Setting up and running a charity – guidance

How to merge or link charities

How to merge charities, or link them to make accounting and reporting easier, including how to merge charitable incorporated organisations (CIOs).

How to merge charities

Before you start, decide whether merging is in your charity’s interests. It could be less risky and more efficient to work with another charity more informally. You should read the Charity Commission’s guidance on collaborative working, making mergers succeed and its mergers checklist.

Checklist for mergers

Charities can merge by, either:

  • one charity taking over another’s work and assets
  • forming a completely new charity to take over the work and assets of all the charities involved
  • one charity taking over the management of another charity but keeping it (temporarily or permanently) as a separate entity or brand within a group

Mergers, or other forms of collaborative working, can make better use of charitable funds and property and provide better services for your beneficiaries. For example if two charities in the same area are doing similar work and competing for funding, a merger may be the best way to secure funding and provide a united voice.

When thinking about a merger, you must make sure that:

  • the governing documents of the charities involved allow the merger
  • all the charities involved have similar aims

If these don’t apply, you’ll need to get permission from the commission before you merge. You always need the commission’s permission to merge 2 or more CIOs, and you must follow the rules below.

Once you’ve decided to merge and have considered and planned for the risks, consider the practical and legal issues. A ‘vesting declaration’ (a formal document that transfers the legal title of one charity’s property to another charity as part of a merger) can be a useful tool to transfer assets simply.

You and the other trustees should think carefully about the potential advantages and limitations of merging. Take professional advice if needed.

The Institute for Voluntary Action Research offers guidance on what to do if you are thinking about a merger including a case study.

If your charity is closing to merge with another, you must let the commission know so that it can update the register of charities.

How to merge CIOs

If you’re merging two or more CIOs to form a new one, each original CIO must:

  • hold a meeting to pass resolutions approving the proposed merger
  • adopt the proposed constitution of the new CIO
  • make sure anyone affected by the proposed merger knows about it

You then need to ask the commission to approve the merger.

Get approval for a CIO merger

Before you start, get PDF copies of:

  • each original CIO’s members’ resolutions to approve the merger and adopt the constitution of the new CIO
  • the notice you gave anyone affected by the proposed merger

Send these when you apply to register the new CIO with the commission and ask it to dissolve the original CIOs at the same time.

If you’re transferring a CIO’s assets, rights and liabilities to another CIO because it’s closing or merging, the old CIO will automatically be dissolved once the commission registers the new, receiving CIO. All its property rights and liabilities then belong to the receiving CIO.

When to register a merger

The commission keeps a separate register of charity mergers. Registering your merger is one way to make sure any legacy or donation left to the original charity will go to the new, merged charity.

Registering a merger is voluntary unless you used a vesting declaration to transfer the original charity’s property to the receiving charity as part of the merger, in which case you must register the merger.

What information to provide in the form

It is an offence under section 60(1)(b) of the Charities Act 2011 to knowingly or recklessly provide false or misleading information.

You need:

  • names and registered charity numbers for all charities involved in the merger
  • details of any property being transferred - including the dates of any vesting declarations
  • the dates of the actual or proposed transfer

NHS charities can’t use this form - use the general enquiry form instead.

Apply to be added to the register of mergers

Charities that are connected or have the same trustees can apply to be linked - this means they can prepare just one set of accounts and share a charity number. This is not the same as charities merging.

The commission can only link charities that have the same trustees and/or are connected because of the service they provide.

‘The same trustees’ - what this means

‘The same trustees’ means the charities you’re linking have the same:

  • individual people appointed as trustees of both charities
  • corporate trustee, for example a company, appointed as sole trustee of both charities

If a corporate trustee (such as a company) is also the sole trustee of another charity, this does not mean that both of these charities have the same trustees. This is because the trustees of the company are directors (separate individuals acting under their individual legal authority) while the other charity has only one trustee, the company itself, which acts as sole trustee in its corporate capacity. A company has its own legal personality.

An unincorporated charity and an incorporated charity (a CIO or company) can only have the same trustees if the unincorporated charity appoints ‘the trustees from time to time of [the company]’ as its trustees.

‘Connected’ - what this means

‘Connected’ means charities that provide different aspects of the same service, for example:

  • separate prize funds within a school
  • residents’ welfare funds administered by a residential care home

This will not usually apply where two charities who work in the same charitable field are geographically remote and have no other connection.

You and the other trustees should think carefully about the potential advantages and limitations of linking. Take professional advice if needed.

Find a solicitor – Law Society

Legal advice for small charities – LawWorks

Advantages of linking charities

Linked charities:

  • prepare only one set of accounts and trustees’ annual report
  • share a charity number
  • submit only one annual return

Once charities are linked, one will be the reporting charity, producing only one set of accounts for all of the linked charities. The accounts must still report separately on the assets and activities of each linked charity, including how they provide public benefit.

The reporting charity keeps its own charity number, and the other charities linked to it will use that number with an extra digit at the end to show that it is linked. For example, if the reporting charity’s number is 123456, the linked charities will have numbers 123456/1, 123456/2 and so on.

Limitations of linking charities

Think carefully about whether the linked charities losing their old numbers might cause problems, for example:

  • a loss of history and branding; linked charities will not have their previous accounts submissions displayed on the register of charities and publicity material might have to change
  • when fundraising in the name of a linked charity, check with the bank that there will be no problems in paying the funds into the charities’ bank accounts
  • grant funders may refuse charities that do not have a main registered charity number, and the public may find the new number confusing

Linking charities isn’t the same as merging them. Linked charities can’t combine their assets, and can’t spend their money on the aims of the other charities they are linked to. Each charity also keeps its own separate governing document. Each charity must act in its own best interests and manage potential conflicts.

Linked charities will still need to:

  • tell the commission about trustee changes, if the trustees are different from the reporting charity
  • keep within company law accounting rules, if any of the charities are companies
  • identify restricted and unrestricted funds separately
  • keep permanent endowment separate from the linked charities’ other funds

If the reporting charity is a company, it can’t treat the permanent endowment of a linked charity as part of its corporate property.

Complete the online form if you are:

  • a trustee
  • someone else authorised to apply on the charity’s behalf, such as an employee or professional adviser

What information to provide in the form

It is an offence under section 60(1)(b) of the Charities Act 2011 to knowingly or recklessly provide false or misleading information.

You will need to provide:

  • names and registration numbers of the charities to be linked
  • details of whether you want to link the charities because they share a trustee board or because they deliver the same over-arching service

You can’t save it so you need to complete it in one go.

Apply to link charities.