There are many reasons that a not-for-profit corporation (NFP) or a charity may wish to merge — or amalgamate — with another organization. Reasons could include:
- maximizing organizational efficiencies
- changing the organization’s objectives
- combining resources and clients
- increasing government funding or donor pool
- and more.
While an amalgamation may be in the organization’s best interests, it is not a decision to be made lightly and should involve ongoing discussions between the organizations intending to amalgamate.
The provisions below apply to both incorporated NFPs and incorporated registered charities, however this article focuses on the amalgamation of charities, as there are additional requirements and restrictions imposed on charities by the Charities Directorate.
3 Ways to Combine Separate Entities
Amalgamation is a defined term, but it is often confused with other ways of combining the affairs of two or more entities. There are three different ways that two or more organizations can join together:
1. Amalgamation: two or more entities combine into one organization — the amalgamated entity. The amalgamated entity would continue as one of the pre-amalgamation entities and would continue to use its charitable registration number.
e.g. Corp A and Corp B amalgamate and continue as Corp B, with or without variations to the organizational structure of Corp B.
2. Merger: one or more entities wind up their affairs and transfer their assets to another entity. This must be permitted by and in accordance with the corporation’s Articles/Letters Patent.
e.g. Corp A dissolves and transfers its assets to Corp B. Corp B continues in its current form.
3. Consolidation: two or more organizations dissolve and transfer their assets to a new entity. If the new entity is meant to be a registered charity, it will need to apply for registration.
e.g.. Corp A and Corp B set up a new Corp C. Corp A and Corp B dissolve and transfer their assets to Corp C.
In all cases, charities need to provide notice to the Charities Directorate and obtain pre-approval to ensure that they comply with the requirements of the Income Tax Act, so that their charitable status is not revoked. One of the requirements is that the charity identify which of the three methods above has been chosen.
Ontario NFPs and charities are governed by the Corporations Act, and federal NFPs and charities are governed by the Canada Not-For-Profit Corporations Act. Currently, under the existing Ontario Corporations Act, NFPs and charities that wish to amalgamate must have “the same or similar objects”. In order to amalgamate, the organizations must be governed by the same legislation. If that is not the case, a merger or consolidation may be a better option, or one of the organizations could apply to “continue” under the governing legislation of the organization intended to exist after amalgamation.
In all cases, it is important that the organizations involved have all of the documentation in place in order to ensure that the amalgamation, merger, or consolidation:
(a) Accomplishes the intended goals;
(b) Complies with legislative and procedural requirements; and
(c) Does not conflict with the existing articles of each of the organizations
Organizations considering amalgamation, merger, or consolidation should seek legal advice to determine which method will best ensure the continuity and ongoing success of their NFP or charity.
For more information, including details regarding documentation requirements, please reach out to an SV Law Business Law lawyer.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.