000 shares among the founders: that will give you $10,000 to start: if the person with the most shares doesn't have the most money, then figure out a value for the company after the founder shares (e.g., $0.01 per share), and sell more shares at the new price to get more cash in
answered Aug 17 '13 at 09:28
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Kamal Hassan
1,285 points
  • We are less 'negotiating' as 'making polite commentary' – New Alexandria 7 years ago
  • Fair enough. I still believe you need some sort of commitment to each other to get through the conversation of 'I get this many shares you get that many'. Make the commitment to share a pie together first before slicing the pie! – Kamal Hassan 7 years ago

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Getting Started Incorporation Partnership Documentation Best Practices