Meaning
Memorandums of understanding that remain signed but lack formal board approval sit in a state of limbo. The unratified agreement exists where the terms are known but the obligation to perform is not yet active. It often requires a vote by a board of directors or a resolution by shareholders before it carries the weight of law.
Authority is missing.
Conditional Status
Participants to such a document often begin preparing for performance while waiting for the final approval. The unratified agreement provides a roadmap for the future relationship, even though either side could still walk away without a penalty. Waiting allows for a final review of the terms to ensure they align with the interests of the organization.
Approval Process
Confirmation of the terms usually happens through a formal act, such as a signature by an authorized officer or a recorded vote. The unratified agreement becomes a binding contract only after this specific condition is met. Documentation of the ratification is just as important as the contract itself, as it proves that the company consented to the deal.
Risk Exposure
Acting as if a deal is finished before it is confirmed can lead to wasted resources and legal disputes. The unratified agreement does not protect a founder from a sudden change of heart by the counterparty. If the approval never comes, any money spent in anticipation of the deal is likely lost, as there was no binding promise to pay.
The distinction between a draft and a completed deal remains a primary focus in all professional communications. A record of the failed ratification provides the evidence needed to stop any claims that a contract ever existed between the parties. The promise stays pending.
