Mergers and Liquidation

Some registered organizations come to an end, for better or for worse, due to a number of reasons, by way of merger or liquidation.

A public benefit company can only be merged with another public benefit company, while associations with other associations. Though the term is merger, practically it would be better described as absorption, as necessarily one organization is merged into the other.

Organizations choose this path typically when they have similar or overlapping activity and may operate more efficiently as one enterprise, brand, and legal entity. Often one organization is unsuccessful in maintaining itself or fails to recruit ample funds, and will then be absorbed into a greater organization that will provide for the former organization as a project or department.

The process is in principle to transfer all assets into the absorbing organization. There is always one organization being merged into another organization, that would keep its official name, number and objectives, etc.

Nonprofits may be liquidated by their own intent (whether donating assets and operations to another organization without technically being merged with it or simply dispersing) or against their intent by a court order (typically because of debt and/or allegations of mismanagement).

In order to dismantle by intent, the organization must follow the following steps:

• Decision by General Assembly to dismantle and appointment of liquidator, usually a lawyer, to liquidate assets and report to the Corporations Authority. The General Assembly would also confirm the affidavit in the next clause.

• Reporting by signing of an affidavit by majority of board members, confirmed by lawyer, that the organization is not in debt nor under any allegations and that the organization is inactive for 4 years (financially and otherwise), and thus eligible to dismantle. This would be submitted along with annual financial reports confirming financial inactivity, confirmation of closure of bank accounts, proof of payment of annual registration fee to the Corporations Authority or a standardized affidavit for exemption due to inactivity.

• Publicizing after the Corporations Authority confirms the eligibility of the organization to dismantle. A notice of the liquidation will be published in two press outlets (for example, an advertisement in a small newspaper - this measure is outdated but still preserved, based on the notion that a nonprofit is a public organization, and the public must know) by the organization itself, while the Corporations Authority will give notice in the official journal of legal measures under the Ministry of Justice (‘Reshumot’).

It is worth noting that there are thousands of ‘skeleton’ inactive registered inactive organizations, with no financial activity and no bank accounts, collecting dust so to speak, paying no bills, receiving no income, etc. Though this is not recommended, it is practically possible to shut down the organization but let it remain registered, until one day in the future shake off the dust and revive it’s activity, although difficulties will likely arise due to inability to retrieve old members to sign protocols and make the relevant changes of renewal. The annual registration fee can be avoided if utter inactivity is proven.

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