In previous articles we’ve highlighted some of the financial and structural issues facing not-for-profit (NFP) organisations. When considering how to deal with these challenges, one question more and more NFPs are asking is, could an amalgamation be the right move?
Hill Rogers recently led a lively discussion at the 2018 CEO & Chair Symposium in Hobart. The focus was to explore the benefits of amalgamating or merging with other related NFP organisations, as well as the potential tax implications in doing so.
Weighing up the Benefits
Amalgamating is a significant step for any NFP, not least because it can forever alter the structure and fabric of your organisation. As with any major decision there are numerous factors to be considered. But in general terms the choice to merge or amalgamate is almost always taken to create a stronger and more certain future presence within the increasingly-competitive NFP environment.
While not an exhaustive list, some of the main benefits include:
- Access to a larger membership base
- Ability to attract high calibre employees (Board or Management)
- Increased market relevance
- Greater geographic coverage and reach
- Costs savings through operational efficiencies
- Greater bargaining power
- Stronger voice/lobbying power
- Tax efficiencies as a taxable subsidiary
- Simplified accounting and reporting.
Key Tax Issues
Beyond the obvious cultural and logistical implications of amalgamating, one of the biggest financial considerations is how to preserve your access to existing tax concessions. This process includes everything from income tax, payroll, land tax and GST exemptions to the refunding of franking credits and even maintaining your deductible gift recipient (DGR) status.
As you can probably imagine, the loss of these concessions could potentially cripple an NFP organisation. Due diligence is essential well before any irreversible decisions are made, and as is conducting a thorough cost-benefit analysis to protect your future and plot necessary contingencies if you were to lose any tax concessions.
External or Internal?
Broadly speaking there are two different types of NFP amalgamations. An ‘external amalgamation’ happens with the merger of two entirely separate organisations. ‘Internal amalgamations’ occur when two or more organisations that are already affiliated become formally connected, such as the amalgamation of several State structures into a single National body, for example.
Single Entity or Group Entity?
Regardless of whether your amalgamation is external or internal, there are further structural options to be considered. Specifically, will you pursue a Single Entity or Group Entity merger? Both structures are quite common in Australia and suit different situations.
- Single Entity Merger – one organisation essentially absorbs the other, with all employees, contracts and assets transferred before the second organisation is wound up
- Group Entity Merger – both organisations continue, with one operating as the controlling parent while the other operates as a subsidiary.
Minimise Risk, Maximise Opportunity
The ramifications of an amalgamation are far-reaching and long-lasting. It makes sense to explore your options with a professional partner who can help you identify and then navigate the best path forward. The Hill Rogers Not-for-Profit team has a wealth of experience assisting NFP organisations. In particular, we can help you manage your tax and audit obligations and navigate all of the available exemptions and concessions. We can also offer practical advice and strategic planning across all aspects of the amalgamation process.
If you’d like to discuss how to best merge your NFP association or organisation, please contact Andrew Lam today.