Law & Policy: Essential Association Merger Docs

by Laurie Janik

A merger is the union of two or more corporations into one, known as the surviving corporation. Once a merger is complete, the merging corporations cease to exist and the surviving corporation assumes the assets and liabilities of all of the corporations that are parties to the merger.

Mergers are a statutory procedure, so the relevant state statute must be followed. The process will vary by state, so it is important to involve legal counsel early in the process. Even though the merging associations have a common goal, their interests may at times diverge and it is therefore prudent for each association to be represented by its own counsel.

A number of legal documents are needed to bring about a merger of two or more REALTOR® associations. Three of the most common: a confidentiality agreement, the plan of merger, and the articles of merger.

Document 1: Confidentiality Agreement

The purpose of this agreement is to address the fact that merger discussions will be taking place and that those talks will involve sharing sensitive information, such as financials, strategic plans, budgets, membership records, and staffing needs. The agreement should be drafted and executed once the parties to a potential merger achieve conceptual buy-in to proceed with merger discussions from each association’s board of directors.

Naturally, confidentiality agreements must specify what information needs to be kept confidential and should identify by name those individuals who are permitted to see the confidential information (limited to those involved in the evaluation and negotiation process) and prohibit disclosure to anyone else. Confidentiality should cover all of the information disclosed by the associations to each other in the course of the merger negotiations, whether that disclosure is oral, written, or in some other tangible form. The agreement could even include the fact that the merger discussions are occurring at all. The agreement should prohibit the parties from adopting or adapting the other party’s information for its own use and provide for the return or the destruction of the information at the direction of the association that provided the information. The confidential information should be protected from disclosure for as long as the information is considered confidential or proprietary by the association that provided it.

Document 2: Plan of Merger

This document sets forth the terms of the proposed merger. It is drafted after the preliminary negotiations have taken place. It should identify each association involved and specify which of those associations will be the surviving association. The name selected for the surviving association could be its original name, the name of another of the merging associations, or an entirely new name.* The document should address governance matters, such as the identity of the officers and directors of the surviving association. Any changes to the articles of incorporation and/or bylaws of the surviving associations should be spelled out. Other terms and conditions of the merger should be included.
The draft plan of merger is then submitted to the board of directors of each merging association for approval. The board of directors should adopt a resolution approving the plan and directing that it be submitted to the members for a vote at the annual meeting or at a special meeting called for this purpose.

Document 3: Articles of Merger

This document attests to the approval of the merger plan. It is executed by each of the merging associations once the boards of directors and members of the merging associations have approved the plan.

Typically, articles of merger must set forth the names of each corporation, the plan of merger, and a statement as to how the plan was adopted. Your state’s secretary of state may provide a form of the articles of merger to be completed.

Articles of merger are then filed with the secretary of state’s office. If the paperwork is all in order, a certificate of merger is issued by the secretary of state to the surviving corporation. Once this process is complete, the associations that were parties to the plan of merger become one single corporation and the separate existence of the corporations, except for the surviving corporation, ceases.

The final step for newly merged associations is notifying the NATIONAL ASSOCIATION OF REALTORS® of the merger. This is accomplished by completing and submitting the Application for Merger, available on (search “application for merger”).

* If a new name is selected, the name change must be approved by the NATIONAL ASSOCIATION OF REALTORS®.

Risk Mitigation: Mergers & Antitrust

If merging associations have or appear to have anticompetitive motivations, such as wanting to limit the choices of where prospective members can join, they may violate state and federal antitrust laws.

In fact, you should always be alert to antitrust concerns when the merger or consolidation results in an increase in dues or service fees. These concerns, however, can be mitigated if the association can demonstrate that

  • A nearby association charges lower prices for similar services.
  • An independent association can still enter the market.
  • The association would have had to raise its fees anyway.
  • One of the associations would be forced to dissolve unless the merger occurred.
  • A large majority of members are in favor of the increased fees.

Reasons that don’t raise antitrust concerns include the associations’ desire to deliver services more efficiently, be more effective in such activities as lobbying, reduce overhead and other costs, make more services available to members, and provide new services together that neither party had been able to provide.

Documents & Resources: Expanded Document Checklist

In addition to the three key documents detailed above, check the following materials to see whether they place any limitations on a proposed merger or consolidation or whether they’ll need to be amended to reflect the new status.

  • Employment and other contracts
  • Pension and profit-sharing plans, deferred compensation such as 401(k) and 125 plans
  • Leases
  • Loans, notes, mortgages
  • Insurance policies
  • Federal tax-exemption letter
  • MLS bylaws, rules

Laurie Janik is the former General Counsel of the NATIONAL ASSOCIATION OF REALTORS®.