Time To Re-Merge?

By Mike Scott and Sarah Chiappini (Charles Russell LLP)

Is it time to consider re-merging your school charity with its foundation?

It is not uncommon for the land and buildings of an independent school to be held by one charity – often referred to as a foundation – and for the school itself to be run by a separate school charity. The historical reasons for independent schools being structured in this way will of course vary. One such reason was that in the 1970s trustees were nervous of the Labour Government's attitude towards independent schools. Consequently, in order to protect the charity's assets, namely the land and buildings, the running and operating of the school was hived off to a separate organisation, with the land and buildings being retained by the original charity (the foundation).

The trustees of the foundation then granted a lease, usually at less than a market rent, to the new school charity in respect of the use of the land and buildings for the purposes of running and operating the school. In addition, the foundation often provided means-tested bursaries and scholarships to pupils attending the school.

Is it still expedient to operate as two separate charities?

While such a structure may have been appropriate 30 or 40 years ago, it would be prudent for the foundation trustees and the governors of the related school charity to review whether or not this is still the case. It could be that the best interests of both entities are served by operating as one charity. (In most cases a new charitable company (NewCo) is established to which the unrestricted assets, liabilities and undertakings of the school charity and the foundation will be transferred.) However, trustees might conclude that a re-merger would put the foundation assets at risk because of potential liabilities arising from the running of the school.

The rationale for operating as one organisation

Before proceeding with re-merging, the trustees of the foundation and the governors of the school charity must be satisfied that: (a) they have sufficient powers, and (b) it would be in the best interests of their respective organisations. So far as (b) is concerned, they might consider that a re-merger would be the right choice for the following reasons.

  1. By only having one operative charity the structure would be simplified, enabling greater transparency and public comprehension. The current structure may be difficult to explain to outsiders when fundraising...

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