Guidance

How to merge charities

Updated 7 March 2024

Applies to England and Wales

A merger of charities usually means two or more legally separate charities coming together to form one charity under one governing document and one body of trustees. In most cases, charities can only merge with other charities that have the same or substantially the same purposes.

The charities that are merging transfer their assets and liabilities to one charity, which becomes the ‘merged’ charity. In this guidance, the term:

• ‘transferring charity’ describes the charities transferring their assets
• ‘receiving charity’ describes the charity receiving assets and becoming the merged charity

The trustees of each charity must make their own decision to merge, in line with their trustee duties. Use our decision-making guidance to help you. 

If your charity has members, they may have the right to vote for or against the merger.

Charities merge for lots of reasons including to:

• improve the services they provide to beneficiaries
• make better use of resources and reduce duplication
• benefit from shared knowledge, skills and experience
• improve their public profile

Understand your reasons for merging:

• your objectives
• the impact on your beneficiaries
• the costs, risks and barriers

Good communication is important throughout the process. Early on, you should consider consulting with groups such as:

• your beneficiaries
• any employees, members and volunteers
• anyone given particular rights by your governing document, which may be affected by the merger
• external organisations or supporters that your charity regularly works with

Good planning will help you achieve the merger, for example:

• the order in which to take actions
• how you will manage the impact on beneficiaries
• timescales and costs
• complex issues or issues that could cause delay
• where you may need professional advice or Commission involvement

If your charity has employees, you may need to consider issues such as:

• TUPE, which means Transfer of Undertakings (Protection of Employment) Regulations
• pensions: merging may trigger pension liabilities
• managing job changes and/or redundancies

You should get relevant professional advice on these and any other issues where you need it.

You may need the Commission’s involvement and authority at different stages. Apply in plenty of time, especially if you have a deadline for the merger, such as the end of the financial year.

Charity law and legal powers

From a charity law perspective, you should think about:

• whether you have the power to merge, and the purposes of all the charities involved
• making the decision to merge and whether your members (if you have them) must be involved in the decision
• if your charity is a CIO and is merging with another CIO
• whether you have permanent endowment, designated land or special trusts
• whether your charity’s governing document gives rights to third parties that may be affected by the merger
• whether you will set up a new charity to be the ‘merged’ charity, or will use an existing charity
• any conflict of interest issues that arise
• whether you may need Charity Commission authority
• whether you must, or choose to, register the merger
• (if yours is the transferring charity) whether you can close your charity
• how the receiving charity should include the merger in its accounts

Legal powers

You can merge if you have the power to merge, or the power to transfer your charity’s assets to the charity you are merging with. In most cases, charities can only merge with other charities that have the same or substantially the same purposes.

Make sure you know which power you are using and that you:

• use it correctly – you must comply with any instructions that come with the power
• use it for its proper purpose, not for a purpose for which it was not intended
• ensure that the receiving charity has purposes that are suitable, given the terms of the power you are using

1.General power

You can transfer your charity’s assets to the charity you are merging with if this furthers your charity’s purposes.

You should:

• check the wording of both your charity’s and the receiving charity’s purposes to make sure that the transfer would further your charity’s purposes, and
• check the rest of your governing document, to make sure it does not contain other rules that prevent you from going ahead

If you are not sure you can go ahead, you can:

• consider changing your charity’s purposes so that they are sufficiently the same as the receiving charity’s purposes
• check if you have a power in your governing document that you could use instead
• get professional advice

If you decide to change your charity’s purposes, you must do this first. This is because you must get Charity Commission authority to change your charity’s purposes, and you will need this authority before you can use the general power to merge.

Understand the rules about changing governing documents.

Example 1

For example, charities A and B both have purposes relating to mental health. Charity A considers that transferring its assets to charity B would further its purposes. Charity A transfers its assets to charity B before closing. This achieves the merger.

Transfers to a charity with wider purposes

If the receiving charity’s purposes:

• are wider than your charity’s purposes and
• include your charity’s purposes within them

you can use the general power – but in this situation the receiving charity cannot merge your charity’s assets with its own. Your charity’s assets would become a special trust of the receiving charity.

