What Are the Essential Steps for Merging or Amalgamating Two Charities in Canada?

Merging two charities can transform how your organization serves its community. When done right, a charity merger enhances your impact, reduces operational costs, and creates a stronger mission-driven entity.

However, the process involves careful planning and legal compliance. You need to understand Canada Revenue Agency (CRA) requirements, provincial regulations, and the specific steps that ensure a successful amalgamation.

This guide walks you through the essential steps for merging two charities in Canada. You'll learn how to navigate each phase, from initial discussions to final registration, while maintaining your charitable status and serving your beneficiaries effectively.

Step 1 – Drafting the Letter of Intent (LOI)

The Letter of Intent marks the beginning of your charity merger journey. This document establishes the foundation for your merger discussions and sets clear expectations between both organizations.

What Is a Letter of Intent for Charity Mergers?

A Letter of Intent (LOI) is a preliminary agreement that outlines your intention to merge with another charity. Think of it as a handshake agreement that happens before you sign any binding contracts.

The LOI isn't legally binding in most cases. Instead, it creates a framework for your negotiations and shows that both boards are committed to exploring the merger seriously.

Key Components to Include in Your LOI

Your Letter of Intent should cover several important elements:

Essential LOI Elements:

• Clear statement of intent – Specify that both charities intend to explore merging into one organization
• Confidentiality provisions – Protect sensitive financial and operational information during discussions
• Timeline expectations – Set realistic deadlines for due diligence, negotiations, and final decisions
• Preliminary terms – Outline basic conditions like which organization will be the successor entity
• Exclusivity period – Determine if both charities will pause other merger discussions during negotiations
• Good faith commitment – Establish that both parties will negotiate honestly and transparently

You should also include specific details about how you'll share information. This might involve access to financial records, donor lists, and operational documents.

Why the LOI Matters for Your Merger Success

The Letter of Intent serves multiple purposes in your merger process. It helps you identify potential deal-breakers early, before you invest significant time and money.

Your LOI also demonstrates to staff, volunteers, and stakeholders that the merger is a serious consideration. This transparency helps manage expectations and reduces uncertainty during the transition period.

Most importantly, the LOI protects confidential information. Without proper confidentiality agreements, sensitive data about your donors, finances, or programs could be exposed if the merger doesn't proceed.

Step 2 – Conducting Due Diligence

Due diligence is your opportunity to look under the hood of the other charity. This comprehensive review helps you identify risks, opportunities, and potential challenges before finalizing your merger.

What Is Due Diligence in Charity Mergers?

Due diligence means thoroughly investigating every aspect of the other organization. You're essentially asking: "Is this merger in our best interest?"

This process involves reviewing financial records, legal documents, operational procedures, and program effectiveness. You want to ensure there are no hidden liabilities or compliance issues that could jeopardize your charitable status.

Think of due diligence like inspecting a house before you buy it. You wouldn't purchase property without checking the foundation, plumbing, and electrical systems.

Key Areas to Review During Due Diligence

Your due diligence process should cover these critical areas:

Financial Review:

• Review the last 3-5 years of audited financial statements
• Examine current assets, liabilities, and debt obligations
• Analyze revenue sources and fundraising trends
• Check for any outstanding loans, liens, or financial commitments
• Verify restricted fund balances and donor agreements

Legal and Regulatory Compliance:

• Confirm active charitable registration with the CRA
• Review annual T3010 filings for accuracy and timeliness
• Check compliance with provincial incorporation laws
• Examine any past CRA audits or compliance issues
• Verify proper corporate governance documentation

Operational Assessment:

• Review employment contracts and collective agreements
• Examine lease agreements and property holdings
• Assess insurance coverage and claims history
• Evaluate technology systems and data management
• Review vendor contracts and ongoing commitments

Program Effectiveness:

• Analyze program outcomes and impact metrics
• Review beneficiary feedback and satisfaction data
• Assess alignment with your charitable objects
• Evaluate program costs and efficiency

Governance Structure:

• Review bylaws, policies, and board minutes
• Assess board composition and expertise
• Examine conflict of interest policies
• Review risk management procedures

Who Should Conduct Due Diligence?

