Charity Mergers, Restructures & Partnerships

While the way in which merger discussions should develop depends on how they commence, in our experience most mergers start slowly and informally before generating seriousness and pace over a relatively short period of time.

If your charity is in conversations with a potential merger partner, it’s sensible to agree on a plan as to how discussions will develop in the short term. Confidentiality is an important point to agree on at an early stage, given that any eventual merger will affect beneficiaries, staff and other third parties. Where appropriate, establishing a merger committee is a sensible step to ensure that the charity does not lose sight of its day-to-day activities and operational priorities.

While merging organisations may operate very differently in terms of their service delivery, real differences in mission, vision and culture can be difficult to overcome.

Operational, legal and financial due diligence ordinarily follows, involving a ‘deep dive’ — or ‘deep-ish dive’, depending on the circumstances and timescales — into the inner workings of each organisation. This provides an understanding of asset bases, liabilities and other factors that will come to be relevant to the decision on whether to proceed. 

If you’re exploring a potential merger and wish to start formalising discussions, talk to our team.

A charity with a separate, wholly-owned trading subsidiary could legitimately describe itself as forming part of a group. However, the term is used more commonly to describe charities that sit as part of more complex collection of inter-related charities and non-charitable subsidiaries.

The establishment of a group structure can be an important method of separating the risks associated with very different forms of charitable activity. For example, some charities run schools and health and social care services — both of which attract very different forms of risk and operate under different regulatory regimes. Separating these risks into distinct yet clearly linked legal entities can neatly isolate the different types of risk from one other, while also presenting a clear governance structure to the different regulatory bodies.

We act for many charities that form part of group structures. In addition to providing full-service, expert legal support, we can work closely with your other professional advisers to ensure the most effective and efficient governance, financial, tax and administrative arrangements.

Regardless of the nature and extent of a partnership arrangement between two (or more) charities, there should usually be some form of written document in place that sets out the terms of what’s agreed and what the parties are working towards.

In some cases, a simple Memorandum of Understanding will suffice. In other cases, a more comprehensive, legally-binding agreement should be negotiated to ensure clarity around each party’s obligations and responsibilities. What is advisable will depend on the circumstances of each particular case.

We work with many charities with partnership working arrangements and can advise on the most appropriate manner of documenting them.