Charities exist to support and help individuals and communities, but this does not mean they do not experience many of the challenges facing businesses in today’s economic climate – including funding, expansion and growth. This is why more and more charities are choosing to work together or merge.
A charity may work with other charities for all sorts of reasons with benefits including sharing staff, assets and resources, ideas and events promotions. A merger takes matters further and normally makes the charities into one entity, as either a new charity is formed to continue the work of the merging charities or one charity takes over the assets and obligations of the other.
Mergers can seem daunting but provided you approach the union in the right way and seek specialist legal advice before and during the process, they can be highly beneficial for the charities.
Should You Merge?
Mergers are not suitable for every charity, which is why you need to plan carefully and consider every issue before proceeding. You need to make sure that you can work with the charity in question and that your activities, ethos and objectives are aligned or can be legally changed to make them align.
Which Charity Structure Is Right For You?
It is likely that a merger will involve a review or restructure of objectives and working practices and it’s important to keep in mind the legal form of your new charity or the one you want to assume control over as a result of the merger, to ensure compatibility. For example, the new Charitable Incorporated Organisation (CIO) structure has been designed to offer some of the benefits of being a company but without some of the obligations. Namely, CIO offers members and trustees protection in most cases against liability and the charity can conduct business in its own name rather than in the name of its trustees. In contrast, an unincorporated association structure provides limited or no protection from liability for its trustees.
Factors To Consider
Your solicitor will help you decide whether merging your charity or working with other charities is the most beneficial approach for you, and will ensure you take into account all the various aspects.
Factors may include:
- How your organisation will continue its charitable work. Options include the other charity continuing your work and yours being removed from the charities register, or your charity continuing to operate after the merger.
- Whether the merger is in the best interests of the charity’s beneficiaries.
- Employment law and how you legally keep all trustees, staff, volunteers, members and supporters fully informed.
- Your assets and any obligations on these, such as property leases, and handling transfers.
- Outstanding liabilities of the charity to be taken over.
- Handling income and liabilities, including when and how to change bank details without risking the loss of regular gift income or future legacies.
- Registering the merger with the Charity Commission and Companies House, if needed.
- The structure of the charity after the merger, if altered.
Should you decide to go ahead with the merger, there is plenty to do early on. A due diligence process can be undertaken to make sure everything is considered and any areas that need attention are highlighted; and each charity needs to nominate a group to deal with the merger, which is often a joint effort with representatives from both charities.
For legal advice on charity partnerships and mergers, contact our charities and not-for-profit legal team at our Chorlton office on 0161 860 7123, Manchester office on 0161 839 0092 or Failsworth office on 0161 681 4005.