A special trust is money or assets that a charity must only use for specific purposes that are narrower than its own purposes.

Example 2

For example, charity C’s purpose is to relieve poverty in Rochdale. Charity D’s purpose is to relieve poverty in Rochdale and Oldham. If charity C decided to use the general power to transfer its assets to charity D:

• charity D must not merge Charity C’s assets with its own. It must only use charity C’s assets for the relief of poverty in Rochdale
• charity C’s assets become a special trust of charity D

Alternatively, charity C could apply for Commission authority to change its purpose so that it is the same as charity D’s. If the Commission gave authority:

• charity C could transfer its assets to Charity D
• charity D could merge charity C’s assets with its own. Charity’s C’s assets would not become a special trust

2.Governing document powers

You may also have powers in your charity’s governing document to merge. For example:

• an express power to transfer assets to, or merge with, another charity. An example is clause 5(7) of the Commission’s model trust deed
• a general power to do anything that is necessary or desirable to achieve the charity’s purposes. For example, Clause 5(10) of the Commission’s model trust deed
• the dissolution clause, which may say you can close the charity and transfer its assets to another charity

Occasionally, a power in a dissolution clause may permit the transfer of a charity’s assets to a charity with wider purposes. If your charity has such a dissolution clause and you use it to make the transfer, your charity’s assets would merge with the assets of the receiving charity; it would not become a special trust.

If you think you need it, you can consider adding a specific power to merge into your governing document. The Commission may need to authorise this change. Read our guidance on changing governing documents, which sets out how you can apply for authority.

Get professional advice if you need it.

Checking suitability and due diligence

After your initial consideration, a due diligence exercise will help you do detailed research and decide if the merger is in your charity’s best interests.   

Due diligence can help you explore suitability in terms of each charity’s:

• values and aims
• culture and working styles
• financial resources and viability
• policies
• activities
• organisational strengths and weaknesses
• areas of incompatibility or disagreement
• public profile or reputation

How rigorous the exercise is will depend on the circumstances of the charities merging. A more rigorous exercise may be needed when there are, for example, several charities involved or where there are charities with:

• complex governance arrangements or a group structure
• employees or pension liabilities (and whether a merger would trigger pension liabilities)
• complex service delivery, or contracts
• high profile or sensitive work (including risks of litigation)
• significant loans and/or borrowings
• one or more trading subsidiaries
• extensive property or other types of assets
• permanent endowment, designated land or special trusts

The trustees of each charity should decide what level of due diligence they need. Get professional advice, if you need it, to help you make this decision.

Your trustees or employees may have the right skills and experience to complete the due diligence. Or you can appoint someone from outside the charity. Read about the legal rules if you want to pay a trustee to do due diligence.

Making the decision to merge

The trustees of each charity must make their own decision to merge. This decision must comply with your trustee duties, such as the duty to act in your charity’s best interests.

Use our decision-making guidance to help you. 

Use relevant information to make your decision, such as from:

• your due diligence exercise
• any professional advice you took
• any consultation of groups such as beneficiaries, members or employees

If your charity has members, they may have the right to vote for or against the merger according to rules in your governing document or the law.

If you decide to go ahead, you should:

• inform relevant groups and stakeholders about your plans where appropriate
• identify what actions you will need to take to implement the merger. For example, does your charity currently have contracts that will be affected by the merger

You should also decide how you will structure the merger. There are usually two options:

Using an existing charity

• charities A and B transfer their assets and liabilities to charity C and then close
• charity C is the ‘merged’ charity

Creating a new charity

• charities A, B and C set up a new charity, charity D
• charities A, B and C transfer their assets and liabilities to charity D, and then close
• charity D is the new merged charity

This option can be used to avoid the merger looking like a takeover.

The process of merging

CIOs merging with other CIOs can use the legal steps described in How to merge a CIO with other CIOs. These are designed to make the CIO merger process straightforward.

1.Set up the new charity

Read the guidance under this heading 1 if you are setting up a new charity in order to merge with it.

Skip to heading 2 if you are merging with an existing charity.

