The Intricacies of Nonprofit Mergers: What Every Organization Needs to Consider

When two nonprofits begin exploring the idea of merging, the conversation often starts with a shared sense of purpose. There may be a desire to expand impact, consolidate resources, or continue a mission that might otherwise come to an end if one organization simply dissolved. These early discussions are well-intentioned, but many organizations underestimate the complexity involved in the process.

The term “merger” is often used to describe a wide range of legal actions, and there are pros and cons to different options. Understanding your options, identifying the surviving corporation, and planning ahead are essential steps to ensure the process is handled correctly. This protects both organizations and the communities they serve.

Not all “mergers” are legal mergers

In the nonprofit sector, the term merger is often used loosely. From a legal standpoint, there is a significant difference between a statutory merger and a dissolution followed by an asset transfer. In a true legal merger, one organization absorbs another, and the surviving organization assumes both the assets and liabilities of the other unless the merger agreement states otherwise.

That assumption of liability is where problems often arise. If the dissolving organization has outstanding issues, such as incomplete tax filings or past compliance violations, the surviving organization could inherit those risks. The dissolving organization may not know of the issues that could harm the surviving organization years later.

A dissolution that is followed by a formal gift agreement is often a cleaner path to combining two nonprofits. It allows the receiving organization to accept assets without also accepting unknown liabilities. However, this method still requires legal guidance, accurate documentation, and attention to donor intent.

Identify the surviving corporation early

One of the most important steps in any merger or transition is identifying the organization that will continue forward. This is more than a name on a document. It determines which corporation remains legally active, which Employee Identification Number (EIN) continues, and who assumes responsibility for managing programs, assets, and legal obligations.

While these decisions can be emotional, especially for the organization that is winding down, clarity is essential. Avoid defaulting to familiar language like “merger” without fully understanding the implications. Instead, work with legal counsel to determine the best path forward based on your organization’s goals, risks, and funding structure.

If the dissolving organization has active planned giving or other long-term fundraising efforts, a statutory merger may be the better option. A formal agreement creates a legal paper trail that can help future gifts reach the appropriate entity without confusion.

Donor intent must remain intact

Donor intent must be honored, even though one organization no longer exists. This includes restricted funds, endowments, and any other assets tied to a specific purpose.

The receiving organization must continue to use transferred funds for their original purpose unless the donor gives written permission to do otherwise. The Oklahoma Attorney General has the authority to review this information and will likely ask for documentation to confirm that donor intent will be preserved.

In some cases, the surviving nonprofit may also need to amend its tax-exempt purpose with the IRS and the Oklahoma Attorney General to legally carry out the incoming mission or programs. This step must be included in the overall planning and review process to determine if an update to the tax-exempt purpose is necessary.

Notify the attorney general and prepare for questions

Under Oklahoma law, nonprofits must notify the Office of the Attorney General at least 45 days in advance of taking actions like dissolving, changing their exempt purpose, or transferring a substantial portion of their assets. This requirement is outlined in 18 O.S. § 552.24.

Although the law sets a 45-day notification window, the attorney general’s office often pauses the timeline to ask questions or request documentation. The process can take longer than expected, especially if donor intent, program continuation, or financial activity requires further review.

Nonprofits should not assume that silence from the attorney general equals approval during the 45-day notification window. Start early, be prepared for active engagement, and have all relevant board minutes, agreements, and financial records available.

Additional layers to consider

Merging two nonprofit organizations involves much more than combining programs. There are legal, financial, operational, and personnel considerations to address as well.

Some grants, particularly federal ones, cannot be transferred to a new entity. Private foundations are often more flexible, but the merging organizations should reach out to the foundation early in the process to discuss potential options.  

If staff or board members from the dissolving organization will be part of the surviving organization, be sure to clearly define their roles plus any changes to other existing roles. 

Severance or end-of-contract paymnts for departing executives should be reviewed carefully. If payments exceed IRS thresholds, they may trigger additional reporting or scrutiny.

Property purchased with government funds may be subject to compliance requirements that extend beyond the transition. The receiving organization must be prepared to fulfill those obligations or risk penalties.

Any of these issues can affect the success of the transition and its legal standing. Work closely with legal counsel to evaluate all risks and responsibilities before moving forward.

Make informed decisions with trusted counsel

A nonprofit merger can help sustain programs and preserve impact, but it must be handled with care. There is no substitute for early planning and experienced legal guidance when combining two nonprofit organizations.

At Nonprofit Solutions Law, we support nonprofit leaders who are navigating complex transitions. From dissolutions and asset transfers to statutory mergers and donor compliance, our team helps you ask the right questions and follow the proper steps.

If your organization is considering a merger or similar transition, contact us to schedule a consultation.