Do I Need An MOU Before A Joint Venture?

You're talking to another business about working together, and the idea feels promising. Maybe you'll share customers, build a product together, run a joint promotion or combine your services for a bigger client.

At this stage, you might be wondering whether you need a memorandum of understanding before a joint venture, or whether you're better off going straight to a binding agreement.

The right answer depends on how committed you are, how much risk you're taking on, and whether money, confidential information or intellectual property will start changing hands soon. An MOU can be a helpful stepping stone, but it can also create confusion if it's not drafted carefully.

Do I Need A Memorandum Of Understanding Before A Joint Venture?

You don't always need a memorandum of understanding before a joint venture, but it can be very useful when you're still testing whether the collaboration will work.

An MOU is usually used to record the main commercial points you and the other business have agreed in principle. In New Zealand, people often use an MOU before a joint venture when they want to keep momentum without committing to every final detail yet.

It can help you align on things like:

• what you're trying to achieve together
• who will contribute money, staff, technology, stock or services
• what the early trial period will look like
• what information you'll share
• what needs to happen before a full joint venture agreement is signed
• which parts, if any, are legally binding

For example, say Mahi Coffee Roasters wants to partner with a meal kit company to include coffee samples in 2,000 delivery boxes. They agree to trial the campaign for 8 weeks, each contribute $3,000 to marketing, and review the results before committing to a longer partnership. An MOU could record those trial terms while making it clear that neither side has promised to continue after the trial.

That said, if you're already agreeing final pricing, a profit share agreement, exclusivity, customer ownership and delivery obligations, an MOU may not be enough. At that point, you may need a full joint venture agreement, collaboration agreement or services agreement instead.

When Should An MOU Be Non-Binding?

An MOU should be mostly non-binding when you're still exploring the deal and don't want to be locked into the full joint venture yet.

This is common when both sides are still doing due diligence, testing commercial assumptions or getting internal approvals. You may like the idea, but you don't yet know whether the numbers, people or legal structure will work.

A non-binding MOU can be useful where:

• you haven't agreed the final scope of the project
• you still need board, shareholder or investor approval
• you need to check whether the project is technically or financially viable
• you want to run a small pilot before committing to a larger launch
• you haven't decided whether to form a new company, stay separate or use an unincorporated joint venture or contract-only arrangement

The wording matters. If the MOU says the parties intend to work together, split profits and perform specific obligations, a court may look at whether the document has enough certainty to be treated as binding, even if the heading says MOU. In New Zealand contract law, the practical question is usually whether there was an intention to create legal relations and whether the key terms are clear enough.

So, if you want the MOU to be non-binding, say that clearly. You can write that the main commercial terms aren't legally binding unless and until the parties sign a separate formal agreement. Then carve out the specific clauses that are meant to bind you, such as confidentiality, a non-disclosure agreement or exclusivity.

This avoids the awkward situation where one side thinks they're free to walk away and the other side thinks there's already a binding deal.

Which Parts Of An MOU Can Still Be Binding?

Some parts of an MOU can be binding even when the main joint venture proposal is non-binding.

This is often the safest approach. You can keep the overall collaboration flexible, while protecting the things that matter during the negotiation stage.

The binding clauses commonly include:

• Confidentiality: what information can be shared, who can see it, and how it must be protected
• Intellectual property: who owns existing IP, and who owns any new material created during the trial
• Costs: who pays for early expenses, such as prototypes, marketing or professional advice
• Exclusivity: whether either side is restricted from talking to competitors for a set period
• Non-solicitation: whether either side can approach the other's staff, contractors, suppliers or customers
• Privacy: how personal information will be handled if customer or user data is shared
• Governing law: which law applies to the binding parts of the MOU

If you're sharing customer lists, user data or sales information, the Privacy Act 2020 may apply. You should be clear about why the information is being shared, how it will be stored, who can access it, and what happens when the MOU ends. If personal information is involved, don't treat privacy as a throwaway line.

If you're sharing brand names, designs, software, content or product ideas, think carefully about IP ownership. Trade marks can be registered with IPONZ, but registration doesn't automatically solve who can use what in a joint campaign. Your MOU should say whether the other business only has a limited licence to use your brand, and whether that licence ends if the deal doesn't go ahead.

You should also avoid making promises you can't stand behind. The Fair Trading Act 1986 prohibits misleading and deceptive conduct in trade, so your MOU and negotiation emails shouldn't overstate what your business can deliver.

When Is A Full Joint Venture Agreement Safer?

A full joint venture agreement is safer when you're ready to commit to the collaboration, share risk or start delivering to customers.

An MOU is often too light once the project moves from talking to doing. If money, staff time, customer promises or IP development are involved, you'll usually want a binding agreement that explains exactly how the relationship works.

