Victoria Robinson, Head of the Charity & Not-for-Profit team at Greenwoods GRM LLP, highlights the increasing trend of collaboration across the sector. Victoria, who has been advising charities for many years, reminds us of the key points to check before entering into any collaborative arrangement - either formal or informal.
Without doubt, the pandemic has impacted most aspects of life across all sectors. As restrictions relax, charities will be evaluating their purposes and how best to fulfil them. Having weathered the storm, the conclusion for some charities may be that it is in the best interests of the charity and its beneficiaries to collaborate or merge with one or more similar entities. Some charities will be in the fortunate position of being able to offer support or take on and merge with other charities in the current climate. The benefits of collaboration and merger can include more efficient operation, stability, cost savings and continued or better ability to advance the purposes for which a charity was originally created, particularly for those who operate in similar or complementary sectors.
Working collaboratively can take several guises, ranging from informal arrangements such as information or knowledge sharing and association membership to more formal partnerships or project-based ventures, such as sharing resources, staff or accommodation. Each charity will generally remain separate and distinct from the other(s), but the trustees of each party need to be sure that the entities have compatible objects, activities and structures. In considering a collaboration, the trustees of each entity aim to advance their charity’s objects for the public benefit which could include cost savings, better/improved service quality or greater access to services by a broader range of beneficiaries. Collaboration is not without its risks though, so before embarking on such arrangements, the trustees must ensure they comply with their duties and carry out a full analysis of the benefits and risks, together with undertaking due diligence on the proposed partner(s).
In some cases, whilst collaboration may be beneficial, the most sensible way to ensure that a charity can best fulfil its objects is by merging with one or more other charities, with compatible objects and beneficiaries. Whilst merger should not only be seen as a last resort for charities in financial difficulties, for those charities who have been negatively impacted by the pandemic, it is logical to consider the merits of becoming part of a larger charitable organisation. A merger involves the transfer or combining of assets and liabilities of two or more charities with only one charity continuing and taking control in place of several, or a new charity being formed to do so. Any transferring charity with no remaining assets and liabilities will be dissolved following the merger.
Before proceeding, the trustees must check whether they are entitled to merge by the charity’s governing document, by a relevant legal power or whether Charity Commission consent must be sought. The benefits of a merger may mirror those of collaboration, but the main rationale is for the charity’s beneficiaries whilst making better use of its assets (including its funds). As with collaboration, when considering the appropriateness of a merger, the trustees of each entity must comply with their usual duties and ensure they have analysed all risks and benefits of taking this route, including undertaking appropriate due diligence on the other parties and the assets and liabilities involved. Whilst the receiving charity’s objects do not have to match those of the transferring charity, they must be compatible and meet the requirements of any dissolution clause in the transferring charity’s governing document if that power is relied upon.
When merging, extra consideration must be given to any special trusts, restricted funds or permanent endowments of the transferring charity and the relevant terms will need to be reviewed to ensure such funds are dealt with appropriately in accordance with those terms.
Over the last year, we at Greenwoods GRM have seen an increase in instructions to advise upon mergers and collaborations. The current climate means this trend could be set to continue. The opportunities and benefits to the parties and, most importantly, their beneficiaries mean that charities should consider these steps as part of their ongoing strategic approach.
Victoria is always happy to have an informal conversation to highlight issues you may need to address in collaborative projects and to talk through various options for advice. You can contact her on 01733 887775 .
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
Charities working together, working better
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