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Combining the operations of two or more existing associations into one can potentially achieve significant efficiency and effectiveness when compared with the associations operating separately, In particular, the promise of focusing members' dues dollars and volunteer service toward only one entity may be attractive enough in itself to compel the merger or consolidation. The merger or consolidation of associations must be considered seriously and resolutely. The personal legal risk to members of governing boards that are not careful in the effort can be considerable. State law requirements explicitly detail certain procedures that must be followed. Beyond those requirements, merger or consolidation of associations involves many other areas of the law, such as trademark, labor, tax, and many more, with pitfalls in each area for the unwary.

Combining the operations of two or more existing associations into one can potentially achieve significant efficiency and effectiveness when compared with the associations operating separately, In particular, the promise of focusing members' dues dollars and volunteer service toward only one entity may be attractive enough in itself to compel the merger or consolidation. As many as three or more associations have undertaken such combinations, although the practical and legal complexities clearly multiply with increased participants.

Due to such complexities, the merger or consolidation of associations must be considered seriously and resolutely. The personal legal risk to members of governing boards that are not careful in the effort can be considerable. State law requirements explicitly detail certain procedures that must be followed.

Beyond those requirements, merger or consolidation of associations involves many other areas of the law, such as trademark, labor, tax, and many more, with pitfalls in each area for the unwary. Following are some key actions to consider.

Formalizing initial agreement on preliminaries

Immediately upon consideration of a possible association merger or consolidation, whether in discussions among the volunteer leadership or the staff executives of the involved groups, attention must be paid to the legal ramifications of the discussions. It is advisable for the involved parties to draft a written agreement, perhaps through an exchange of signed letters, on several preliminary but important legal matters, including

* assurance of confidentiality of all information exchanged between the associations;

* specification of exclusive agents and spokespeople for each of the two or more associations;

* assignment of responsibility for any costs incurred during the period of consideration (i.e., expenses for informational meetings, engagement of consultants, and so forth), often through equal sharing of those costs;

* requirement of mutual consent for any joint action, such as conducting studies or engaging experts; and

* a shared understanding that neither association incurs, by virtue of the discussions, any obligation to ultimately agree to the merger or consolidation.

Planning the structure

As soon as the initial agreement is in place, efforts should be made to survey and evaluate the range of possible legal structures for the merged or consolidated association. It is likely that alternatives for restructuring will vary in their ability to maximize the efficiency and effectiveness of the new organization. For example, thorough study and deliberation may indicate that the new association will be most effective if bifurcated into two entities. An educational organization that is tax-exempt under section 501(c)(3) of the Internal Revenue Code might be responsible for all meetings, publications, and other combined and surviving educational endeavors, while a separate section 501(c)(6) trade, professional, or other association might exist only for purposes of government and public affairs, joint constituencywide marketing, and other typical association activities. Various nonprofit or for-profit subsidiaries also may be warranted depending on the circumstances.

Ensuring effective legal representation

Merger and consolidation are legal processes; significant assistance from attorneys is necessary. It is possible-even likely-that each of the associations considering a merger or consolidation has already contracted for outside or inside legal counsel. In the case of a potential merger or consolidation, it is imperative that counsel for all combining organizations work closely together. In some cases, it may be best to jointly engage additional counsel with expertise in mergers and consolidations to bear major responsibility for coordinating the legal aspects of the merger and to ensure objectivity and neutrality.

Arranging the approvals and filings

State law varies on the requirements imposed on mergers and consolidations of nonprofit corporations, such as associations. Requirements for nonprofit corporations in the District of Columbia, which are typical of those in other states, include the following actions:

* Approve a plan. The governing board of each combining nonprofit corporation must approve a plan of merger or consolidation by a majority vote of each board. Among other things, the plan must include the names of the combining and resulting corporations, the terms of the merger or consolidation, and the changes in the articles of incorporation.

* Submit the plan. The plan of merger or consolidation must be submitted for approval at a meeting of voting members of each nonprofit corporation for which the combination will dictate organizational change or dissolution, with notice provided in advance and with members approving by a twothirds vote.

* Execute the articles. Articles of merger or consolidation must be executed by each nonprofit corporation. The articles must include the plan of merger or consolidation, details of members' approval, and so forth, and must be delivered for approval by the state government (in this case, the District of Columbia).

Once the articles of merger are approved, the surviving nonprofit corporation persists and the other is automatically dissolved; the surviving organization automatically owns all property of the former two and is responsible for all debts of both. In a consolidation, both original nonprofit corporations are automatically dissolved and a new corporation comes into existence by virtue of the consolidation filing; it succeeds to the property, obligations, and debts of the original two.

If one of the merger or consolidation partners was incorporated in a state other than the one in which the surviving or resulting association will be incorporated, then it must also take steps to comply with the merger or consolidation laws of its state.

Taking other legal steps

Beyond the legal steps directly related to the merger or consolidation process, many other measures are relevant to a combination of nonprofit organizations. Following are a few of the most common actions:

* securing trademark protection for the resulting association's name, acronym, program titles, slogans, and so forth;

* obtaining or perpetuating federal income tax exemption;

* continuing or transferring employee benefit plans;

* notifying parties to contracts for insurance, meetings, technology implementation or support, and other similar services;

* ensuring that owned or rented realestate interests are perpetuated or transferred; and

* merging human resources policies and manuals.

In short, a merger or consolidation is one of the most complex and important legal transactions that any association will ever undertake. Careful planning and attention to detail is essential and will help ensure that the combination is successful.