Jennifer Scott and Hana Ali, in our Charities & Education team, explain the various types of charity mergers and their effects, and what Trustees should bare in mind when considering a charity merger.
According to the Charity Commission, charity mergers have increased by 90% over the past year.
There are many reasons why a charity may decide to merge with one or more other charities, such as to achieve economies of scale, expand the range of services they offer, share resources and expertise, or to increase purchasing power and overall capacity.
However, when contemplating a merger, charity trustees should carefully consider the proper reason for doing so and their power to do so.
Types of Mergers
There are three main methods to merge two or more charities:
- A charity (or charities) transfers all its assets and liabilities to another existing charity;
- Establishing a new charity and transferring all the old charity’s assets and liabilities to the new charity (this is similar to when an unincorporated charity restructures to a CIO); or
- One charity can take legal control of one or more other charity to create a group structure, usually by being appointed as the sole corporate trustee.
Effects of Mergers
- Careful consideration would need to be taken as to whether the transferring charity is to be dissolved, is required to continue to exist (e.g. if there are any special trusts) or if it is preferable for it to remain as a shell charity following a merger (particularly if the charity expects large legacies to be left to it within the foreseeable future and does not want to rely on the Register of Mergers).
- When creating a group structure, such as having a charity take legal control of a charity at trustee level or through membership, the merged charities will continue to exist, avoiding the need to transfer assets and liabilities.
Considerations for Trustees
- Before a merger takes place, the trustees will need to carefully consider the decision to merge in the same way they would any other decision. Amongst other things the trustees must be certain that they act in good faith, manage conflicts of interests, and that the decision is in the best interest of the charity. This will require an investigation of the charity they are to merge with, a consideration of stakeholder views as well as the impact of the merger both financially and on the charity’s beneficiaries.
- Trustees will need to check they have the power to merge, as well as to wind up the charity following a merger (if applicable). Alternatively, they may have a statutory right to do so under the Charities Act 2011 (as amended), but this will largely depend on the structures of the charities. Alternatively, where a charity has no express or statutory power it may apply to the Charity Commission to authorise the merger.
- A charity’s assets must be used for the charity’s charitable purposes; it’s objects should be set out in its governing document. Therefore, trustees must ensure that the charity they are merging with has compatible objects that are sufficiently similar. Where this is not the case the charity’s objects will need to be amended to encompass a wider purpose. If there is no express power to change the charity’s objects the trustees may rely on a statutory power which will require consent from the Charity Commission.
Our Charities Team is well equipped to advise on charity mergers and related matters. For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