You have two main options for conducting due diligence. Some charities handle this process internally using board members and senior staff.

However, hiring external professionals often provides better results. Research shows that 80% of successful charity mergers involve third-party consultants or lawyers during due diligence.

External professionals bring objectivity and expertise. They know what red flags to look for and can identify issues that internal teams might overlook or downplay.

Consider hiring a charity lawyer to review legal documents and compliance matters. An accountant can analyze financial statements and identify potential liabilities.

Step 3 – Negotiating and Drafting the Merger Agreement

The merger agreement transforms your intentions into a legally binding contract. This document determines how your merged charity will operate and who will lead it.

What Is a Charity Merger Agreement?

A merger agreement is the formal contract that outlines every detail of your amalgamation. Unlike the Letter of Intent, this document is legally binding once both boards sign it.

Your merger agreement serves as the blueprint for your new organization. It addresses governance, finances, programs, staff, and the legal structure of the merged entity.

This document protects both charities by clarifying expectations and responsibilities. It also provides a roadmap for integration after the merger becomes official.

Essential Elements of the Merger Agreement

Your merger agreement should include these critical components:

Governance and Leadership:

• Specify the board composition of the merged organization
• Identify executive leadership positions and appointments
• Define roles and responsibilities for the transition period
• Establish decision-making processes and voting procedures
• Set term limits and succession planning

Financial Arrangements:

• Detail how assets will be transferred and combined
• Address assumption of liabilities and debts
• Specify treatment of restricted funds and endowments
• Outline budget allocation for the first operational year
• Define financial reporting requirements

Programs and Services:

• Describe which programs will continue, expand, or close
• Establish service delivery standards and benchmarks
• Define geographical service areas
• Set timelines for program integration
• Address beneficiary communication and support

Staff and Human Resources:

• Clarify which positions will be retained or eliminated
• Specify compensation and benefits for merged staff
• Address seniority rights and collective agreements
• Define severance terms if positions are eliminated
• Outline staff orientation and training plans

Legal Structure:

• Name the successor organization
• Specify which charity will dissolve
• Define the legal status (federal or provincial incorporation)
• Address intellectual property and branding
• Include dissolution provisions if the merger fails

The Role of Charity Lawyers in Merger Agreements

You should work with an experienced charity lawyer to draft your merger agreement. Charity law in Canada involves complex regulations that vary by province.

Your lawyer ensures the agreement complies with federal and provincial requirements. They also help negotiate terms that protect your charity's interests and mission.

Both charity boards must review and approve the final agreement. This often involves multiple revisions as you negotiate specific terms and address concerns from stakeholders.

Step 4 – Filing the Articles of Merger

Filing the Articles of Merger makes your amalgamation official. This legal filing creates your new organization and dissolves the predecessor entities.

What Are Articles of Merger?

Articles of Merger are the official documents you submit to government authorities to legally complete your merger. These documents formalize the amalgamation and create a single legal entity.

In Canada, you file these articles with either Corporations Canada (for federally incorporated charities) or your provincial corporate registry (for provincially incorporated charities).

Steps to File Articles of Merger in Canada

Follow these steps to file your Articles of Merger:

Step 1: Determine Your Filing Jurisdiction

Identify whether you're dealing with federal or provincial incorporation. If one charity is federal and the other is provincial, you'll need to harmonize the incorporation before merging.

Step 2: Prepare Required Documents

Gather all necessary documentation:

• Completed Articles of Merger form
• Copy of your approved merger agreement
• Board resolutions authorizing the merger
• Updated bylaws for the merged organization
• Filing fees (varies by jurisdiction)

Step 3: Submit to the Appropriate Authority

File your documents with Corporations Canada or your provincial registry. Most jurisdictions now accept electronic filing, which speeds up processing time.

Step 4: Notify the Canada Revenue Agency

Inform the CRA about your merger within 30 days. You need to update your charitable registration information and request any necessary changes to your registration number.

