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Tips and Answers
to Your Questions
Implementing a Partnership
What is a legal merger?
Legally, a merger between nonprofits can be implemented in several
ways. The first is sometimes known as "merger by dissolution into." Here
you dissolve one of the corporations (known legally as the disappearing
corporation) into the other (the surviving corporation). This means
that the disappearing corporation leaves all of its assets and liabilities
to the other.
A second option is to simply dissolve one corporation, as if it were
going out of business. Federal law dictates that no individual can
benefit from the proceeds of a nonprofit 501(c)(3) organization, even
in dissolution. Moreover, most state law, based on the common law doctrine
of Cy Pres, provides that in the case of the dissolution of a nonprofit
corporation, any remaining assets must be transferred to a nonprofit
that is similar in mission. This could be the merger partner.
A third option often appears at first to be the most reasonable, but
is in fact usually the least desirable method to achieve merger. This
approach has both corporations dissolving into a new third corporation.
For advantages and disadvantages of each of these options, and more
information, please see our tip: Which
Organization Should "Dissolve" in a Merger?.
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