Charity mergers can create stronger organisations, wider reach and better use of resources. They can also bring significant legal, financial, cultural and people challenges.

That is why a merger should never begin with the assumption that combining two charities must be the right answer.

In this episode, we work through three practical stages: building the business case, carrying out due diligence and managing the change properly.

About this episode

There has long been collaborative working across the charity and arts sectors, from sharing resources and delivering joint projects through to formal mergers.

A merger usually means two or more legally separate charities coming together so that one charity remains, with one governing document and one body of trustees.

The attraction can be easy to see: economies of scale, more capacity, a stronger funding base, shared expertise and greater reach.

However, a merger also means combining liabilities, people, systems, cultures and governance. The benefits only matter if the merged organisation is genuinely stronger and the decision serves the charity and its beneficiaries.

“Is the merger in the best interest of your charity and your beneficiaries?”

Stage 1: Build the business case for the merger

The first stage is deciding why the merger should happen at all.

Do not begin with the structure. Begin with the outcome.

Ask what the merger is expected to improve and whether those improvements could be achieved in another way, such as collaboration, resource sharing or a joint project.

Possible benefits discussed in the episode include:

• economies of scale and lower duplicated costs
• pooling skills, knowledge and resources
• generating more income or using existing resources better
• improving service delivery
• increasing organisational profile and reach
• creating additional capacity
• reducing some operational risks by working together

Those benefits need to be weighed against the cost and disruption of merging.

Professional fees, rebranding, relocation, system changes and management time all have a cost. So do mistakes made because the process has been rushed.

Check the purpose, powers and governing documents

Current Charity Commission guidance makes this especially important.

Each charity's trustees must make their own decision to merge and must act in their charity's best interests.

In most cases, the charities need the same or substantially the same purposes, and the trustees must know which legal power allows the charity to merge or transfer its assets.

Your governing document may also give members or other people rights that affect the decision.

If your charity has members, they may need to vote on the merger. That is why the governing document should be checked early, not after the main decisions have already been made.

The Charity Commission may also need to become involved if authority is required for a governing-document change, asset transfer or another part of the process.

The official Charity Commission guidance on merging charities is therefore an important reference alongside professional advice where needed.

Think about the merged organisation before you commit

The business case is not only financial.

Ask whether the two organisations fit.

Do their visions work together? Will their beneficiaries still be well served? Is there a cultural fit? What happens to the funding base? Which services remain, change or combine?

You should also think about the legal structure of the merged charity.

Will one existing charity receive the assets and become the merged organisation, or will a new charity be created?

The episode also raises structures such as a Charitable Incorporated Organisation and a company limited by guarantee. Our guide to social enterprise structures in the UK provides wider context on some of those organisational forms.

Stage 2: Carry out due diligence

Once the business case looks strong enough to continue, the second stage is due diligence.

This is where we stop looking only at the opportunity and start examining what we may actually be taking on.

A charity merger can transfer more than assets and income. It can also bring liabilities, employment obligations, contracts, property issues, pension exposure, systems problems and reputational risk.

The Charity Commission's current guidance says trustees should decide what level of due diligence is appropriate for the merger and seek professional advice where needed.

The aim is not to produce paperwork for the sake of it. The aim is to understand enough about the other organisation to make an informed decision.

Financial due diligence

Look beyond the headline income and reserves.

Review the accounts, budgets, cash position, liabilities, restricted funds, commitments, contracts and any financial issues that could affect the merged charity.

Ask whether there are obligations that are not obvious from a quick look at the latest accounts.

Legal and governance due diligence

Check the governing documents, legal powers, contracts, leases, property, regulatory obligations and any restrictions attached to assets.

Also identify whether Charity Commission authority is needed at any stage.

If sensitive information is going to be exchanged, confidentiality arrangements such as a non-disclosure agreement may be appropriate. An NDA can be useful, especially if discussions do not ultimately lead to a merger, but it is not a substitute for proper legal advice or due diligence.

Employment and people issues

If employees are involved, the merger may raise employment issues including TUPE, pensions, role changes or redundancies.

The episode highlights the importance of bringing competent professional advisers into the process early where the risks justify it.

That could include accountants, solicitors and employment specialists.

Culture and systems

Due diligence is not only legal and financial.

The episode makes culture a major part of the assessment.

Two organisations can look compatible on paper while operating in completely different ways.

Different approaches to leadership, communication, decision-making and accountability can either strengthen the combined charity or become the obstacle that stops the expected benefits from appearing.

