Legal aspects of buying and selling membership associations

The nature of any deal to dispose of or take over a membership association will depend heavily on how it has been formed and how it is governed. Entities that we regularly deal with include Charitable Trusts, Unincorporated Associations, Companies Limited by Guarantee, and Charitable Incorporated Organisations (CIOs). It is essential to establish how any transfer of ownership can take place.

Some organisations are structured in a way that means transition cannot be done through the sale and purchase of shares, for example.  We have run a number of charity mergers, often achieved by change in members and reconstitution of boards of trustees, with a hive up of subsidiary assets taking place later.  Charities have to consider the needs of donors and legacies to ensure that, as a result of a merger, they do not negatively impact funding.

Like any organisation that is the subject of a commercial M&A, the target membership association will be constrained by a wide variety of regulations. Those interested in taking over such a group should recognise this. Regulatory obligations will vary depending on the legal structure, the sector within which the association operates, and the activities it engages in. Investors and those wishing to acquire or merge with a membership association should ensure they understand these regulatory burdens fully before committing to any deal.

In the UK, many membership groups, trade associations, and professional bodies operate as charities. Those running the organisation are subject to a whole range of duties set out in the Charities Act, 2022. Importantly, trustees of charities are obliged to act consistently with the organisation’s stated aims and in the interests of members. These restrictions can act as a barrier to change, hampering the kind of wholesale restructuring often associated with a merger or acquisition of a charitable entity. In addition, when merging or transitioning to new leadership, the agreement of the Charity Commission will often be required.

Non-charitable member associations are regulated by other bodies, including the Financial Conduct Authority, while professional bodies and trade associations may be subject to industry-specific legal frameworks. For acquirers, it is essential that appropriate steps are taken to ensure that all accreditations, licenses, and statutory approvals will survive post-completion.

Agreeing the value of the target association will involve looking beyond profit margins and other conventional markers of a business’s worth. Unlike most corporate vehicles, membership associations often plough profits back into member services, campaigns, or charitable activities. Consequently, the underlying value of the organisation will stem from branding, reputation across the sector, proprietary data, and how durable the group is viewed among members. 

Acquirers should expect to see clear records of more tangible assets, such as the key revenue streams, including subscriptions, publications, and income generated from events. Those disposing of the association will be required to produce data on membership growth trends and rates of membership renewal. In addition, any key strategic partnerships or relations with investors should be scrutinised to ensure they will, as far as possible, survive any transition to new leadership

Finally, acquirers must consider if their future growth strategy is compatible with the target entities’ core beliefs and ethos.

Staff in membership associations tend to be a mix of salaried employees, self-employed contractors, and freelance advisors, as well as volunteers. Consideration must be given to how any transition will impact them, and how the transition will be impacted by TUPE obligations and relevant employment laws and protections. Acquirers should obtain a detailed breakdown of future pension and other employee benefit obligations as well as any enhanced contractual benefits long-term staff may have built up. 

Associations, and other bodies such as charities, may also have extensive volunteer groups. While volunteering does not confer any strict employment rights or status, anyone acquiring the association should consider the role of volunteers within it. Could committed volunteers influence the direction of the association in future, and could this affect the acquirer’s freedom to operate the association post transition? Insurance coverage, costs of training, and health and safety obligations arising from volunteer activity should always be considered by the buyer before completion.

Privacy considerations will feature heavily in any disposition or acquisition of a membership association, not just from a purely legal angle, but from a reputational and financial risk perspective also.

By their nature, associations hold extensive personal data of members, stakeholders, and others. Some of this data will be highly sensitive, including professional qualifications, CPD training, and health information. Acquirers must be satisfied as to the nature and extent of data held and how it is processed. They should also be clear-sighted on whether their intended use of the data post-transition will be compliant with UK GDPR and compatible with the association’s aims and objectives. It is essential that member buy-in on how their data is used is secured. Breaches and use of personal data not sanctioned by members could undermine confidence in the organisation, resulting in wholesale cancelation of memberships and financial loss.

We have outlined just a selection of the legal and regulatory issues in relation to membership association ownership. We advise on these, and a wide range of related matters, including intellectual property and brand protection, contractual obligations with third parties, and any property issues that may arise.

At DMH Stallard, we understand the unique dynamics that exist when acquiring or disposing of an interest in membership associations and similar bodies. Our technical, legal, and regulatory expertise is widely recognised, and in these kinds of transactions we never lose sight of the unique cultural, charitable, and public service considerations that are often the key drivers in any transition to new ownership. For an initial conversation please get in touch.