Charity Law - Top five tips for considering collaborations

All collaborations between charities and NGOs will vary in some way, but there are certain common themes that are helpful to consider when contemplating collaborations or mergers. This article sets out my top five tips to bear in mind when thinking about collaboration.

Tip one – why are you doing this?

It is important to be clear about why the parties are choosing to collaborate so that there are clearly defined advantages before engaging with a process that can involve a lot of work and expense. Common reasons include: sharing overheads and therefore reducing each other’s costs; sharing expertise from two or more organisations to improve a charity’s offering; and working together to increase chances of appealing to potential funders or funding for certain projects.

Tip two – things to get right early

It is important to highlight potential pitfalls early on. In particular, how much will setting up the collaboration cost and will this figure be affordable? Is there a shared vision for the collaboration and do the parties want the same thing? Is it clear what each party is bringing to the venture? Is there clarity on how the project will be managed and by whom?

Addressing these questions from the outset means the parties can feel confident that they are doing the right thing. Equally, it can help organisations avoid wasting time where collaboration is not appropriate or affordable.

Tip three – form of collaboration

The parties need to examine what form the collaboration will take. For instance will it merely be an unwritten and informal alliance, a contractual joint venture, a special purpose vehicle (such as a new company or LLP) or a full merger? There are notable advantages and disadvantages of each.

While the informal arrangement may be the easiest to establish, it leaves the parties open to risk further down the line as there is no clear record of responsibilities and liabilities. Although a formal contractual agreement helps to avoid uncertainty over who does what, how and when, it does not limit liability for the parties in the same way as establishing a separate corporate entity. Of course, while a separate legal entity helps ring-fence the parties’ risk within that newly created entity, it comes with the burden of additional cost of establishment and ongoing administration. Additionally, by setting up a separate entity, the joint venture is likely to be more difficult to leave. A full merger clearly presents the most long term option and will likely represent the most costly process to implement, but one which may be the most appropriate if the organisations believe they would be stronger combined.

Tip four – key joint venture provisions

Even if the parties choose to set up a new entity, it is still likely that they will need to enter into an agreement to govern the running of that entity. Therefore, whether the collaboration is only by an agreement or a new entity and an agreement, it will be vital to set out each party’s responsibilities and duties. How long is the duration of the agreement? Who will pay what and when? How will liabilities be shared (for instance who would be liable for the cost of an employment tribunal action)? Where do the management and staff come from? What commitments will each party make to complying with data protection laws? How is the parties’ confidentiality protected? Is there a process for resolving disputes? How do the parties exit the collaboration in the future? If the collaboration ends, who will own the intellectual property and other assets?

Tip five – understand the process for collaboration

It helps parties to have a clear idea of how the collaboration process will work. It is advisable to quickly establish the team responsible for the collaboration, while ensuring there is a clear vision within that team for what the parties want to achieve.

The parties should then engage in exploratory discussions, while being mindful to protect each other’s confidential information. Where early conversations prove fruitful, it is common to establish a ‘heads of terms’, outlining key areas upon which the parties agree.

The next stage will be for parties to conduct their own due diligence. This has the objective of ensuring the organisations are compatible, such as having sufficiently similar charitable objects. At the same time it highlights relevant risks. For example an exercise might uncover that there is an ongoing Charity Commission investigation into one of the parties or learning of a party having insufficient safeguarding policies.

Finally, if the parties reach this stage they are more ready to embark on negotiating and executing a final agreement.