IT compatibility matters too. Combining two organisations can expose systems that do not talk to each other, duplicate processes or create unnecessary disruption.

A simple SWOT analysis can help bring together the strengths, weaknesses, opportunities and threats surrounding the proposed merger.

Stage 3: Manage the change from the beginning

The third stage is change management.

This is not something to leave until the legal paperwork is almost finished.

Trustees, senior managers, employees, volunteers, beneficiaries, funders and other stakeholders can all have concerns about what the merger means for them.

Some may worry about job security. Others may fear a loss of identity, autonomy or status.

If those concerns are ignored, they do not disappear. They become part of the merger risk.

“At the very start of the process, effective communication and involvement with all the stakeholders is critical.”

Good change management therefore needs communication, involvement, transparency, trust and integrity.

People need to understand why the merger is being considered, what will change, what will remain and how decisions will be made.

Current Charity Commission guidance also encourages charities to consider consulting beneficiaries, employees, members, volunteers and relevant external supporters early in the process.

Leadership needs clarity

The episode also highlights the importance of clear leadership in the merged organisation.

Where appropriate, deciding the leadership arrangements early can give the process focus and reduce uncertainty.

Recruitment and selection still need to be open, fair and transparent.

Most importantly, change management should run through the entire merger rather than being treated as the final stage in a strict sequence.

The business case, due diligence and communication all affect each other.

What happens after the decision to merge?

The episode focuses on the three planning stages, but the current Charity Commission process continues beyond the decision itself.

Depending on the charities involved, the implementation can include:

• setting up the new receiving charity or confirming which existing charity will remain
• transferring assets and making arrangements for liabilities
• dealing with permanent endowment, designated land or special trusts where relevant
• closing the transferring charity when the legal steps are complete
• considering whether the merger must, or should, be added to the register of merged charities
• accounting correctly for the merger

For accounting periods beginning on or after 1 January 2026, charities that prepare SORP-compliant accounts should use the applicable merger guidance in Charities SORP 2026.

These implementation steps do not replace the three-stage framework in the episode. They sit underneath it. A sound business case, good due diligence and effective change management make the legal and operational process much easier to carry through.

A practical charity merger checklist

1. Define the reason for merging. Be clear about the benefit to the charity and its beneficiaries.
2. Consider alternatives. Ask whether collaboration could produce the same benefit without a full merger.
3. Check purposes and powers. Review the governing documents and identify the legal route available.
4. Understand the costs. Include professional fees, systems, property, rebranding and management time.
5. Carry out due diligence. Review finances, liabilities, governance, contracts, employment, systems and culture.
6. Get the right advice. Bring in legal, financial or employment expertise where the risks require it.
7. Plan stakeholder communication. Involve the people affected rather than presenting the merger as a finished decision.
8. Agree leadership and responsibilities. Make it clear who is managing the merger and how decisions will be made.
9. Plan the legal implementation. Understand asset transfers, liabilities, closure, registration and accounting.
10. Keep reviewing the case. If the evidence changes, be prepared to reconsider whether the merger is still the right decision.

FAQs

What is a charity merger?

A charity merger usually involves two or more legally separate charities coming together so that one charity remains under one governing document and one body of trustees.

What are the three main stages of a charity merger?

The framework in this episode is: build the business case, carry out due diligence and manage the change. Change management should begin early rather than waiting until the end.

Do trustees have to prove a merger is in the charity's best interests?

Trustees of each charity must make their own decision and act in their charity's best interests. They should use relevant information, including due diligence, professional advice and consultation where appropriate.

Does the Charity Commission have to approve every charity merger?

No. Charity Commission involvement depends on the charities, their governing documents, legal powers and the steps needed to complete the merger. Authority is required in some situations but not every merger follows exactly the same route.

What should charity merger due diligence cover?

It can include finances, liabilities, contracts, property, governance, employment, pensions, IT, regulatory issues, culture and other risks that could affect the merged organisation.

Does TUPE apply to charity mergers?

It may. Where employees transfer as part of the merger, TUPE and other employment issues can become relevant. The facts of the merger matter, so appropriate employment advice may be needed.

Why is change management important in a charity merger?

A merger affects people as well as legal entities. Clear communication and stakeholder involvement help manage concerns around identity, jobs, leadership, services and the future direction of the organisation.

