Do charities need to merge to survive?

Charities are finding it increasingly necessary to consider merging or working together with other organisations in order to achieve their aims.

We have certainly noticed an increasing trend of charities in the south west asking for our help to join forces with other organisations in recent years.

It has been reported that in the last year 2300 charities have contacted the Charity Commission enquiring about mergers.

This can be due to charities finding it increasingly difficult to survive on their own, and to obtain adequate funding for some or all of their activities in today’s highly competitive climate. They may consider that the interests of their beneficiaries could be more efficiently served by another organisation operating in the same field.

In other cases the trustees of smaller charities providing front line services may simply be finding increased levels of regulation and risk difficult to cope with.

Charity mergers are viewed positively by the Charity Commission, which is keen to minimise duplication of effort and to ensure charitable benefits are provided by strong, effective organisations. Charities are actively encouraged by the Commission to consider whether the interests of their beneficiaries will be better served by working collaboratively with other charities. The Commission also now expects anyone looking to set up a new charity to consider very carefully beforehand whether the proposed objectives could be achieved equally well by working with an existing charity instead.

Sometimes however the legal implications of bringing two or more charities together can be highly complex and this can be a deterrent. There is also the problem of how to deal with donations made to the old charity after the merger, which can cause further legal headaches and has resulted in a large number of dormant charities having to still be maintained and administered long after they have stopped serving a useful purpose.

Regulations are expected to be passed by Parliament this month which will make it a great deal easier, from the legal perspective, for a charity to merge with or to transfer some part of its operation to another charity.

Firstly, trustees will be able to apply to the Charity Commission to officially register a merger with the Commission, which is expected to be a simple process. Once a merger is registered any property or assets donated to the old charity will automatically be applied to the merged charity.

Secondly, it will be possible for the trustees of a charity to make a single ‘vesting declaration’ which will have the effect in most cases of automatically transferring legal title to a charity’s assets, including land and buildings, to the merged charity (unless some third party consent is needed) without any need for further documentation.

These provisions are a real encouragement to charities to consider mergers and should reduce the legal complexities considerably. They should also mean that a large number of obsolete, dormant charities can be dissolved and removed from the register of charities, which can only be a good thing.

Published 21/11/2007. The author of this article is James Evans