Use A Joint Venture Agreement When You're Sharing A Commercial Project

A joint venture agreement can work well when two businesses stay separate but work together on a defined project. It usually covers contributions, decision-making, profit sharing, management, reporting, IP, liability and exit rights.

This is especially useful where both sides are actively involved. For example, if a software company and a consulting business are launching a joint product for New Zealand schools, they may need to agree who builds the platform, who sells it, who supports customers, and how revenue is divided.

Use A Services Agreement When One Side Is Really Supplying The Other

Sometimes people call something a joint venture when it's really a services arrangement. If one business is simply providing marketing services, development, distribution or consulting services to the other, a services agreement may be clearer.

This matters because payment terms, liability, deliverables and termination rights look different in a services agreement. Calling it a joint venture can blur the lines and make it harder to work out who is responsible if things go wrong.

Use A Company Structure When You Need A Separate Vehicle

For larger collaborations, you might decide to set up a new company through the Companies Office. That company will have its own NZBN, directors and shareholder structure. If you go down that path, you'll also need to think about directors' duties under the Companies Act 1993, shareholder rights, funding and governance.

You don't need a new company for every joint venture. But if you're taking on investors, hiring staff, owning shared assets or signing larger customer contracts, getting the structure right early can save a lot of confusion later.

What Should You Put In An MOU Before A Joint Venture?

Your MOU should clearly separate the non-binding commercial proposal from any binding protections.

A template can be a useful starting point, but it often won't deal with the specific risks in your collaboration. Before you use an MOU, have it tailored to your business, the other party and the project.

Here's a practical fill-in outline you can use to plan what needs to be covered:

1. Parties: write the legal names, NZBNs if available, and contact details for each business.
2. Purpose: describe the proposed collaboration in plain English, including what you're trying to test or achieve.
3. Status Of The MOU: state which parts are non-binding and which parts are legally binding.
4. Proposed Contributions: list what each side may contribute, such as funding, products, staff time, technology or marketing support.
5. Trial Period Or Milestones: set out key dates, review points and what must happen before you move to a full agreement.
6. Costs: say who pays for early costs and whether any expenses need written approval first.
7. Confidentiality: explain what information is confidential and how it must be protected.
8. Intellectual Property: confirm who owns existing IP and what happens to anything created during discussions or the pilot.
9. Data And Privacy: set rules for any personal information or customer data shared between the parties.
10. Exclusivity: say whether either side is restricted from working with others, and for how long.
11. Next Agreement: describe the agreement you expect to sign next, such as a joint venture agreement, services agreement or shareholder agreement.
12. Ending The MOU: explain how either party can walk away and what obligations continue afterwards.

Keep the wording specific. Saying each party will work together in good faith can sound friendly, but it may not help much when you need to know who pays a $6,000 production bill or who owns a new customer database.

If the collaboration will involve consumers, also think ahead to the Consumer Guarantees Act 1993. If your joint project supplies goods or services to consumers, you'll need to be clear about who handles refunds, repairs, complaints and customer support.

Do I Need A Lawyer For An MOU In NZ?

You don't always need help for a very low-risk MOU, but getting tailored input is sensible when the collaboration has real commercial value or legal risk.

If all you're doing is recording a meeting note for a possible future project, a simple non-binding document may be enough. But if you're sharing confidential information, promising exclusivity, spending money, handling personal information or creating IP, a poorly drafted MOU can create problems.

When you're deciding how to get your MOU prepared, the main options are:

• A free template: usually cheapest, but it may not separate binding and non-binding clauses clearly or deal with your specific project.
• An online fixed-fee legal service: can be useful if you want tailored drafting, clear inclusions and price certainty before work starts.
• A traditional hourly-billing provider: may suit more complex transactions, especially where several documents or negotiations are involved.

The cost of an MOU usually depends on how complex the deal is, whether you need related documents, how much negotiation is involved, and whether IP, privacy, company structure or consumer obligations need to be covered. A proper review should tell you not just what the words say, but whether an MOU is the right document at all.

If privilege is a concern for your business, keep in mind that communications with a legal consultancy are unlikely to be protected by legal professional privilege. You may need separate advice if privileged communications are required.

Also, if the relationship has already broken down or you're dealing with a dispute about whether an MOU is binding, you'll likely need dispute-focused support. The better time to tidy this up is before anyone starts spending serious money or making promises to customers.

Key Takeaways

• You don't always need an MOU before a joint venture, but it can help if you're still testing the collaboration.
• If the MOU is meant to be non-binding, say that clearly and carve out any binding clauses.
• Confidentiality, IP, costs, privacy, exclusivity and governing law are common binding parts of an MOU.
• A full joint venture agreement is safer once you're sharing risk, revenue, customers, staff time or assets.
• A services agreement may be better if one business is simply providing services to the other.
• Templates can miss key issues, so tailor the MOU to your project before you sign it.

If you'd like help with your MOU, joint venture agreement, services agreement or IP and confidentiality clauses, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.