The continuing charity typically retains its registration number. The dissolving charity's registration is revoked, but its charitable property must transfer to the continuing charity.

Step 5: Update Public Records

Update your charity's information with:

• Financial institutions (bank accounts, investments)
• Government agencies (GST/HST registration, payroll accounts)
• Insurance providers
• Landlords and property managers
• Major donors and funders
• Service providers and vendors

Legal Recognition and Compliance

Once your Articles of Merger are approved, your new organization becomes the legal successor. This means you assume all rights, obligations, and property of both predecessor charities.

You must maintain proper records of the merger. Keep copies of all documents, board minutes, and correspondence related to the amalgamation.

Your merged charity must also continue filing annual returns with the CRA. Ensure your first T3010 filing after the merger accurately reflects the amalgamation and combined financial information.

Additional Considerations for Canadian Charity Mergers

Beyond the four main steps, you need to address several important considerations during your merger process.

CRA Requirements and Charitable Registration

Maintaining your charitable registration is critical throughout the merger process. The CRA must recognize your merged organization as a qualified donee to issue tax receipts.

You should contact the CRA early in your planning. Explain your merger intentions and ask about specific requirements for your situation.

The continuing charity retains its registration, while the dissolving charity transfers all property to the successor. This transfer must happen at fair market value, and you need proper documentation.

Important CRA Considerations:

• Ensure your charitable objects remain compliant after merging
• Maintain the 80/20 rule for related business activities
• Update your official charity name and contact information
• Continue filing T3010 returns on time
• Preserve donation records from both predecessor charities for at least two years

Stakeholder Communication Strategy

Your merger affects many people beyond your boards. You need a clear communication plan for donors, staff, volunteers, and beneficiaries.

Donor Communication:

Inform your donors about the merger before it becomes public. Explain why you're merging and how it will enhance your mission.

Assure donors that their restricted gifts will be honoured. Provide clear information about how tax receipts will be handled going forward.

Staff and Volunteer Engagement:

Your employees and volunteers need early notification. Be transparent about potential position changes and the timeline for integration.

Provide opportunities for staff to ask questions and express concerns. Consider forming integration teams that include members from both organizations.

Beneficiary Support:

Your program participants need reassurance that services will continue. Explain any changes to service delivery, locations, or contact information.

Provide transition support to help beneficiaries adjust to new procedures or staff. Maintain quality standards throughout the merger process.

Timeline Expectations for Your Merger

Charity mergers typically take 6-18 months from initial discussions to final integration. Complex mergers involving large organizations or significant assets may take longer.

Typical Merger Timeline:

Your timeline depends on several factors. These include the size and complexity of both organizations, regulatory requirements, and stakeholder approval processes.

Build buffer time into your schedule. Unexpected issues often arise during due diligence or negotiations that extend your timeline.

Common Challenges in Charity Amalgamation

Every merger faces obstacles. Understanding common challenges helps you prepare solutions in advance.

Cultural Differences Between Organizations

Each charity has its own culture, values, and way of operating. These differences can create friction during integration.

You might discover that one organization has a hierarchical structure while the other operates collaboratively. Staff from each charity may resist adopting the other's practices.

Solution: Create integration teams with members from both organizations. Develop a shared vision and values statement that honours both legacies while creating something new.

Board and Staff Resistance

Change creates anxiety. Some board members or staff may oppose the merger because they fear losing their positions or influence.

Others may believe their charity is superior and shouldn't compromise with the other organization. This attitude undermines collaboration and trust.

Solution: Involve stakeholders early in the planning process. Listen to concerns and address them transparently. Show how the merger benefits the mission, not just the organizations.

Financial Complications

You might discover unexpected liabilities during due diligence. One charity may have significant debt, unfunded pension obligations, or restricted funds that limit flexibility.

Financial mismatches can also occur when one charity is financially strong and the other is struggling. This imbalance creates questions about fairness and benefit.

Solution: Address financial issues directly in your merger agreement. Consider phased integration that allows time to resolve financial challenges. Seek professional financial advice to structure the merger fairly.

