Charity Mergers and Acquisitions: A Trustee's Guide | LegalDocuments.co.uk

Overview

A charity merger is the process by which two or more charitable bodies combine their activities, assets and operations so that they continue under a single charity going forward. In England and Wales this can take several shapes: one charity transfers everything to another and then winds itself up; two charities both transfer to a newly created vehicle; or one charity becomes a subsidiary of another within a group structure.

The route that fits will depend on the legal form of each charity (trust, unincorporated association, CIO, charitable company), the nature of their assets, any restricted funds they hold, and what the trustees on each side want to preserve about their identity and purposes. An acquisition in the charity context isn't a commercial buyout, there are no shareholders being paid out, but the language is sometimes used where one organisation is clearly absorbing the other rather than coming together as equals.

The Register of Mergers maintained by the Charity Commission allows certain transfers to be recorded so that future legacies left to the transferring charity can pass to the successor.

Key steps

1. Open an honest conversation between the two boards. Before lawyers, accountants or members get involved, the chairs and senior trustees of both charities need a candid discussion about why a merger is being considered, what each side hopes to gain, and whether there is genuine alignment of mission. Many merger talks fall apart later because this groundwork was skipped or rushed.
2. Carry out due diligence on both sides. Each charity should examine the other's finances, governing document, restricted funds, property interests, employment liabilities, contracts, pension obligations, ongoing disputes and reputational risks. Trustees have a duty to act in the best interests of their own charity, so going in blind is not an option, even where the relationship feels collaborative.
3. Choose the legal structure for the merger. Decide whether the deal will be a transfer of assets and activities from one charity to another, the creation of a new vehicle to receive both, or a group structure with a parent and subsidiary. The right choice depends on legal form, tax position, asset complexity and what the trustees want the post-merger organisation to look like.
4. Address constitutional and regulatory steps. Check each governing document for restrictions on transferring assets, amalgamating with another body, or amending objects. Member approval may be required, and Charity Commission consent or input may be needed for certain steps. Notify other regulators where relevant, for example HMRC for charitable tax status and the FCA for registered societies.
5. Complete the transfer and register the merger. Execute the transfer agreement, move assets and staff (TUPE may apply), novate or assign contracts, close bank accounts in the right order, and wind up the transferring charity. Consider entering the merger on the Charity Commission's Register of Mergers so that future legacies left to the old charity can pass to the successor.

Common questions