Purposes

Before setting up the new charity, think about what the purposes of the new charity should be.

Read the section above about legal powers for more information.

Charity structure

You can decide whether the new charity will be a trust, an unincorporated association, a CIO (foundation CIO or association CIO) or a company.

If your charity is currently a charity with members, and you are considering a different structure, such as a trust (or a CIO foundation where the only members are the trustees), think carefully about the implications.

If your charity and the new charity have members you will need to consider who will be the members of the new charity.

If you are proposing to change the rights of your members you should obtain your members’ consent to this.

If you choose to set up a CIO, you must use one of our model constitutions for CIOs. When you apply to register the CIO, you will need to show if you have made any changes to the model. Your constitution must remain as near to the model as possible.

Read about Charity types: how to choose a structure (CC22a).

Charity name and governing document rules

Think about these aspects. Take into account the views of each charity that is merging.

Check the rules about charity names.

Set up and register the charity.

2. Preparing to transfer your charity’s assets and liabilities

Read section 1 above about having the power to transfer your charity’s assets and liabilities, and using this power correctly.

Every merger is different depending on the structures of the charities involved and the types of assets being transferred. Get relevant professional advice based on your charity’s circumstances.

If you are the receiving charity, you should get any advice you need about the assets and liabilities that are being proposed to be transferred to your charity.

Designated land, permanent endowment and special trusts

Understand if your charity has, or is trustee of, designated land, permanent endowment or special trusts. If it has, you cannot close your charity if you do not deal with them properly.

Designated land is land that must be used for a particular purpose of your charity according to the document that explains how the land must be used. For example, property that must be used as a recreation ground. 

Permanent endowment is property that your charity must keep rather than spend. Property given to your charity that must be used for a particular purpose (such as designated land) is one example of permanent endowment. Another is money or other assets given to your charity for investment where only the investment income can be spent.

A special trust is money or assets that your charity must use for specific purposes that are narrower than your charity’s purposes. Permanent endowment can be a special trust but not always.

Having – or being trustee of – permanent endowment, designated land or special trusts does not mean your charity cannot merge. But you do need to think about how you will transfer them because they are different to a charity’s general funds and assets.

(General funds and assets are those that you can use in any way to further your charity’s purposes; they have no other rules on how they can be used.)   

Read section 3 of our guidance about transferring charity assets for information about transferring permanent endowment, designated land and special trusts.

3. Charity Commission authority

Understand if you will need Charity Commission authority. You may need authority if, for example:

• your charity is a trust or unincorporated association and you are merging with a CIO or company
• one of the charities involved is a charitable company and you are transferring a ‘substantial non-cash asset’

Read section 4 of our guidance about transferring charity assets for information about these and other circumstances when authority is required. It also explains how to apply.

Apply in plenty of time.

4. Transfer assets and liabilities

You can start the process of transferring.

• Agree a transfer date with the receiving charity.
• Prepare and execute the correct documentation, such as a pre-merger vesting declaration or transfer agreement.
• On or after the transfer date has passed, take other actions like transferring funds across or registering the change in ownership of land at the Land Registry.

Read section 2 of our guidance about transferring charity assets. It explains, for example, about pre-merger vesting declarations and transfer agreements. 

5. Close your charity

Once the transferring charity has:

• transferred all its assets and liabilities to the receiving charity
• dealt with any permanent endowment, designated land or special trusts
• passed relevant records to the receiving charity

you can close it.  

Read guidance about closing your charity.

You must tell the Commission about the closure so we can remove your charity from the register. We will also stop writing to you – for example to file annual returns. 

You must retain your charity’s accounts, and books and records. This includes cash books, invoices, receipts and bank statements. They must be retained for 6 years from the end of the financial year in which they were made. You can ask the receiving charity to keep these for you.

6. Register the merger

Consider if you can, or must, register the merger.

Registering is about helping charities secure future gifts (such as bequests) after they have merged and closed.

Read guidance for more information and how to apply.

7. Account for the merger

The receiving charity will have to account for the merger in its accounts. Where the charity must produce SORP compliant accounts, consult Module 27 of the Charities SORP FRS 102 (SORP).

