By Jacob Ferrari, The Apex Law Group PLLC
The nonprofit sector is under pressure. Government funding cutbacks,¹ foundation consolidation, and donor fatigue have created a landscape where many organizations are stretched thin, doing more with less, and losing ground in the process. At the same time, funders are demanding measurable impact and operational efficiency at levels that smaller, siloed organizations increasingly struggle to meet. The status quo is not neutral. Fragmentation has real costs to mission delivery.
Yet despite all of this, the sector has been slow to embrace one of the most powerful tools available: organizational combinations. Where the for-profit world treats mergers and acquisitions as signals of strategic strength and growth, nonprofits have historically viewed them as admissions of failure or something you do when you’ve run out of options. That narrative needs to change.
1. The Problem Isn’t Too Little Money. It’s Too Many Mouths
The funding problem facing nonprofits is real, but it’s often misdiagnosed. The issue isn’t simply that there isn’t enough money; it’s that the same pool of dollars is being divided across too many organizations. The result is a sector populated by under-resourced entities that individually lack the capacity to deliver durable, scalable impact. Concentrated resources produce stronger organizations. Stronger organizations produce greater impact. Same dollars, fewer organizations, better outcomes.
The narrative problem compounds this. In the for-profit world, a merger is an investment opportunity, a signal of strategic positioning. In the nonprofit world, it carries a stigma: institutional failure, mission loss, organizational surrender. This framing is both inaccurate and harmful. A merger that rescues two struggling organizations and doubles their collective impact is a success story, not a failure. The sector needs to learn to tell it that way.
2. Three Tools for Collaboration
Not all combinations look the same. There is a spectrum of options, each designed for different circumstances and goals.
Affiliations (Parent-Subsidiary)
An affiliation occurs when one nonprofit becomes the sole member of another, creating a parent-subsidiary relationship. Both entities remain legally separate, but the parent holds governance rights and oversight authority over the subsidiary. Key advantages include:
- Each nonprofit retains its own identity, mission, staff, and donor relationships
- Shared operations can reduce administrative costs
- More flexible than a merger and easier to restructure or unwind if needed
- Can serve as a stepping stone toward deeper integration
The tradeoffs are real. Dual boards create governance complexity, and ongoing separate legal and compliance obligations remain for both entities. But for organizations that want coordination without full consolidation, an affiliation can be an effective starting point.
Asset Transfers
An asset transfer moves specific programs, funds, property, or staff from one nonprofit to another. The transfer can be partial or complete, and the transferring organization may dissolve or continue with a narrowed mission. This structure offers surgical precision (you transfer only what makes sense). Key considerations include:
- Liabilities do not transfer automatically and must be addressed separately through thorough due diligence2
- Restricted asset transfers may require court approval or Attorney General involvement⁴
- Government grants and contracts may have change-of-control or assignability restrictions
- Dissolution of the transferring nonprofit may disrupt key stakeholder relationships
Asset transfers work well when only a portion of an organization’s work is being combined, or when a clean wind-down is the goal.
Mergers and Consolidations
A merger combines two nonprofits into one. In a merger, one organization absorbs the other; in a consolidation, both dissolve and form an entirely new entity. All assets, liabilities, and contracts transfer automatically. This is the most comprehensive and most complex path. Benefits include:
- Full consolidation of resources, staff, programs, and mission
- Elimination of duplicate administrative overhead
- Single unified governance structure
- Strongest signal to funders of organizational commitment and strategic efficiency
- Greater fundraising capacity and community profile
The risks are also significant: cultural integration challenges, potential loss of restricted gifts tied to the dissolving entity, and substantial due diligence requirements to avoid inheriting unknown liabilities. Mergers are difficult to unwind if they fail. That is precisely why robust planning is essential.
3. What Good Planning Looks Like
Regardless of which path an organization chooses, the quality of the process determines the quality of the outcome.
Strategic Assessment
Before any combination moves forward, leadership should evaluate: Are the organizations’ missions compatible or complementary? Are you combining strength with strength, or absorbing a struggling entity without a plan? Are the staff cultures and board dynamics compatible? Does this advance your mission better than going it alone?
Legal Due Diligence
Due diligence is not optional. At a minimum, organizations should review:
- Corporate records: articles of incorporation, bylaws, board minutes
- Restricted asset inventory and gift agreement terms
- Government and private grant compliance, including assignability and change-of-control provisions
- Employment liabilities: contracts, PTO accruals, severance obligations, workers’ compensation claims
- Real property and lease obligations
- Pending or threatened litigation and contingent liabilities
- Tax-exempt status and compliance3 and state charity registration status
- Intellectual property: trademarks, program names, proprietary materials
Washington-Specific Requirements
In Washington State, the Nonprofit Corporation Act (RCW 24.03A) governs the process. Organizations should understand Attorney General notice requirements, Secretary of State filing obligations (including Articles of Merger), and IRS considerations such as EIN retention versus issuance, Form 990 obligations for the year of merger, and the impact on the public support test.
Governance and the Human Element
Governance planning—board composition, leadership succession, reserved powers, and transition timelines—requires the same rigor as legal due diligence. So does the human side: staff retention strategies, transparent communication with employees, harmonized HR policies, and volunteer and community relationship management. Many combinations that look good on paper fail in the integration phase because the cultural and human dimensions were underestimated.
4. A Call to the Field
Boards have a fiduciary duty not just to their organization’s mission, but to its viability. That means mergers and collaborations must be on the table as legitimate strategic options and evaluated proactively, not when a crisis forces a rushed and poorly structured decision.
The case for proactive collaboration is compelling. Organizations that combine resources can serve more beneficiaries with fewer administrative dollars, build stronger platforms for fundraising and advocacy, attract and retain mission-driven talent, and create entities resilient enough to weather economic disruption. Funders are increasingly recognizing this, with grant programs specifically designed to support collaboration feasibility and transaction costs.4
Washington State provides a workable statutory framework for mergers. Use it before you need it.
References
¹ National Council of Nonprofits. Nonprofit Leaders: Federal Funding Cuts are Driving Service Disruptions and Harming Communities Across the Country. 2026. https://www.councilofnonprofits.org/pressreleases/nonprofit-leaders-federal-funding-cuts-are-driving-service-disruptions-and-harming
2 See RCW 24.03A.900 et seq. (Washington Nonprofit Corporation Act, provisions governing asset transfers and dissolution).
3 IRS. Compliance Guide for 501(c)(3) Public Charities. https://www.irs.gov/pub/irs-pdf/p4221pc.pdf
4 Lodestar Foundation. Exceptional Grants. https://www.lodestarfoundation.org/site/exceptional-grants/#1594763437346-3dd7b4a3-9ba7
This article is for general information purposes only and should not be relied upon as specific legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. If you have any questions or would like to learn more, please contact us at jacob@apexlg.com or visit our blog.
By Jacob Ferrari, The Apex Law Group PLLC
Jacob Ferrari is a partner at The Apex Law Group, PLLC. His primary practice works with nonprofits at every growth stage which includes formation, application for tax exemption, board governance, and corporate exit plans. He regularly speaks and serves on committees effecting the nonprofit community and works to better the nonprofit regulatory environment. Jacob is inspired by nonprofit organizations, their impact, their leadership, and their passion. His goal is to care for his clients as much as his clients care for the community around them.
When not in the office, Jacob serves as an elder at his church and immerses himself in the wide world of J.R.R. Tolkien and middle earth. When at home, he enjoys spending time with his wife, Noelle, his daughter, Elizabeth, and his son, Asher.