Memorandums of Understanding (MOUs) are widely used in structuring Joint Ventures and strategic partnerships with Brazilian companies for business expansion in Brazil or internationally.
They are preliminary legal instruments, which summarize the key basic terms and conditions of the projet that, if it goes ahead, will support the definitive contracts of the transaction.
We list below 5 essential aspects to be considered in MOUs:
1. MOUs must start by defining the Joint Venture or strategic partnership project: MOUs must define, in the initial part (i) the scope of the project that the partners wish to jointly explore, (ii) what each party will bring to the table (whether know-how, sales channels, operations, etc.), (iii) whether a team will be formed with collaborators from each partner to validate the project, and (iv) the deadline for the results to of the assessment is presented to senior management for decision on whether or not to proceed with the business;
2. Partners must create a mutual “Lock-Up” for their own protection: Joint Ventures or strategic partnerships are entered into by companies with different interests and sizes. It is essential that the MOUs define whether, if the project does not go ahead, one of the parties may contract with a third party and try to develop the same idea with them. If it is not allowed, the sealing period is considered a “Lock-Up” and must be provided in the document;
3. Partners must define whether to sign MOU with Exclusivity: Another relevant aspect in MOUs is whether there will be exclusivity between partners during the period of discussion, evaluation and implementation of the project and what is the term of this exclusivity (eg. 90 / 180 / 360 days). If there is no exclusivity, partners can deal with the same project with other potential partners in parallel;
4. What to provide into MOU if the Project is approved for implementation: If the partners approve the project implementation, the MOU must foresee that each party must (i) commit to a deadline to negotiate the final contracts and make the business operational (eg. 90 / 120 days), (ii) the equity participation of each one and who will consolidate financial results in its books, (iii) how the new business will be managed, (iv) territory of operation, (v) product line and services, among other relevant points;
5. Other important legal aspects to be included in MOUs: In addition to the above, MOUs must always clearly provide for confidentiality, sharing of data and strategic documents, compliance, money laundering and suitability, forms of termination, non solicitation of employees, conflict resolution, applicable law and jurisdiction, among others.
Whether for business expansion in Brazil or internationally, companies begin to feel the need to enter into MOUs to discuss Joint Ventures and strategic partnerships with their partners in order to provide greater legal certainty and clarity of intentions and objectives in their negotiations.
