Factors to Consider Before Merging with Another Nonprofit
A nonprofit merger can be an excellent way to further your cause and serve more people. However, there are a variety of factors your board of directors should consider before pushing forward with a plan of this nature, including:
Donor Restrictions
The restrictions donors place on the money they give to your organization can cause significant complications when merging with another nonprofit. For example, if both charities have endowments that you wish to combine under the new entity, you may need to seek special permission from your donors ahead of time.
It is not unusual for angry or upset donors to take legal action to prevent nonprofits from merging. As such, you would be well-advised to speak to a skilled California charity lawyer about your obligations before you move forward with your plans.
IRS Regulations
The Internal Revenue Service (IRS) has strict rules for charities that “end their operations, either through shutting down, transferring their assets or merging with another tax-exempt organization.” Should you breach those rules during your merger, your new entity may lose its tax-exempt status.
Luckily, avoiding this nightmare scenario is relatively straightforward with a little planning. In most instances, all you need to do is have a San Diego nonprofit attorney ask for a private letter ruling on the tax consequences of your merger.
If there are no issues, the IRS should quickly confirm that the new entity will keep its tax-exempt status. Should they have any concerns, they will let you know and give you the chance to address them before continuing your merger.
Organizational Culture
Before merging your nonprofit organization with another, it is always wise to consider whether your cultures are compatible. If, for instance, you run a charity that provides free healthcare to young women, it is unlikely to be a good idea to merge with a group that has objections to abortion or birth control.
Similarly, if your charity operates as a small, nimble organization, it might not be a wise move to merge with a nonprofit that has a big management team or is adverse to change.
Messaging
Mergers tend to result in a great deal of upheaval within an organization. When they find out about your plans, your donors, employees, volunteers, and other stakeholders are likely to have some concerns and questions.
As such, before you press forward with your plans, it is essential to spend some time figuring out your messaging. You must determine how you will let people know about the merger, its benefits to your nonprofit, and the impacts it will have on their lives.
Your Experienced California Nonprofit Lawyer
Do you need a knowledgeable San Diego nonprofit attorney to help you prepare to merge your charity with another? Then you are in the right place. At the Semanchik Law Group, we have been assisting nonprofits with projects of this nature for years. We know what it takes to navigate the process seamlessly. Give us a call at (619) 535-1811 or fill out our online contact form to speak to a member of our experienced team.
