What to consider in a charity merger


Tracey Johnson, a partner and charities specialist at Moore and Smalley Chartered Accountants and Business Advisors, identifies crucial issues that must be taken into account by charities considering a merger.


Preparing for a merger


The importance of thorough planning for a charity merger cannot be overstated. For a merger to be legally sound, trustees must act in line with the powers in their charity’s governing document, or those given to them by law. If these powers are insufficient, the trustees can ask the Charity Commission for extra powers to facilitate the merger.


It is equally vital to make sure you have comprehensive information about the purposes, powers and property of the charities involved in a potential merger in order to identify any problems or legal barriers in advance of a formal decision.


Make sure the purposes of the two merging charities are compatible


The purposes of the merging charities do not have to be identical, but they do have to be compatible and the main duty of trustees transferring assets to another charity is to take into account the interests of the people their charity was set up to help. Also, transferring charities must ensure the recipient charity has purposes which are suitable in relation to the terms of the dissolution clause, or any other power being used by the transferring charity.


Look carefully into the rules controlling any special trusts, restricted funds or permanent endowment


It is essential to identify at the outset any classes of funds – such as special trusts, restricted funds or permanent endowment – because they must be dealt with according to the rules governing their use. They cannot be simply mixed in with the general assets belonging to the recipient charity.


Consider the involvement of your members in the merger process


Usually, unincorporated associations and charitable companies have a membership structure and the governing document will explain the role of members in the administration of the charity. Trustees looking to complete a merger should consider the involvement of members from the start. This is especially important if the proposal requires the consent or other input of members.


Make sure the estimated costs of the merger are realistic


Underestimating the cost of a merger can create major problems further down the line, so it pays to keep actual and expected costs under close scrutiny at all stages.


Some costs can be anticipated early in the process, such as changes to services; using common ICT systems; professional advisory fees; advertising; rebranding; relocation; and governance costs.


Costs that are less predictable include missing out on opportunities due to time spent on the merger, and disruption to the smooth running of the charity through, for example, having to relocate your premises or implement a redundancy programme.