Restructuring Nonprofit Organizations: Mergers, Acquisitions, Consolidations, Partnerships and Separations

*Please note that I am not your attorney, I am not giving legal advice and there is no attorney-client relationship. All legal questions should be directed to your legal counsel.

This article seeks to raise awareness of some key restructuring issues that can impact cultural organizations, but is by no means a comprehensive guide.

Restructuring a nonprofit organization can be an efficient way to collaborate with another entity to consolidate resources and increase outreach while reducing costs or to conclude a collaboration that is not successful.

Collaborations between nonprofits have different considerations than those involving a for-profit entity. This article assumes restructuring between nonprofit entities.

Typical restructuring of nonprofits can include:

  • Mergers, where one entity takes over another entity. The acquired entity dissolves such that only the entity that took over the acquired entity remains. The remaining entity assumes the acquired entity’s assets and liabilities.
  • Acquisitions, where one entity acquires specific assets of another entity. The entity that acquires the assets can choose which assets it wants and does not have to assume the liabilities.
  • Consolidations, where two entities join to form a distinct third entity and the original two entities dissolve. The newly formed organization will need to undergo formalities to create and register as a nonprofit.
  • Partnerships, where multiple entities can join together to share a specific resource, to operate a specific program, etc.
  • Separations, where entities sever their arrangement with another entity.

Due diligence, involvement of legal counsel, review of applicable laws and involved organizations’ missions and governing, fiscal and legal documents, approval of organizations’ boards and negotiated agreements, among many other things, are needed in investigating and pursuing these opportunities.

The following sources provide additional information on restructuring cultural organizations and were used in crafting this article:

  • American Alliance of Museums, Mergers and Other Organizational or Physical Changes at Accredited Museums(2004).
  • William Boyd III, Mergers, Acquisitions, and Affiliations Involving Nonprofits: Not Typical M&A Transactions, American Bar Association (2014).
  • Alex Cortez, William Foster, and Katie Smith Milway, Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times (2009).
  • David La Piana, The Nonprofit Mergers Part I: The Leader’s Guide to Considering, Negotiating, and Executing a Merger, Fieldstone Alliance (2008).
  • David La Piana and Vincent Hyman, Nonprofit Mergers Workbook: The Leader’s Guide to Considering Negotiating & Executing a Merger, Fieldstone Alliance (2000).
  • The Model Nonprofit Corporation Act
  • Jeffrey S. Tenenbaum, Lisa Hix, and David Warner, Mergers, Alliances, Affiliations and Acquisitions for Nonprofit Organizations: Legal and Financial Issues, Venable (2010).
  • State Nonprofit Corporation Acts
  • Alfredo Vergara-Lobo, Jan Masaoka, and Sabrina L. Smith, The M Word: A Board Member’s Guide to Mergers: How, Why & Why Not to Merge Nonprofit Organizations, Compass (2005).

Ms. Varner is an Attorney at Law, who has written multiple publications. She has lectured on issues impacting museums, cultural heritage, and arbitration. Ms. Varner is Executive Director of the National Art Museum of Sport. She also serves as Adjunct Professor at Indiana University Robert H. McKinney School of Law.

 

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