Deciding to close an organisation

Find out what to think about if you’re considering closing or winding up an organisation, and in what circumstances you might need to consider it.

Reasons you might close an organisation

There are many reasons why an organisation might be thinking about closure. Not all of these reasons are negative, but it can be an emotional time and there can be lots to think about to make sure that you close down the right way and in line with any legal requirements. It’s important to plan ahead if you’re thinking about closing your organisation.

You might be choosing to close down because of:

• a loss in sources of funding or a loss of support
• difficult finding trustees or members for the organisation
• less of a need for your services
• significant change in the reason you set up or the activities you carry out
• transferring your activities to another organisation
• you’ve done the job you set out to do and your work is complete.

Closing because of insolvency

If your organisation is insolvent this means that you don’t have enough assets (money) to cover the costs of running your organisation or delivering your services. This could include not having enough money to:

• pay staff salaries and expenses
• run buildings or digital infrastructure
• pay suppliers or contractors
• pay bills.

This may include any costs associated with closing the organisation down. If you are a company a liquidator will have to be appointed – this can be very expensive.

Insolvency can be complicated. If you are a company your directors should take professional advice as quickly as possible to avoid legal penalties under company law. If directors of a company knowingly (or even if they should have known) continue to operate whilst the company is insolvent, they could be held personally liable for any debts.

The Trustees should always know what the financial position of the organisation is and the cost to close the organisation down. This will usually help to set a reasonable level of reserves and can be done at each board meeting using this template Going Concern form (provided by Chiene and Tait):

Considering other options

You may have already decided that closing your organisation is the best thing to do. But you may also feel that your organisation still has aims and objectives that it hasn’t met, or people who still need your support. If the way you’re currently working isn’t sustainable, you could think about:

• mergers: are there other organisations you could work with, or transfer your activities to? This could be someone with a similar charitable aim, a different sized organisation, or an organisation looking to expand. The Good Merger Guide from Eastside People is a step by step guide to mergers for charities.
• change your purpose: Is there anything you could change about your purpose to increase your changes of staying open? For example, changing the geographical areas you work in, expanding or tightening the scope of what you do (and substantial change would need consent from OSCR).
• restructure: are there any changes to your structure or ways of working that could change to make the organisation viable? This can sometimes involve difficult decisions about staffing and governance.