Thinking about closing your organisation
We all benefit from the work of voluntary organisations. They are vehicles to make a difference in our communities and the causes we all care about.
As circumstances change, that vehicle - the legal structures of a voluntary organisation - may no longer be appropriate, necessary or even in the best interests of our cause or wider society. Closure can also be forced upon an organisation facing significant financial problems.
In any case, every voluntary organisation should regularly ask whether it is still well placed to achieve its goals. Closure can seem like a difficult decision, but ultimately closing an organisation may achieve a greater impact for your cause.
Whatever leads you to consider closure, you are likely to have legal responsibilities to follow. These pages guide you through the key issues to consider when closing a voluntary organisation. There is no one way of closure which suits all organisations. You need to adapt this advice to your context and take specialist advice when needed.
What do we mean by closure
By closing a voluntary organisation we mean stopping all activities within the current legal entity and deregistering from any statutory regulator or register. While the work of the organisation may continue in different ways beyond the end of that legal structure; the existing organisation with its own liabilities and responsibilities will have ceased.
Why you may want to consider closure
Every organisation is unique and will face their own reasons for considering closure. You should understand these reasons as this may bring different legal duties if you do close.
You are choosing to close
Everything your charity does should intend to help it achieve the purposes for which it is set up and no other purpose. Sometimes you may decide that closing the legal entity is the best way forward for furthering your cause. You may consider this option alongside alternatives - see below for details.
Examples of when organisations chose to close:
- There has been a significant change in the cause you were created to address
- There have been changes in your community or society which mean that your activities are no longer effective or suitable to achieve your purpose
- You cannot recruit suitable trustees or members.
- In smaller organisations, especially those led by a founder, there is no viable succession plan to continue.
- You are financially viable in the short to medium term, but long-term trends show the organisation is unviable, and you feel you have limited opportunities to change your financial situation.
- You believe you could achieve more for your cause by transferring your assets to another organisation.
- You are struggling to spend your money in line with your purpose or for the public benefit. In these instances you may be eligible for support from the government-backed Revitalising Trust Programme.
You are insolvent
Broadly speaking, insolvency is where an organisation's available assets are not sufficient to cover the costs it faces. This includes the costs of closure such as staff redundancy payments.
Insolvency is a complicated matter and there are legal penalties if rules are not followed. Directors who were aware (or should have been aware) that the organisation can not avoid insolvency but continue activities can be held personally liable for any debts and/or could be banned from acting as the director of any limited company.
As soon as you are aware that the organisation is facing an insolvency situation, you should take professional advice from an authorised insolvency practitioner or financial adviser. Make sure you are aware of the costs involved before appointing an adviser.
- There are further details on our serious financial difficulties and insolvency pages and in the Charity Commission guidance on managing a charity’s finances.
- Registered charities should submit a serious incident report if your charity goes into insolvency or faces closure because of financial difficulties.
You are deregistered as a charity
The Charity Commission is the regulator of charities in England and Wales and maintains the charity register. The Commission’s priority is to make sure trustees meet their legal requirements and obligations and they have powers to investigate mismanagement or abuse.
They also have a legal duty to remove from the charity register any organisation that has ceased to exist or does not operate or no longer appears to the Charity Commission to be charitable.
Being removed from the register is not a penalty or punishment, and charities are reinstated if they provide evidence that they are still active.
- Learn more about when the Charity Commission takes enforcement action.
Consider alternatives to closure
Where you are financially viable but considering closure, you will likely be considering other options. You will need to consider whether the closure is in the best interests of your cause or if an alternative would be most appropriate.
Things may be more complicated if you are facing insolvency or deregistration and you should seek specialist advice.
Alternatives to closure you should consider include:
- Merger: Where two or more organisations formally come together, most commonly by one transferring everything owned by one organisation to the other. Typically this leads to one legal entity being closed. You can learn more the types of organisation mergers and the different reasons for merging on our Merger pages.
- Hibernation: where you pause the bulk of the activities of the organisation but continue to be a registered legal entity. This should usually be for a fixed period of time and trustees or management committee members will remain responsible for the organisation. You will still have obligations to file accounts to Companies House and the Charity Commission.
- Adapting your purpose: Where the organisation's purpose is no longer a practical or appropriate way to advance the cause for which it was set up, you may choose to evolve and change the purpose of the organisation. You are likely to need to change your governing documents with an updated purpose. If you are a charity, you should follow the Charity Commission guidance on changing your governing documents.
- Radically change your ways of working: where the organisation's purpose remains valid, but the changing environment requires you to change how you deliver your work. This could include ceasing or reducing some activities or implementing new ways of advancing your cause. Changes should remain linked to an overarching organisation strategy rather than being a series of reactionary tactics. Learn more about tools and techniques on our managing change pages.
Remember, pursuing an alternative to closure does not prevent you from choosing to close at a later point. However, undertaking another option can take time, energy and resources which may limit how you close in the future.
If your organisation has limited resources, you may need to consider whether you can afford to pursue the alternative and the risks of not deciding to close now.
Making the decision to close
Consider the costs of closure
You should understand your liabilities and the full costs of closure for your organisation. Make a list of all potential costs for closing and ensure you can afford to close. If needed, you can use your reserves to cover these closure costs. If you cannot meet the costs - for example redundancy payments for staff or liabilities for leases - you may be at risk of insolvency. This may affect the actions you can take.
- Learn more on our serious financial difficulties and insolvency pages and in the Charity Commission guidance on managing a charity’s finances.
Understand who has the power to close the organisation
Your organisation’s governing documents - its constitution or memorandum and articles of association - will usually include specific details on how the organisation can be dissolved. Depending on your legal structure, there may be different obligations of how you close.
You may need to have a vote of your membership or the decision might be able to be made by your trustees or management committee. You may need to give particular notice for meetings or publish certain information. There are particular rules on how Community Interest Organisations can close.
- Learn more in the Charity Commission guidance How to close a charity.
Make clear decisions
Decisions to close are significant and should be documented. There may be different views about closing. However, everyone making the decisions should be deciding what will best enable the charity to carry out its purposes.
Everyone should be open to considering that closing and transferring their assets to another organisation may be the best way to make a difference to its cause. Charity trustees must always act in your charity’s best interests making balanced and adequately informed decisions, thinking about the long term and short term.
- Learn more in the Charity Commission guidance on how to approach making decisions affecting their charity and how to act when there are disagreements and disputes in charities.
- The Charity Commission guidance The Essential Trustee explains trustees responsibilities to the charity and factors to inform their decisions.
- Read our page on helping your team through closure.
What happens after you close
For registered charities, the trustees can be held liable for the decisions made whilst in role. They may be contacted by the Charity Commission or others who believe that there is an outstanding liability.
There are also requirements for some records to be kept. Learn more in the Charity Commission guidance How to close a charity.
Implementing closure
You may find the following pages helpful:
- Helping your team through closure gives you guidance on providing leadership, clear communication and appropriate support to staff and volunteers through closure
- Planning for closure gives you questions you will need to answer to help you understand what needs to be in a closure plan and managing your financial affairs during closure.
- Carrying out closure checklist lists issues to consider and practical actions to take when closing.
