What Due Diligence Is Needed When Contemplating a Charity Merger?

A merger is when two or more nonprofits or charities join together as one unified entity. Below is a 13-point due diligence checklist to keep handy when contemplating a merger with another charity.

     · Evaluate the different types of mergers: amalgamation, consolidation, transfer of assets etc

     · Confirm both parties are registered charities with the Canada Revenue Agency (CRA)

     · Review the laws and restrictions pertaining to a merger to make certain you qualify

     · Obtain full approval of the merger from the directors, board members, donors, stakeholders, officers etc from both parties

     · Weigh the reasons for merging, as well as the benefits and risks involved

     · Establish a non-disclosure agreement between both parties

     · Make certain all parties involved are current in their legal and tax documents, financial statements, and insurance documentation

     · Perform a comprehensive review of all assets of both parties

     · Consider all debts, liabilities, leases or contracts that a party may be tied to

     · Inquire if any party has restricted funds or donations

     · Ensure there is sufficient time and funds in place to implement the merger

     · Form a committee involving both parties to oversee and implement the details of the merger

     · Establish an agreement with all employees on the role they will take in the newly merged organization

‍

Nonprofits and charities should always get legal counsel early on in the process to avoid major setbacks. Poorly designed or executed processes can be costly to any organization. Nonprofits should follow the four steps below to help them through the process.

     1) Establish your goals
     2) Hire a Charity Lawyer
     3) Get the right formalities in place
     4) Stay focused