A merger of two organizations is a complicated process, involving changes at every level. Nonprofits sometimes choose to merge to improve efficiencies, expand access to fundraising sources, or better align the combined organizations’ efforts with a shared mission. Whatever the rationale for pursuing a merger, a number of important steps need to be taken:
- Treat the process with care.
After a certain informal stage of exploratory conversations, the leadership groups of both organizations probably will need to exchange fairly sensitive information with one-another. Fairly early on in the process, the two sides will want to protect their organizations by entering into a simple confidentiality agreement
- Involve stakeholders in the process.
Securing the buy-in and enthusiasm of the people who will often be at the front line of making the merger work is very important. Professional staff and key volunteers should be brought into the merger discussions fairly early on. The boards should anticipate concerns about how the merger might affect the jobs of staff and volunteers. If the merger will result in people losing their jobs or being asked to change to significantly different roles, careful consideration will need to be given to how that will affect morale and the extent to which it creates employment liability.
- Make a complete accounting.
Mergers of legal entities can happen several different ways. Whether one organization will absorb the other’s assets or the two organizations will form an entirely new entity, a significant due diligence effort must be made to examine the details that will be important after the merger is complete. Does the “target” have significant liability or legal obligations that the new organization will need to address? Will the transaction result in significant financial changes, such as the assumption of outstanding debts or transfer of ownership of major assets? Looking at issues like these is crucial to understanding if the merger will result in a sustainable organization.
The Church Law Center of California helps nonprofits in the religious and secular communities achieve their goals. If your organization is considering a merger with another nonprofit, we can help you make the transaction a success. Call us today at (949) 689-0437 or reach out to us through our contact page.