Guest blog by James Boorman, Project and Corporate Finance Advisor and Founder of New African Projects and Business Ltd.
“Law - learn to love it, always respect it.”
THINK about these three questions with regard to Memorandums and Contracts:
- Just how tight is this? Is there ‘Wriggle Room’ in any important clause?
- Am I reading this with the rose tinted glasses of the marriage? If so, STOP IMMEDIATELY!
- Or, am I correctly reading it with a clear view of how it will protect me when I am considering a DIVORCE?
The issue with Law is that any document is really only worth as much as you are willing to throw at defending it in court. So at this stage think David vs Goliath - it’s the detail you put into your agreements that could be the difference between you having a slingshot or not. Often it’s only the detail that stops a larger party from walking into Court….
If there is something that is particularly important to you, throw in the phrase: “For the avoidance of any doubt…” this concentrates the minds of anyone later wanting to walk away from their obligations.
Termination Clauses - be very careful over these, they have to be in as both Parties do need the right to call it a day at some point if necessary. How do I want to be left? What rights do I need to continue my business after any DIVORCE? Remember every Human Being has a Right of Trade and Employment, so you can keep them out of the market for so long, but not a length of time that will impact their Human Rights.
Memorandum of Understanding (MOU)
Practically the same as a Letter of Intent. Thought of as legally binding and often used as such, but beware - it is not necessarily as strong as a contract and again, as with an LOA (note my last letter) very dependent on the wording used to show legal strength.
An MOU must have the following four issues covered:
1. It must identify the Parties.
2. Clearly state the objectives and what’s being agreed.
3. Show the essential terms of the agreement (how long, termination clauses etc)
4. Must be signed by both/all Parties.
So just how weak or tight can an MOU be?
If it contains what are known as the ‘Four Corners’ - Offer; Acceptance; Consideration; and finally - a clear intention in the wording to be legally bound, then this is as tight as it gets… Mostly though it is more of a concentration of minds (what are we here for?), the next step to a full contract.
Memorandum of Agreement (MOA)
Not too much different to an MOU, though more of a working together in partnership or on a particular project. The same rules as above apply. This can also be used for dispute resolution - what is the dispute and how both Parties agree to resolve it will be shown in an MOA.
Contract, Joint Venture, Company
So all Parties are very relaxed and happy to proceed, the final step is to tie them down through a Contract, JV or Company. Could you have just jumped straight into a Contract rather than wasting time with a LOI or MOU ? Yes of course, but something had to be written down fast once you had shaken on the deal. Once in black and white it concentrates the mind… Contract brings together all of the above as tight as it possibly can be. The ‘Four Corners’ as above are clear and unambiguous. Remember, as all good divorce lawyers will tell you - never assume and get it written down!
Joint Venture (JV) and Company
Many JVs fail because of a badly thought out process. What starts out as a beautiful marriage soon drops into anger and hurt, with arguments over small things: “We have a joint account in which we both put the same money, but I do more of the washing up and all of the cooking...”
Now you remember my words about Business Law and DIVORCE don’t you?
However, if you have followed my advice and made your last agreement as tight as possible and it contains what is right for you, then sign and finally you can crack open that well earned Champagne.
Take a sip, smile and put the glass down. Why?
Because now....the hard work starts - making the whole thing work!
Good Luck !
James Boorman, 22 years in the Financial Markets in London trading many different products from FX to Interest Rates to Commodities to Futures and Options, before being relocated by Credit Agricole in 2007 to Johannesburg as an Investment Banker, Head of their Financial Institutions Department, sub-Saharan Africa. He now spends his time with his family in South Africa whilst advising on Project and Corporate Finance deals. He adds significant value in the foreign exchange value chain to those companies who do not have the necessity or resources to justify a full time Treasury professional or department, but still need to ensure that their market risks are managed (and their sleep patterns undisturbed). Seen here planting Bamboo in Mozambique. You can follow James on Twitter.
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