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Nonprofit Merger Due Diligence Checklist

There comes a time in every nonprofit organization’s life span when the board of the organization decides whether it’s profitable to enter merging negotiations.

Merging of two nonprofit organizations can in most cases benefit both of them, enabling easier business conducting and a whole list of highlights and improvements.

Although some businessman finds merging as the last business resort, when it comes to nonprofit organizations it can solve serious operating issues such as being under-capitalized, cost reduction, operating on a higher nonprofit business level.

In most cases, by merging the two nonprofit organizations, both boards agree on dissolving the previous business and forming a new one.

The new board of directors will decide on whether there is a need for assets from the dissolved organizations.

Nonprofit Merger Due Diligence

Merging with another nonprofit could be very effective, but it is also crucial to conduct the right Due Diligence before entering the merging process.

By undergoing this process, the board will have a clear insight into the merging company’s items of interest, while it will also significantly improve the speed of the merging by providing the necessary documentation for a review.

The nonprofit merger Due Diligence should be done by thoroughly inspecting several important business categories and combining the knowledge acquired from each.

Nonprofit Merger Due Diligence Checklist

Listed below is a list of all the required items and documents needed for a detailed Nonprofit Merger Due Diligence:

Organizational Items

  • Organizational chart of the company, containing all the necessary business organization documents and Board of Directors of the company
  • Structural operating of the company audit, with the employee list and their tasks and benefits in the organization
  • Organization’s Article of Incorporation and all the required business permissions issued by the state where the company was founded and is doing business in
  • Business permissions issued by the states where the company is doing business in
  • Form 990 Review policy
  • Certificate of the company’s well standing
  • Copies of the annual reports of the company for each of the previous 3 business years
  • A list of the company's benefit policies
  • A complete organizational audit of the company including copies of previous audits and results, if conducted

Financial Items

  • A description of the company’s  financial control methods
  • Amortization methods that the company was using for the last 3 business years
  • The company’s annual estimated budget and expenses for the last 3 business years
  • A graphic showing contingent liabilities of the firm
  • Copies of all previously conducted financial audits of the company, in case they were conducted for the last 3 business years
  • A description of the company’s accounting methods and strategies
  • A list of the company's fixed and variable expenses for the last 3 business years
  • A description of the firm’s current credit and debt records included detailed information regarding transactions
  • Summary of the company’s investment policies including the comments of financial analysts
  • Copies of account standings of the organization for both federal and foreign bank accounts

Legal and Tax Items

  • Copies of the previously conducted legal audits for the review, if conducted during the last 3 business years
  • A list of all the legal permissions of the organization enabling it to operate both on the federal and foreign level
  • Summary of the legal auditor's comments regarding legal aspects of the company
  • Information regarding all existing and prior legal litigations and court processes that the company was involved in
  • Copies of all the company’s insurance rights and protocols, warranties and employee insurances
  • Copies of all the company's general, personal and product liability, worker compensations, and
  • Copies of all business contracts related to the current business operations of the company
  • A list of all the restrictions or termination rights of the company
  • Partnership agreement details for each of the company’s confirmed business partners
  • Business associates contracts with details
  • Copies of the contract details considering the company’s sales and services
  • Documentation of the company related tax information and tax-paying methods
  • A list of all federal and local tax returns with details
  • Company’s coordination with the state tax authority  information
  • Information regarding tax filings of the company’s employees
  • Tax forms 990 of the company

Human Resources Items

  • A copy of the full Employee list of the company including staff and Board of Directors information
  • A description of selective methods used when hiring employees for each position in the company
  • A description of methods used for choosing or promoting board members of the company
  • Employee status information of the firm, including bonuses, benefits, and insurance details
  • Copies of employee contract information for a review
  • Copies of the resumes of all relevant employees for key positions in the firm
  • Description of methods used for solving internal employee issues
  • Retirement plans that the company is applying
  • Description of sick leaves policies of the company

