1. Andrew Studd Charity and Social Business Team Russell-Cooke LLP 12 July 2013 Funding Fair 2013 Joint Ventures, Collaborations and Mergers

2. Context  Current environment  Trustee duties and setting the strategy to achieve the objectives  Spectrum of collaborative working arrangements

3. Drivers  Wider geographic spread / scale / reach  Better / more efficient service delivery  Reduce overheads / loss of income / cost savings  Future funding uncertainty  Brand and cost of fundraising  Louder “voice” in campaigning  Move from grants to contracts  Funders requiring partnership working  Governance  Staff retention / skills  Crisis?

4. Business Themes  Who is your partner?  Common objectives / goals  What do they want from you?  Trust, culture and personalities  Reputation  Funding  Communications and planning  Contracts

5. Authority  Memorandum and articles/trust deed/rules*  Objects  Powers  Trading or fundraising? Primary purpose  Appropriate use of resources  Private benefit  Trustees  Commercial partnerships policy  Reputation management  Charity Commission guidance *note own structure and impact on liability

6. Collaboration: Contractual Joint Venture  Degree of integration  Sharing/apportioning of risk  MOU? Legally binding or not?  Accountable Body and Sub Contractor  Primary responsibility remains  Apportion service responsibility  Risk of default by subcontractor?

7. Collaboration: Joint Venture SPV JV Entity Charity A Member or Shareholder with right to appoint to board Charity B Member or Shareholder with right to appoint to board Charity C Member or Shareholder with right to appoint to board

8. New Entity  “Corporate” joint venture or “SPV”  Limited liability for members or shareholders  Governance issues  Business rates  Costs sharing, VAT and grouping – cost sharing exemption  Capital provision  Board appointment and other controls

9. Key Legal Issues  Assumption and management of risk – structures and contracts  Identifiable benefits, outputs or cost reduction  Management and decision making - process  Communication  Due diligence  Viability of partner  Employees and TUPE  VAT/Tax/Accounting  Legal and Financial  Culture?  Control  Exit

10. Merger – Structures  Overlapping board membership  strategic partnership but  potential conflicts of interest  Group structure  Parent /subsidiary  Full merger  One into another  New organisation  Other options – function swap

11. Group Structure* *assumes corporate structure Parent CharityTrading SubsidiarySubsidiary Charity

12. Structures - Group  Key Benefits  Isolation of risk  Benefit of simplicity  Governance  Issues  Benefits of integration  Confused reporting lines  “independent” trustee board  Unincorporated charities

13. Merge into new charity New Charity Charity ACharity B

14. One merges into another Charity A Charity B Charity A (+ B)

15. Structures – Full Merger  Benefits  Full integration?  Branding  Competitive environment  Issues  More extensive due diligence  Cost  Legal issues  Pensions  TUPE  Leases

16. Combination  Group structure followed by full merger or “hive up”  Control  Timing  Flexibility  “Independent” trustee board and managing conflicts of interest

17. Due Diligence  Asset risks  Consents? Landlords and other third parties  Income risks  Contracts  Consent of funders  New funders  Old funders – clawback  Past risks  Reputational risks  Data protection  Regulatory risks

18. Due Diligence – Staff Issues  TUPE  Varying the employment contract  Compromise agreements  Pensions  Union recognition and national terms  Self-employed, casuals and volunteers

19. Transfer Agreement  Transfer of Assets  Warranties  Indemnities  Intellectual property  Land  Assignment/Novation of contracts

20. Risk Management  Deal breakers  Due diligence is key  Confidentiality agreement  Heads of terms/MOU  Role of structure  Acts as a firewall  Role of the transfer agreement  Transfer of assets  Warranties  Indemnities

21. Post Merger  Just the beginning….  Integration and implementation  Mission protection  Retention, wind-up or strike off  Register of mergers  Insurance and claims  Ring fencing and restricted funds

22. Checklist  The starting point: inspiration, not desperation!  Be clear about the risks, and benefits you are seeking  Working in the spirit of partnership is key  Effective leadership is essential  People are the most important consideration  Process management is complex and time consuming  Independent facilitation can be highly cost- effective

23. Contact Details Andrew Studd Partner – Charity and Social Business Team 020 8394 6414 andrew.studd@russell-cooke.co.uk