Charities Update: Should Your Charity Consider a Merger?
11 July 2017
Although mergers of organisations are common in the private sector, mergers of charities are less common in Ireland. In an era of intense competition for funding and enhanced governance and regulatory standards, a merger of two or more charities can lead to increased efficiencies and improved services for beneficiaries. We explain the most common merger structures for charities and highlight the potential benefits for charities considering a merger.
What is a merger of charities?
A merger of charities is the joining of two or more charities into one, larger organisation.
There are several ways that a merger between charities can occur:
- Transfer of assets by agreement: this involves two or more merging charities entering into a legal agreement to transfer all of their respective assets to one of them, or to a brand new charity. The remaining charities are subsequently wound down.
- Transfer under the Companies Act 2014: the Companies Act 2014 contains various statutory processes to facilitate a merger between charities that are limited companies. These processes may involve a court application.
- Change of membership: one of the charities can become a member of the other charity and take control of its board of directors. By this method, two or more charities continue to exist, under the ultimate control of one of the charities.
- Charities Act 1973 Scheme of Incorporation: this method enables charities, either individually or together, to create a corporation. However, the benefit of limited liability would not be obtained by availing of this option.
We have assisted charities with each of the above methods of merging and would be happy to advise on the most appropriate merger method for your charity.
Why consider merging?
Trustees of a charity may decide to merge based on a desire to avoid duplication, improve services for beneficiaries and further the charitable purposes of their charity. Some common benefits of charity mergers are outlined below:
Economies of scale
Mergers can be cost-effective, improving a charity’s ability to help its beneficiaries. By merging with a charity that has similar objectives and internal structures, improvements can be made to existing services, and this can save time and money. Functions can be shared, branches can be consolidated and other potential economies of scale can be explored. A single charity will need only one headquarters, one fundraising unit, one marketing campaign etc.
Improved access to funding
Some charities in Ireland rely heavily on funding from government bodies and private individuals. By highlighting the more efficient use of resources resulting from a merger, a more powerful case can be made to potential donors, whether public or private, that their money is being put to even greater use than before.
Improved strategic thinking
By merging with a similar charitable organisation, a charity can make use of their partner’s experience, knowledge and staff, to help with research, strategic policy decisions and the day-to-day operations of the newly-merged charity.
Speaking with a single, unified voice on a charity’s main issue(s) may be louder and more effective, from an advocacy perspective, than a multitude of similar charities speaking separately.
How can we help?
We have assisted charities on all legal aspects of charity mergers. These include:
- merger planning,
- drafting transaction documents,
- notification of employees,
- transfer of personal data,
- assignment of contracts and leases,
- transfer of all operations into the new structure,
- assistance with EGM documentation, and
- winding up of the legal entity which is no longer active.
We have also assisted charities who wish to carry out a “merger of equals”, rather than a perceived takeover of one charity by another. We advise on the retention of existing membership and directorship structures within merging charities. These often remain the same, but can be amended if the merged group of members or directors is unmanageably large.
It is likely that charities will come under increased pressure from stakeholders to consider merging in the coming years. Charity trustees are obliged to consider the best use of a charity’s assets. Therefore, charity trustees should consider whether a merger could result in increased efficiencies and improved services for beneficiaries.
If you would like any further details on the above or are considering a merger of your charity with another charity, please contact our Charities & Not-for-Profit team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.