Episode Timecodes

• 00:28 - Collaborative working and formal charity mergers
• 00:49 - The three stages and the business case
• 01:19 - Benefits and challenges of merging
• 01:38 - Stage 1: Is the merger in the charity's best interests?
• 02:01 - Economies of scale, income and cultural fit
• 02:22 - Funding, capacity and the cost of merging
• 02:43 - Members and governing documents
• 03:04 - Stage 2: Due diligence
• 03:25 - Risks and liabilities
• 03:48 - Confidentiality and sensitive information
• 04:12 - Legal structure and Charity Commission considerations
• 04:54 - Professional advice and TUPE
• 05:18 - SWOT analysis and organisational risks
• 05:42 - Culture as a merger strength or weakness
• 06:03 - IT compatibility and due diligence recap
• 06:23 - Stage 3: Change management
• 06:49 - Stakeholder anxiety and concerns
• 07:27 - Communication, trust and buy-in
• 07:48 - Identity, job security and autonomy
• 08:07 - Involving people and leadership
• 08:36 - Recap of the three stages
• 09:17 - Due diligence, communication and change
• 09:37 - Why change management starts at the beginning

Related episodes and guides

• Social Enterprise Structures in the UK
• Five Things When Selling Your Business

Key takeaway

Charity mergers can create real benefits, but the decision needs more than enthusiasm about what two organisations could achieve together.

First, build the business case and make sure the merger is in the best interests of the charity and its beneficiaries.

Second, carry out enough due diligence to understand the liabilities, risks, systems, people and culture you are bringing together.

Third, manage the change from the beginning with open communication, clear leadership and genuine stakeholder involvement.

Think of a merger as a marriage. The legal combination matters, but so does understanding the partner, knowing what you are taking on and making the relationship work after the papers are signed.

Further Support

If your charity is considering a merger and you need help with the financial case, due diligence, accounting or planning, you can contact us for an initial chat.

We can also help charities and social enterprises with accounts, tax, budgeting, financial planning and stronger financial systems.

You can use our free online business calculators to support your wider financial planning.

For more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

There is a strong history and a growing trend of collaborative working within the arts and charity sector. This ranges from sharing and pooling resources to project working to more formal mergers. This podcast is going to look at merges, particularly the three stages that are involved on a successful merger. My name is Mahmood.

I'm an accountant, mentor, and educator whose mission is to improve your money mindset, to help you make more profit in your business, to save more time, save some tax, and enjoy what you are doing. Now, the broadcast here is going to be looking at the three stages involved in a merger, and before we look at those three stages involved, what we need to think about initially, as an organisation, is the benefits and the business case that we're putting together for that merger.

Mergers can produce a number of benefits for organisations as well as our beneficiaries and stakeholders, but they also have a number of challenges involved as well. The first stage involved is the consideration of the merger itself, and I want you to think of this podcast as like a little checklist here to go through.

There are more details supplied to accompany these show notes, so let's consider first of all, stage one and what do we need to consider when we look at a merger. Now, mergers, as we said, can produce a number of benefits as well as producing some challenges along the way. So, we need to consider, is the merger in the best interest of your charity and your beneficiaries?

Will it improve the quality of service for example, by getting what's called economies scale? That's whereby combining two organisations, we can have some cost savings as a result. Can we generate more income, more resources? Can we make better use of those resources? Is there going to be a fit in terms of the respective cultures and the visions of the two organisations?

Is there going to be an impact on the funding base? Can we improve the service delivery? As a result, we will potentially increase our organisational profile, have additional capacity, reduce some risks by working together. We need to also consider at the outset, the team that's going to be involved in here, the cost of merging

that will include things like rebranding, professional fees, relocation. If we have a membership organisation, then we need to look at our consultation. Do we need to have improvement of the merger by our members? Do they need to give it the thumbs up, the green light? Check the governing document accordingly.

Now, having looked at the consideration of the merger, and that's just a brief outline here, the next thing we should consider is what we call due diligence. Now, in last week's podcast, episode 38, and the one before that, we made reference to due diligence. For those organisations looking to sell their businesses and due diligence raises its head once more

in the context of merging two organisations together. It's more usual that it's two organisations coming together as opposed to more than two. Now, having gone through the business case for the merger, we also need to consider the risk and liabilities that we may be taking on once we marry effectively our charity partner.

Typically, the outset, we would arrange for an NDA, a non-disclosure agreement to be constructed, so that will, therefore, protect us and not limit us in our conversations. We are likely to come across and reveal sensitive information. If the merger, for whatever reason does not occur, and I have met instances of that in my own career where emergencies do not go through for a number of reasons,

then we want to make sure that we have safeguarded the information that we are revealing to the other party. We may need to check our own legal constitutions to see if we have to seek permission from the charity’s commission. Have we actually thought in terms of our legal structure for our merged charity? Will it be a CIO, as it's called, a charitable incorporated organisation?

