What to consider when restructuring your charity…
22 November 2017 by Neemah Ahamed
The Charities Aid Foundation 2017 Social Landscape revealed an increasing number of charities are struggling to survive. Many charities are restructuring, downsizing, and partnering with other organisations because they are struggling to raise enough money. Research carried out by ACEVO this year has revealed one in ten (10%) charities have plans to merge with another organisation over the next 12 months. More than three-quarters (76%) say they have or will be partnering with another not-for-profit while almost half (49%) say they have or will be collaborating with a private sector organisation.
If you are thinking of restructuring your charity, merging or partnering with another charity you should consider:
- Whether your charity can continue on its own.
- What difficulties your charity faces. Issues which your charity could be encountering include:
- Your charity’s legal structure makes it difficult for it to employ staff because it is unincorporated.
- Your trustees are exposed to personal liability because your charity is unincorporated.
- Your charity would like to register its title to land or property in its own name (rather than in a trustee’s name or in the Official Custodian for Charities) but cannot do so due to its legal structure.
- Your charity faces a level of high financial risk and wants to give its trustees more protection.
If these are the sort of issues your charity faces then you may want to restructure it, merge with another charity or downsize. You should consider what the most suitable option will be in light of the charity’s objectives or its difficulties. Possible options include entering into:
- A Joint Venture Agreement: if you would like to partner with another organisation to carry out a single project then a legal entity can be created for that purpose.
- An informal arrangement: if you have a good relationship with another charity or organisation, you can set out the nature of your relationship and understanding in writing. However, this will not usually be contractual in nature. Arrangements of this kind are usually referred to as “Memoranda of Understanding.”
- A contract based agreement: This will set out your terms, mutual obligations and payment arrangements with any organisation you collaborate with.
- A Merger: A merger takes place when parties agree to work collaboratively for a long period of time. The parties merge to create a new entity. You may want to do this for a number of reasons. E.g. saving on administration costs and cutting out competition for donor money. Forming a new entity to accommodate the two merging entities is sometimes the preferred route but in truth, most “mergers” are takeovers by one charity of the assets and staff of the other.
Before making a decision it is important to get legal advice on these and you should consider their potential risks and disadvantages. For instance, if you are considering a merger then you should think about whether the proposed partner is likeminded in terms of its objectives, strategy, culture, value, and governance. We will be able to assist you to structure your thinking and clarify any issues you have.
Once you have decided on the nature of restructure you will need to inform your staff and stakeholders.
- Employees and volunteers
You will need to think about who will be affected by the change and whether they may be able to influence or disrupt plans. If staff are going to be impacted ensure they are fully involved in the process. For instance:
- If any employees are going to be made redundant then this will need to be managed carefully to prevent any claims of unfair dismissal being made against you.
- In the case of a merger, your employees will automatically become employees of the new owner on the same terms and conditions. This is known as a TUPE transfer. There are certain obligations which you will need to comply and we can advise you on these. These include consultation with staff before the merger takes place.
Volunteers may react differently to paid staff. They volunteer because they identify with the objectives of the charity and therefore you need to explain to them if any changes which will have a bearing on their work.
Depending on how the charity will work after the changes you have made, you will also need to consider whether you need to inform your stakeholders. Some stakeholders may be instrumental in helping achieve a successful restructuring and you may require them to participate in the process. For others who are less involved, you may not need to inform them until the changes have taken place.
It is important to obtain sound advice on your various options, to be aware of the potential risks and advantages, and to carry out rigorous due diligence on the other organisation at an early stage if you are thinking of merging with another charity. If you have any questions regarding the structure of your charity, contact us today on 01245 330351 or email the team via [email protected]
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