Real and Intellectual Property Items

  • List of all the company’s real estate or offices on lease or rent for review
  • Licenses and permits regarding material assets of the company
  • Organization’s logo or trademark details and legal protection information for each
  • Copies of all buyers agreements that the company has for the property it owns
  • An inventory list of all the company’s claimed property subjects
  • Copies of the official contracts for the firm’s real estate purchases
  • Environmental audits related to the location of the company’s property

Organizational Policy Items

  • Detailed information regarding a list of the company-applied policies in use
  • A copy of the company’s employee policies in use with details
  • A  copy of the company's governance-related policies for a review
  • Documentation regarding the company's investment and expenses policies
  • Document retention policies that the company is applying for a review
  • A copy of the company’s conflict of interest policies in use

Company’s Confidential Data Items

  • A copy and description of the company’s IT security and data security methods in use, including the details regarding security protocols
  • Copies and information regarding the organization’s data backups
  • Information regarding how often data backups were done
  • Description of the company’s data recovery methods, in case such confidential data was lost
  • A scheme of security codes held by employees on significant positions
  • A detailed report on the company anti-malware products usage
  • A list of all data-targeted attacks on the company for the previous 3 business years, if such an event occurred
  • Description of methods used in employee training for data security measures
  • Description of risk management methods applied in the company

Nonprofit Merger - the Finishing Touch

Conducting the effective Nonprofit Organization Merger Due Diligence is the only true way of understanding completely how the other Nonprofit Organization works. The categories of items listed above include some crucial points for a better understanding of the company's workforce, property items, financial well-standing and many others.

The legal aspect of the Due Diligence is meant to provide you with insurance that after the merging process is complete, no legal issues of the previous companies will follow the newly formed organization. Human resources and data security measures can also be the aspects of crucial importance for the organization of the newly formed company while providing important data on how the previous company was operating.

This list is only a first step of the Nonprofit Merger process and it will give you a clear starting point for merging into a successful company.

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Nonprofit Merger Due Diligence Checklist

There comes a time in every nonprofit organization’s life span when the board of the organization decides whether it’s profitable to enter merging negotiations.

Merging of two nonprofit organizations can in most cases benefit both of them, enabling easier business conducting and a whole list of highlights and improvements.

Although some businessman finds merging as the last business resort, when it comes to nonprofit organizations it can solve serious operating issues such as being under-capitalized, cost reduction, operating on a higher nonprofit business level.

In most cases, by merging the two nonprofit organizations, both boards agree on dissolving the previous business and forming a new one.

The new board of directors will decide on whether there is a need for assets from the dissolved organizations.

Nonprofit Merger Due Diligence

Merging with another nonprofit could be very effective, but it is also crucial to conduct the right Due Diligence before entering the merging process.

By undergoing this process, the board will have a clear insight into the merging company’s items of interest, while it will also significantly improve the speed of the merging by providing the necessary documentation for a review.

The nonprofit merger Due Diligence should be done by thoroughly inspecting several important business categories and combining the knowledge acquired from each.

Nonprofit Merger Due Diligence Checklist

Listed below is a list of all the required items and documents needed for a detailed Nonprofit Merger Due Diligence:

Organizational Items

  • Organizational chart of the company, containing all the necessary business organization documents and Board of Directors of the company
  • Structural operating of the company audit, with the employee list and their tasks and benefits in the organization
  • Organization’s Article of Incorporation and all the required business permissions issued by the state where the company was founded and is doing business in
  • Business permissions issued by the states where the company is doing business in
  • Form 990 Review policy
  • Certificate of the company’s well standing
  • Copies of the annual reports of the company for each of the previous 3 business years
  • A list of the company's benefit policies
  • A complete organizational audit of the company including copies of previous audits and results, if conducted

