Charity Governance

Charity mergers: due diligence

Of interest to those involved in charity governance.

Introduction

All trustees undertaking a proposal to work in collaboration, jointly or to merge should carry out a due diligence examination of the prospective partner charity. A comprehensive due diligence exercise will enable trustees to establish a full knowledge base of the assets and liabilities of each charity – for example, employees, rent arrears, property leases, endowments, funding arrangements and governance structures. 

Purpose of this guidance

In a merger situation, due diligence is not about justifying any cost for the exchange of assets, but to identify the assets of each charity and – more importantly – any potential liabilities. The trustees of the receiving charity need to mitigate any future risks as a result of liabilities identified in the process. It is likely that the initiating charity would have already undertaken a similar exercise in assessing its suitability and preparedness for any potential merger. 

This document includes:

  • Previous experience       
  • Employment issues                                     
  • Pensions                                                 
  • Funding                                                        

  • Service agreements                                  

  • Property                              

  • Contracts and leases                               

  • Permanent endowment                       

  • Accounts                                             

  • Governance                                          

  • Warranties and indemnities                        

  • Due diligence checklist                           

                 

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