The End of the Road - What you need to know about shutting down a charity
20 October 2021 | By Erin Hughes
When you decide to become a charity Trustee, it’s unlikely you’re thinking about the possibility of closing your charity - unfortunately, however, it’s not totally uncommon, with 666 charities closed in 2019.
There are a number of reasons for closing a charity, and it’s important that you know what your legal responsibilities are, and how to effectively manage the process.
Charities close for a whole host of reasons, from meeting the original purpose, such as successfully eliminating a disease in the area the charity serves, through to mergers, loss of funds, lack of members, and changing legal status to become a company or charitable incorporated organisation (CIO).
Whatever the reason for closing the charity, there are steps you can take to help the process to run smoothly, and to be sure that you have done everything that is legally required of you.
Seek legal advice
There are processes that must be followed when you wind up a charity. These vary according to the legal status of the organisation (for example, whether it is a registered charity or a CIO), and the Charity Commission website has extensive advice and guidance to support you through the process.
Here you will also find the online charity closure form, which you can use to formally wind up your charity, and information on how to close the company prior to shutting down the charity itself. Regardless of the charity structure, you will need to inform all relevant parties, including stakeholders, volunteers, beneficiaries, and staff; complete the accounts for the year, before filling out the Charity Commission closure form.
Where relevant, you may also need to close down the business with Companies House before you can close the charity, ‘striking off’ the company by following a series of steps outlined on the website, filling out a DS01 closure form, and then waiting for the company closure notice to be placed on The Gazette.
If you are in any doubt on how to complete the closure, you can contact LawWorks, a free legal support service that can provide guidance and help you manage the process.
Write everything down
To ensure that you are acting in the interests of the charity, and to evidence your decision-making process, make sure all meetings are recorded and signed by the Chair. Full records of meetings must be kept up to date and held for at least six months after the charity closes.
Not only is this method legally critical but will also prove valuable to your organisation should you ever need to review past decisions or learn from the process itself.
Manage your finances
If your charity employs staff, ensure you carefully follow the guidance on paying final wages and making redundancies, and that you are being transparent and supportive of staff throughout the process.
Before closing, you will need to consider what to do with any remaining funds. This should be detailed in the charity’s governing document and may either specify a particular charity to donate the funds to, or state that they will go to a similar cause, at the discretion of the Trustees.
After your charity has been wound up, you are required to keep accounting books and records (including books, invoices, and receipts) for either:
- At least three years after the year they were made (for a charitable company or CIO)
- At least six years after the year they were made (for unincorporated associations and trusts)
If the charity you are closing becomes insolvent (unable to pay its debts), follow the guidance here and seek legal advice to understand your responsibilities as a Trustee.
Even as your charity closes, it is important to maintain open communication with your staff, volunteers, supporters, beneficiaries, and key stakeholders throughout the process. You will need to inform all relevant parties that you are closing by sending a formal notice letter and a copy of the DS01 form, and, if possible, provide some support and guidance for where else your beneficiaries can go to receive support.
Closing a charity isn’t the easiest process, but it can be made a lot smoother by working as a team and supporting each other. Sharing the load with other Trustees will allow you to close down the company and charity in a legally compliant and efficient way.
Whatever the reason for closing down your charity, the process can run smoothly as long as you follow the guidance, keep communicating, and seek appropriate legal advice to help get you through.
Do you have experience of winding up a charity? What would your top tips be for other charities beginning the process? Join the conversation @OfficialCause4