Financial Items

  • A description of the company’s  financial control methods
  • Amortization methods that the company was using for the last 3 business years
  • The company’s annual estimated budget and expenses for the last 3 business years
  • A graphic showing contingent liabilities of the firm
  • Copies of all previously conducted financial audits of the company, in case they were conducted for the last 3 business years
  • A description of the company’s accounting methods and strategies
  • A list of the company's fixed and variable expenses for the last 3 business years
  • A description of the firm’s current credit and debt records included detailed information regarding transactions
  • Summary of the company’s investment policies including the comments of financial analysts
  • Copies of account standings of the organization for both federal and foreign bank accounts

Legal and Tax Items

  • Copies of the previously conducted legal audits for the review, if conducted during the last 3 business years
  • A list of all the legal permissions of the organization enabling it to operate both on the federal and foreign level
  • Summary of the legal auditor's comments regarding legal aspects of the company
  • Information regarding all existing and prior legal litigations and court processes that the company was involved in
  • Copies of all the company’s insurance rights and protocols, warranties and employee insurances
  • Copies of all the company's general, personal and product liability, worker compensations, and
  • Copies of all business contracts related to the current business operations of the company
  • A list of all the restrictions or termination rights of the company
  • Partnership agreement details for each of the company’s confirmed business partners
  • Business associates contracts with details
  • Copies of the contract details considering the company’s sales and services
  • Documentation of the company related tax information and tax-paying methods
  • A list of all federal and local tax returns with details
  • Company’s coordination with the state tax authority  information
  • Information regarding tax filings of the company’s employees
  • Tax forms 990 of the company

Human Resources Items

  • A copy of the full Employee list of the company including staff and Board of Directors information
  • A description of selective methods used when hiring employees for each position in the company
  • A description of methods used for choosing or promoting board members of the company
  • Employee status information of the firm, including bonuses, benefits, and insurance details
  • Copies of employee contract information for a review
  • Copies of the resumes of all relevant employees for key positions in the firm
  • Description of methods used for solving internal employee issues
  • Retirement plans that the company is applying
  • Description of sick leaves policies of the company

Real and Intellectual Property Items

  • List of all the company’s real estate or offices on lease or rent for review
  • Licenses and permits regarding material assets of the company
  • Organization’s logo or trademark details and legal protection information for each
  • Copies of all buyers agreements that the company has for the property it owns
  • An inventory list of all the company’s claimed property subjects
  • Copies of the official contracts for the firm’s real estate purchases
  • Environmental audits related to the location of the company’s property

Organizational Policy Items

  • Detailed information regarding a list of the company-applied policies in use
  • A copy of the company’s employee policies in use with details
  • A  copy of the company's governance-related policies for a review
  • Documentation regarding the company's investment and expenses policies
  • Document retention policies that the company is applying for a review
  • A copy of the company’s conflict of interest policies in use

Company’s Confidential Data Items

  • A copy and description of the company’s IT security and data security methods in use, including the details regarding security protocols
  • Copies and information regarding the organization’s data backups
  • Information regarding how often data backups were done
  • Description of the company’s data recovery methods, in case such confidential data was lost
  • A scheme of security codes held by employees on significant positions
  • A detailed report on the company anti-malware products usage
  • A list of all data-targeted attacks on the company for the previous 3 business years, if such an event occurred
  • Description of methods used in employee training for data security measures
  • Description of risk management methods applied in the company

Nonprofit Merger - the Finishing Touch

Conducting the effective Nonprofit Organization Merger Due Diligence is the only true way of understanding completely how the other Nonprofit Organization works. The categories of items listed above include some crucial points for a better understanding of the company's workforce, property items, financial well-standing and many others.

The legal aspect of the Due Diligence is meant to provide you with insurance that after the merging process is complete, no legal issues of the previous companies will follow the newly formed organization. Human resources and data security measures can also be the aspects of crucial importance for the organization of the newly formed company while providing important data on how the previous company was operating.

This list is only a first step of the Nonprofit Merger process and it will give you a clear starting point for merging into a successful company.

FAQ

Can I change requests in this checklist or add new?

Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary due diligence information?

This nonprofit due diligence checklist was created by and for M&A professionals. It includes a comprehensive starting point for healthcare due diligence process. However, every deal is different and may require additional requirements and tasks.

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