Benefits and Challenges of Merging Nonprofit Organizations
Did you know there are more than 19,000 charities in the state of Oklahoma? That’s a lot of nonprofits already, and we’re still setting up new nonprofits all the time. While Oklahomans are known for their big hearts and willingness to step up and help, it is often more advantageous to concentrate programs and funding in existing charities with similar purposes to those wishing to start a new nonprofit.
Nonprofit mergers are pretty rare right now, but they shouldn’t be. Those of us who work in the nonprofit sector maintain that mergers are an advantageous way to save programs that find themselves unable to acquire the funding necessary to stay afloat. It’s a smart business decision to combine forces and tackle a problem rather than trying to do it separately, but it can also be a challenging process primarily due to the human factor involved. Here are three key steps to navigating the process.
Recognize the role emotions play
Emotions are the most challenging part of merging two nonprofits. People are passionate about the cause, and that often means it’s hard for them to let go of the existing structures of power in their current nonprofit. A merger also means that some staff will lose their jobs and some board positions will be eliminated, and it’s never easy to make a decision that impacts people in that way.
When we sit down with organizations and really start talking about mergers, it’s not uncommon for the board to say they do not want to be the board that votes to take the organization in a direction which may cause people to lose their jobs. However, it’s important to take a step back and look at the long-term health of the organization and how their clients will best be served. Sometimes, despite the loss of control and potential loss of staff, a merger is the right answer for the people the organization serves.
If two organizations merge and decide to retain one organization’s existing name, it can be especially challenging for the board and staff from the organization whose name will not continue to be utilized. Those board members might feel like they failed or they’re a bad board because they didn’t survive, but that’s not the case at all. This is a fiscally responsible decision, and that’s a good thing. In fact, it’s a decision more nonprofits should make instead of dwindling away over time due to the inability to support their own programming.
Start the critical conversations early
A nonprofit merger is not something to be taken lightly, and it’s important to have lots of open and honest conversations early in the process. Ask yourself, “What’s the best possible thing we can do for the people we’re trying to help?” As you work through the process, come back to that question again and again. Focusing on the persons and entities served can help take the personal emotions out of the equation and keep the focus on what matters most—your mission.
Long before it comes to a vote and a merger agreement, the two nonprofits should be talking about what will happen with staffing and board roles. The merged nonprofit doesn’t need two executive directors, so how do you balance that during the transition? If one of the executive directors is also a founder of their nonprofit, perhaps the answer is to create an endowment in their name so their legacy with the merged nonprofit lives on. Many options exist to maintain legacies and acknowledge those who were critically involved in the foundation of both nonprofits.
It’s unlikely you’ll create a new organization that includes the full boards from both of the merging organizations, though it does sometimes happen if both organizations have small boards. If you have state or federal grants, they might have stipulations regarding percentage of board turnover and having to get recertified or relicensed, so be sure to factor those requirements in as you make decisions.
Know the policy and legal requirements
Once all of the people factors are discussed and decided, the actual merger process is fairly straightforward and simple. For two nonprofits to merge, it requires a two-thirds majority vote of the total number of directors on both organizations boards. During the meeting where that vote occurs, the nonprofits also need to pass resolutions that allow changes to be made to bank accounts, post office boxes, and other accounts necessary for running an organization. Those institutions will need to the resolutions in order to transfer money or update access to accounts.
The next step is to file a merger agreement with the secretary of state that lays out the terms of the merger. There will be one surviving nonprofit, whether that’s one of the existing nonprofits or a newly named nonprofit. But in the end, there’s only one corporation and one Employer Identification Number (EIN).
Depending on how the merger takes place and whether the purpose of the organization changes in the process, the organization may need to amend its Certificate of Incorporation to match the new purpose. Updates to bylaws and policies may be necessary as well once the merger is complete.
Ultimately, the goal of a merger is to create a better, stronger nonprofit that can make a difference in the lives of the people you serve. Following these three steps can help create a smoother process toward that end goal.