Regulatory Hurdles

Navigating federal and provincial regulations adds complexity to your merger. You need to comply with corporate law, charity law, employment law, and tax regulations.

Mistakes in filing or documentation can delay your merger or jeopardize your charitable status. Some provinces have specific requirements that differ from federal rules.

Solution: Hire experienced charity lawyers and accountants. Don't try to save money by handling complex regulatory matters internally. Professional guidance prevents costly mistakes and delays.

When to Seek Professional Legal Assistance

You should consider hiring a charity lawyer if your merger involves any of these factors:

Complexity Indicators:

• Combined annual revenue exceeds $500,000
• Either charity owns significant real property
• Pension plans or complex benefit arrangements exist
• Collective bargaining agreements cover employees
• The charities operate in different provinces
• Significant restricted endowments or funds exist
• Past CRA compliance issues or audits occurred
• Complex program integration is required

Benefits of Working with Charity Law Specialists

Charity lawyers understand the unique requirements of nonprofit amalgamations. They know how CRA interprets charity law and can help you avoid common pitfalls.

Your lawyer drafts agreements that protect your interests while complying with regulations. They also help negotiate terms that might be contentious between the boards.

Professional legal assistance often saves money in the long run. Fixing mistakes after your merger is complete costs far more than preventing them during the planning phase.

What Charity Lawyers Provide During Mergers

A charity law specialist offers comprehensive support throughout your merger:

• Reviewing and advising on your Letter of Intent
• Conducting legal due diligence on the other charity
• Drafting your merger agreement with appropriate protections
• Preparing and filing Articles of Merger
• Communicating with the CRA on your behalf
• Reviewing employment matters and staff transitions
• Ensuring compliance with all federal and provincial requirements
• Providing post-merger support for integration issues

Your lawyer becomes a trusted advisor who guides you through complex decisions. They help you anticipate problems and create solutions before issues arise.

Moving Forward with Your Charity Merger

Merging two charities represents a significant commitment to enhancing your mission and impact. The process requires careful planning, legal expertise, and thorough attention to CRA compliance requirements. When you follow these essential steps and seek professional guidance, you create a foundation for a successful amalgamation that serves your beneficiaries and strengthens your charitable purpose.

If you're considering merging your charity or need guidance on the amalgamation process, B.I.G. Charity Law Group is here to help. Our experienced charity lawyers understand the complexities of Canadian charity law and can guide you through every step—from drafting your Letter of Intent to filing Articles of Merger and ensuring CRA compliance. Contact us today at 416-488-5888 or email dov.goldberg@charitylawgroup.ca to discuss your merger plans.

Ready to explore how a charity merger could benefit your organization? Schedule a FREE consultation with our charity law specialists. Visit CharityLawGroup.ca to learn more about our services and how we help Canadian charities navigate mergers, amalgamations, and other legal matters with confidence.

Frequently Asked Questions About Charity Mergers in Canada

How long does it take to merge two charities in Canada?

Most charity mergers take 6-18 months from initial discussions to complete integration. The timeline depends on organizational complexity, regulatory requirements, and how quickly you complete due diligence and negotiations.

Do both charities lose their charitable registration during a merger?

No. The continuing charity retains its CRA registration number, while the dissolving charity's registration is revoked. All charitable property must transfer to the continuing charity to maintain tax-exempt status.

What is the difference between a merger and an amalgamation?

In Canadian charity law, these terms are often used interchangeably. Both describe combining two organizations into one legal entity. The continuing charity assumes all assets, liabilities, and operations of both predecessor charities.

Can federally registered charities merge with provincially registered charities?

Yes, but the process is more complex. You typically need to harmonize the incorporation (both federal or both provincial) before completing the merger. This adds time and legal complexity to your amalgamation.

What happens to donors' tax receipts after a charity merger?

The continuing charity issues all future tax receipts using its registration number. Past donations remain valid, and donors continue receiving receipts for ongoing contributions. You must maintain donation records from both predecessor charities.