Authors:Vicky Ling
Last updated:2023-11-29
Merger – the right step for your legal advice charity?
Many voluntary legal advice organisations have been having a tough time financially in recent years, while others struggle to find trustees with sufficient time to support them effectively. One response to such challenges is to merge with another charity; but is this always the answer?
The Institute for Voluntary Action Research (IVAR) produced a report with some interesting case studies, of both merger and non-merger options. IVAR suggests that the following are the main reasons why voluntary organisations consider merging:
to reduce the vulnerability of being a small organisation;
to mitigate financial pressures;
to resolve governance issues;
to increase their influence;
to improve service delivery.
It also points out that most voluntary organisations merge with those with which they already have a collaborative relationship. This is extremely helpful as each will know something about the other but it does not reduce the need to conduct careful due diligence.
In Making mergers work: helping you succeed (2009), the Charity Commission advises that it is important not to underestimate the cost of a merger, especially in terms of paid manager and trustee time.1All the Charity Commission documents are available at: Merger is not a ‘quick fix’ for charities in financial difficulty, although it may well help them reduce their cost base and improve sustainability in the medium to long term.
Merger partners require their own legal advice (which may be possible to obtain on a pro bono basis). They then need to exchange due diligence information, carry out detailed planning, and carefully monitor any implementation by both paid staff and trustees. Adequate levels of funding need to be allocated and kept under review.
One charity takes over another
The Charity Commission says that a ‘vesting declaration’ (a formal document that transfers the legal title of one charity’s property to another as part of a merger) can be a useful tool to transfer assets simply. The other charity would then be wound up.
This gives the obvious advantage of a single charity with a reduced cost base, making it easier to combine expertise and co-ordinate services. You can reduce duplication between the two (or more) forming charities in terms of CEO, finance function, set of accounts, insurance, quality assurance costs etc. It demonstrates a serious approach to efficiency savings, which is likely to be appreciated by funders. However, it is likely that some additional management/ administration time will be needed by the unified organisation, so staff cost savings may not be as large as they initially appear.
Depending on the name of the merged charity, there could be a loss of recognition and ‘brand’. However, this could be ameliorated through adopting a new name that retains elements of the forming charities. Another option is for one of the forming charities to take over the management of the other but keep it (temporarily or permanently) as a separate entity or brand within a group.
Forming a completely new charity
The advantages are similar to the above; but you need to set up and register the new charity and wind up the forming entities. This option may be culturally more acceptable to the forming charities, as both (or all) are perceived as starting again from scratch, with no one partner seen as dominant.
Non-merger option
A uniting direction can be made under Charities Act 2011 s12(2), allowing two or more charities to be linked for accounting and administrative purposes. Linking is not the same as a merger but means the linked charities can prepare just one set of accounts and share a charity number. The Charity Commission can only link charities that have the same trustees and/or are connected because of the services provided.
Linked charities can’t spend their money on the aims of the other charities they are linked to. Each charity keeps its own separate governing document, and must act in its own best interests and manage potential conflicts.
Advantages are that linked charities prepare only one set of accounts and one trustees’ annual report, share a charity number and submit only one annual return to the Charity Commission. This could be a ‘halfway house’ or step towards full merger.
The Charity Commission has provided a useful checklist of issues that need to be worked through before any merger takes place.
1     All the Charity Commission documents are available at: »