Have questions about a nonprofit merger or affiliation? Join attorney Megan Grove at Common Good Vermont’s Open Office Hours on Nonprofit Mergers and Consolidations this Wednesday, July 23 from 1:00 – 2:30 pm. Register here.
Nonprofits are under increasing pressure to do more with less, and finding smart, efficient ways to collaborate is more essential than ever. Mergers can be an impactful way for nonprofits to combine forces while maintaining their missions.
A statutory merger between two nonprofit corporations is a formal legal process where one organization (the “merging organization”) becomes part of the other (the “surviving organization”). After the merger, only the surviving organization remains—it assumes all assets, liabilities, and legal obligations of the merging organization.
The Merger Process
- Initial discussions and negotiations: The organizations must determine which will be the surviving organization and plan how the surviving organization will take over the assets, liabilities, and obligations of the other. The commitment to merge is often documented in a memorandum of understanding.
- Due diligence: Both organizations need to fully understand the legal, financial, and operational status of the other to give each organization—especially the surviving one—a clear picture of the consequences of a merger and the obligations it is taking on. Diligence helps identify risks, uncover red flags, avoid surprises, and allows the organizations to make the informed decision that merging is in their best interests.
- Corporate governance and approvals: The Board of Directors of each organization must approve the merger. If either organization has members, they must also approve. If any third party requires notice or consent, these must also be addressed in advance.
- State notice and filings: Notice of the merger is provided to the Vermont Attorney General’s Office, and final merger documents are filed with the Vermont Secretary of State.
Alternatives to Merger
Mergers aren’t the only way to combine forces. Here are other pathways that may work better for your organization’s goals:
- Strategic Collaborations: Before committing to a formal merger, organizations may choose to collaborate through contractual arrangements that allow them to align operations, test compatibility, and build trust over time while maintaining separate identities.
- On the programmatic side, organizations can enter into a Joint Venture Agreement to collaborate on a project or initiative and share resources, responsibilities, and outcomes. Joint ventures are especially useful when organizations want to collaborate on a time-limited or mission-specific effort.
- On the administrative side, a Shared Services Agreement allows nonprofit organizations to collaborate by sharing staff, office space, administrative functions, or other back-office services.
These arrangements allow organizations to test out partnership, share expertise, and amplify their impact without the permanence of a merger. A strategic collaboration offers flexibility and can pave the way for deeper or permanent integration down the line.
- Parent-Subsidiary Affiliation: Instead of merging, one organization can become the parent organization of another. This creates a legally affiliated relationship while preserving separate corporate identities. The parent organization usually controls a majority of the subsidiary’s board, and the two organizations can share a public-facing name or administrative functions like HR or accounting. This approach can be simpler and less costly than a merger, but it doesn’t create the same level of integration.
- Asset Transfer and Dissolution: Another option is for one nonprofit organization to transfer its assets to another, then dissolve the transferring organization. This gives the organizations more control over which assets and liabilities move, but it involves more transactional complexity than a merger and may not fully eliminate liability concerns.
Choosing the Right Path
Our Nonprofits team at SRH Law is here to guide you through the options and help you choose the right structure for your mission. We support our clients through the process, from initial discussions to final filings, to ensure a smooth and compliant transition.
If you have questions about merger or affiliation, please reach out to Megan Grove, Victoria Westgate, or Drew Kervick in our nonprofits practice group.
