A merger of charities means two or more separate charities coming together to form one organisation. Either a new charity is formed to continue the work or take on the assets of the original charities, or one charity assumes control of another.
Trustees’ role
Trustees are responsible for deciding on the appropriate level of due diligence required when considering a merger with another charity/ies or a complex collaboration. They have a legal duty to act prudently. When planning a proposed merger or contractual collaborative arrangement, they should ensure they have identified any potential risks to their charity before entering into any agreement.
Depending on their initial assessment, trustees may require professional advice to ensure that there is an appropriate level of due diligence.
What is due diligence?
‘Due diligence’ is a phrase used to describe the steps organisations take to assure themselves that a merger or complex collaboration is in their best interests. The result of a due diligence exercise is that a charity has full knowledge of the organisation they seek to merge or work with (ie there are no surprises).
The costs of commissioning due diligence work are a proper use of charitable funds, but should be forecast at the outset and regularly reviewed to ensure they remain proportionate to the risks involved.
Due diligence checks fall into three main categories:
- commercial
- financial
- legal
The nature of the checks should be proportionate to the:
- size and nature of the proposal
- amount of income and expenditure involved
- nature of the existing and planned activities
A more rigorous exercise may be necessary where charities have one or more of the following:
- complex service delivery arrangements
- high profile or sensitive work
- links with affiliated charities
- operations in a number of geographical locations
- one or more trading subsidiaries
- extensive property holdings and assets
- restricted funds or permanent endowments
For further information:
Derby Community Accountancy Service 