The Basic Steps of a Nonprofit Merger
Once you’ve determined that merging two nonprofits would be beneficial or needed, you can begin the process of merging. Each situation is different, so we recommend reaching out to a qualified nonprofit attorney to help throughout the process. There is also no set timeline for a merger, they can be long if due diligence or negotiations are pro-longed, while others are shorter and more straight-forward. But at the most basic level, there are four main steps to joining two charities together:
Letter of Intent (LOI)
The letter of intent establishes the desire of the organizations to merge. Often, the letter of intent establishes confidentiality and a few key points that will be up for negotiation during the process. The LOI also outlines that both parties will act in good faith during the process.
At its heart, due diligence during a nonprofit merger aims to ensure that merging the two organizations will be what’s best for your nonprofit while keeping the mission at the forefront. The process involves investigating the other nonprofit from head-to-toe, from the financials to contracts to operations. It involves looking at the assets and liabilities of the other nonprofit, but it’s also important to examine where the organization is vulnerable to lawsuits to ensure the merger wouldn’t put your nonprofit at risk legally. The due diligence process is often done by an outside party like an attorney or consultant. A recent study of 25 nonprofit mergers found that in 80% of cases, the merging parties hired a third party to help facilitate the merger.
After due diligence is completed by both nonprofits, the next step is for an attorney to draft the Merger Agreement, which outlines the terms of the merger. At this point, there is often negotiation between the two parties regarding major decisions like who will lead the merged entity, and which nonprofit’s name will be used after the merger. Both boards must agree on the merger agreement for it to be finalized.
Articles of Merger/Plantiff Merger
Depending on the state, there are slightly different processes and terms for the final step. The goal of the last step is to legally merge the entities, often by filing with the Secretary of State to approve the merger.
Though this is a basic step-by-step, we’re here to help guide your nonprofit through the merger process from start to finish. If you’d like help with any part of the merger process, reach out. Our attorneys have experience with nonprofit mergers and would be happy to help.