Will it be a limited-by-guarantee? That's what we need to consider, and you'll find it useful to refer back to previous podcasts where we've looked at organisational structure and where we've talked also in other podcasts on social enterprise. In all these things, clearly the potential complexity, the potential risk that we are exposed to,

we need to make sure we've got competent, good professional advice in our team. Whether it's accountants or solicitors, we need to make sure we've got those on board from the very beginning. There may be, if there are staff numbers involved, then we need to also check with the employment issues, like what's called TUPE. Sounds very grandiose, doesn’t it? And it stands for transfer of undertakings.

So, in other words, we have to make sure our staff are protected and we need to make sure when we take your new staff that we have a due HR process that goes in there. We're also going to be looking at the rationale for the merger itself. So, using tools such as SWAT, which is commonly met in a business-development, business-planning scenario, we are looking at the strengths and weaknesses, and the opportunities and the threats involved in the merger.

We have to look at things like cultures when they come together, and the merging of charity cultures, like in any organisation, can be the thing that actually powers our merger ahead, or it could be the spanner in the works, which makes it all come crumbling down. And the benefits from merging are not realised because we have two different cultures coming together.

We need to check out things like IT compatibility between two systems. So, we go through the second stage, which is predominantly financial and legal considerations, or what we might refer to as due diligence. So, let's recap what we've got so far. We've talked about the potential benefits of merging.

We've produced a business case. We've evaluated a number of issues. We've looked at the risks. We've looked at the respective governing documents of each organisation. We've looked at the respective constitutions. We've looked at the potential name choice of trustees, management staff. We've gone through a due diligence exercise, and a third stage as important is what we call change management, and that's managing the whole merger process

itself. Now, within this, if you can imagine all the different parties involved from trustees down to those people who work for the charity will have a degree of anxiety and concern about the actual merger going ahead. It may be sending out the wrong signals. Management, client groups, funders, and trustees,

all of them will have an element of concern, and we need to make sure that we manage that transition, that change to a brave new world. A failure to address these at the outset, a failure to communicate, a failure to understand, a failure to change behavior where it's desired will have a catastrophic effect

on the merger. At the very start of the process, effective communication and involvement with all the stakeholders is critical. We need an air of transparency, openness, trust, and integrity, and that's got to be driving the process. That's got to be embedded at the heart of the merger activity. Everybody has got to have what we call buy-in.

The trustees, the directors, the senior management team, all have got to agree that actually going through a merger is the best strategic choice. As we said, there will be a level of fear and concern over the proposal. Some people will see it as a loss of autonomy, identity, job security, a loss of status.

So, we need to be prepared to have those frank conversations at the very outset and involve people on the journey that we're going through. It's not unusual that external personnel are recruited to actually monitor and to actually manage the communication process. Now, if a merger is to go ahead, it's accepted practice, typically, to appoint the CEO, the chief executive, the head honcho of the merged organisation at a very early stage.

This provides a bit of focus and clarity to the leadership, and again, the recruitment and selection process needs to be open, transparent, and fair. So, let's recap the three stages of a successful merger and these three stages, even though we are focusing on arts and charity organisations, there's a lot that commercial organisations can take from this and actually apply it to their own activity.

So, even though there might be nuances for a charity organisation, a social-enterprise-type organisation, these are lessons that can be taken and adapted when any merger activity is involved. So, we're talking in terms of the consideration of the merger in the first place, the business case that we put forward.

We think about the impact of these two parties coming together to form one unified beast. We're then considering the second stage, which is the due diligence exercise, typically looking at the financial, the legal, and the organisational issues, making sure that we're protected. And thirdly, it's the communications.

It's the change-management aspect, and the change management is not something that happens at the end, but it's something that is embedded in and blended right at the very beginning. Okay, folks, I hope you found this broadcast useful. I hope you found the contents of the podcast useful for yourself and a good takeaway.

If you want to get some more information, check out the website, proactiveresolutions.com, where we've got lots of information to share with you. If you have an area or a topic that you wish to have expanded on, discussed in a future podcast, please check out the website page or the podcast page, and there's a little something there for you to add your name, address, and any question that you might want answered.

Faith in that. Thank you very much for sharing your earbuds with me this week. If you'd love the show, I'd love it if you could actually shout about, share it. Until then, I'll see you all next week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value.

If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.