Charities like other commercial entities are increasingly considering the benefits of merging with similar organisations. We look at some of the potential advantages in merging and the legal points to consider.
The key consideration for trustees will be whether the proposal is in the best interests of the beneficiaries. In theory, effective co-operation can achieve this through increased efficiency, lower costs and an improved delivery of services to those beneficiaries. Just a few examples of the ways in which a merger might accomplish this are through:
- Sharing offices and central utilities, as well as exploiting other economies of scale
- Synergy of knowledge, authority and influence
- Combining marketing networks leading to a greater visibility
- Diversification of services
- Leveraging costly research and development projects
A merger with a stable charity could also protect valuable assets of a struggling charity, for example by preserving the brand and goodwill.
Legal and other considerations
Both charities’ governing documents must be carefully considered. It may be that there is an express power for each to merge, dissolve and/or transfer assets. In many such cases there will also be further restrictions, for example the need for a member vote on the proposal or a requirement for the collaborating organisations to have identical charitable objects. Should the articles or memorandum of association require adapting to affect the union, for example by amending a dissolution clause or altering the charitable objects, it will often require authorisation from the Charity Commission.
A key stage of the merger process will be the charities’ respective due diligence processes. Only once this is complete will trustees be able to make an informed decision as to whether to progress with the union. It is also for the trustees to be satisfied that an appropriate level of due diligence has been completed, taking into account the risk and proportionality of the costs involved. Other considerations include the fate of pension schemes, compliance with legislation such as TUPE, accounting for the merger, discharge of liabilities and insurance.
Once completed, the merger may need to be registered with the Charity Commission. This is only compulsory where a vesting declaration has been used to transfer title of property to the recipient, however voluntary registration will often be advisable where a charity has legacy income. It is always prudent to seek legal advice on this issue, as well as many of the other considerations listed above.
The decision to merge will be taken by the charity trustees and must be a united decision. Whether or not the union is successful will rely strongly on the support of stakeholders, including funders, staff and the wider community; it is therefore always advisable to seek the views of these individuals at an early stage.
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