Often, in an effort to save money, clients come to their attorneys with a plan and simply ask them to “draft X.” Frequently, X isn’t the most appropriate solution. This case was one of those. The deal started out as an acquisition with the lawyer (me!) being kept at arm’s length when in fact more involvment early on would have quickly identified that this program was not a candidate for a full acquisition but rather a simple contractual arrangement.
Entering into a management agreement:
- Allowed programs to restart.
- Optimized existing contracts.
- Built community support.
- Allowed accurate knowledge of day-to-day needs.
- Facilitated practical knowledge of financial needs.
- Helped develop a new management model with transfer of contracts instead of acquisition.
- Time demands on agency leadership higher than expected “ needs to be considered.
- Switch from acquisition to management agreement took pressure off the other nonprofit’s board but added to delays.
- Started acquisition process when organization’s board, despite representations, was not really ready. Resulted in costly legal work that was ultimately unnecessary.
- Costs of management contract need to include necessary overhead above normal due diligence.
- Reluctance by board of nonprofit being acquired necessitated another option, which ended up working for everyone.
- Legal advice early on can save time and money in the long-run.
- Takeaway lesson: programs can be saved without complicated acquisition or merger.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.