Get professional advice if you need it.

Project management

Merging usually involves significant organisational and cultural change. Use a detailed project plan to help you understand the steps to take. Think about:

• having a project board or steering group to oversee the merger and take relevant decisions that have been delegated to it. It would include representative trustees from each charity, and chief executives
• appointing a project manager to manage the overall process. They could be employed by one charity. They can be an existing employee or a new appointment
• your governance arrangements: sometimes charities will opt to have interim governance arrangements until the charities have fully merged
• setting out realistic timescales and a proper understanding of all actions needed, in the right order

Read about the legal rules if you want to pay a trustee to be project manager.

Costs

You should set aside adequate funding and keep the actual and anticipated costs under review. Some costs can be calculated in advance, such as:

• restructuring, changing or developing services
• integrating technology and information systems
• professional fees
• advertising and rebranding
• staff time
• relocation expenses
• governance costs, such as special general meetings or amendments to membership
• stakeholder consultation and involvement

Other issues

You may have employment issues to consider, such as:

• compliance with relevant legislation (such as TUPE and relating to pension liabilities)
• job changes
• redundancy

Other issues to consider include:

• key policies you need to have in place at the merged charity, for example safeguarding and whether the merged charity is required to, and has completed, DBS checks
• implications of sharing data, and complying with GDPR
• contractual negotiations
• insurance
• discharge of liabilities
• operational aspects (for example integrating service delivery – and staff and equipment – of merging charities)
• accounting
• IT systems
• impact on trading arrangements (you may need HMRC advice)
• checking if the merger affects charitable rate relief

Communication and branding

Use a communications plan to set out how and when to communicate with different internal and external stakeholders and partners.

And think about branding and the name of the merged charity.

Sometimes there is a sense of history or brand attached to a particular charity and it may be damaging, especially in terms of fundraising, if a name is lost.

You can mix the names of the charities involved in the name you choose, or retain an existing name as a working name for the merged charity.

Read guidance about charity names.

Checklist

This checklist is based on the guidance above.

Use the guidance with the checklist.

1. Understand the benefits, risks and costs of the merger for each charity. Check if collaborative working might achieve the same benefits as merging.
2. Consult with beneficiaries, members, employees, those with third party rights, and other stakeholders if appropriate for their views.
3. Check that the purposes of the charities involved do not prevent the merger.
4. Check that each charity has the power to merge.
5. Get Charity Commission authority, where needed, if you are changing your governing document.
6. Complete appropriate due diligence to understand compatibility and identify risks and issues of merging with the charities involved.
7. Check how much the merger will cost and if your charity can afford it.
8. Understand early where you need professional advice. For example, on transfer powers or employment issues.
9. Make the decision to go ahead with the merger.
10. Involve members, if your charity has them, where the governing document or the law requires them to give their consent to the merger.
11. Identify all the risks associated with merging, such as reputational or operational risks, and what mitigations are needed.
12. Understand how you will transfer services you provide to your charity’s beneficiaries when merging, and generally manage impact on them.
13. Establish a project board or committee to oversee the project and to link into the respective trustee bodies.
14. Create a project plan and appoint a project manager to manage the overall process against the plan.
15. Understand if advice is needed from another organisation, such as HMRC.
16. Understand what employment or pension liability issues need addressing.
17. Establish a communications plan that covers all existing and new stakeholders and audiences. Agree branding. Inform relevant organisations about the merger.
18. Decide on the legal structure you will use. If you are using an existing charity, decide which charity will be the receiving charity.
19. If you are setting up a new charity, think about what its purposes should be, its name and governing document provisions.
20. Understand the method your charity will use to transfer assets and liabilities to achieve the merger. For example, a pre-merger vesting declaration.
21. Understand implications of any of the charities having permanent endowment, designated land, or special trusts.
22. Check what Commission authority is needed.
23. Check if the merger will be required to be registered. If not, if you want to register.
24. Comply with the rules on closure.
25. Understand how to correctly account for the merger.

You may need professional advice on these issues, or issues not covered in this guidance.