SMALL CHARITIES: DISSOLUTIONS AND REMOVAL FROM THE REGISTER OG202 C1

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OPERATIONAL GUIDANCE

SMALL CHARITIES: DISSOLUTIONS AND REMOVALS FROM THE REGISTER

GUIDANCE ON DISSOLVING A CHARITY (CSD 1344A)

OG 202 C1 – 23 April 2007

Purpose

This OG reproduces the guidance on the above subject that is provided to the public, together with links to the OGs to which it relates.

Functional responsibility

For action

Charity Services

Contents

1. Who this guidance is for
2. Some expressions used in this guidance
3. Voluntary registration
4. Dissolving charities and the law
5. How can a charity be dissolved?
6. There is a dissolution clause in the charity's governing document
7. There is no specific power to dissolve but all the charity's funds are expendable
8. There is no dissolution clause, the charity has permanent endowment funds that cannot be spent but its annual income is £1,000 or less
9. There is no power to dissolve, that charity has permanent endowment funds that cannot be spent and its annual income is over £1,000
10. If the charity dissolves can the remaining money be shared out between employees or trustees?
11. Is there anything else the trustees may need to consider?
12. Contacting us

Index to further related information

1. Who this guidance is for
	This guidance is intended for the trustees of small unincorporated registered charities (charities that are on the Register of Charities (the Register) and are not companies):
	whose gross income in their last full accounting period was not more than £20,000 and whose gross assets at the end of that period were valued at not more than £200,000; and
	are planning to dissolve their charity.
	All the charities referred to in the last paragraph that are registered compulsorily will fall within one of the situations outlined in section 5 of this guidance. In many cases these charities can be removed from the Register if the trustees complete declaration form CSD 1344B and send it to us.
	If you think the charity with which you are concerned may be registered voluntarily (if its income from all sources was less than £5,000 in its last financial year it will be) you should read section 3 of the guidance first, as removing such charities from the Register is more straightforward.
	Some parts of this guidance will also be helpful to the trustees of small unregistered charities that are planning to dissolve their charity.
	This guidance is not suitable for charitable companies who should read our guidance note "Dissolution, winding up and removal from the Register for medium sized charities" (CSD 1077A) ).

2. Some expressions used in this guidance
	Trustees is a shortened version of "charity trustees", which are defined in section 97(1) of the Charities Act 1993 as being the persons having the general control and management of the administration of a charity, regardless of what they are called. For instance, in the case of a charity governed by rules or its constitution the members of the executive or management committee will usually be the charity trustees.
	A charity's governing document is any document that sets out the charity's purposes and, usually, how it is to be administered. It may be a trust deed, constitution, conveyance, will, Scheme of the Commission, or other formal document.
	A dissolution clause is the part of a charity’s governing document that enables the trustees, or, if the charity has a membership, the membership to bring the charity to an end. The clause will often be found towards the end of the governing document. It will set out how and by whom the charity can be wound up and what is to happen to any remaining assets. In some cases our approval will be necessary.
	Permanent endowment is property of a charity (including land, buildings, cash or investments) upon which there is a restriction on expenditure for the purposes of the charity. Common examples of permanent endowment are investment property from which only the income can be spent and land and buildings where the trusts stipulate that they must be used for the purposes of the charity. Trustees cannot normally spend permanent endowment without our authority. The terms of the endowment may permit assets within the fund to be sold and reinvested, or may provide that some or all of the assets are retained indefinitely (for example, a particular building) in applying the remaining assets.

3. Voluntary registration
	3.1	A voluntarily registered charity is one that is on the Register even though it is not legally required to be – in other words, it is excepted from the need to register as a charity. All charities with an annual income from all sources that does not exceed £5,000 are excepted from registration, as well as certain types of charity such as registered places of worship.
	3.2	All these charities are still subject to the other provisions of the Charities Acts 1993, as amended by the Charities Act 2006 and our supervision. If you are not sure if your charity is one of these excepted charities please contact us.
	3.3	If a charity that is registered voluntarily asks to be removed from the register, we will remove it; subject to making a check that the registration is still voluntary (for example, it is possible that the annual income from all sources is now more than £5,000, in which case the registration has become compulsory). A voluntarily registered charity that is planning to dissolve, therefore, has the option to ask to be removed from the Register and subsequently will not be required to submit the information referred to elsewhere in this guidance. The charity does not lose its charitable status on removal and, on dissolution, the trustees still have to make the arrangements referred to below for the preservation of the charity’s accounting books and records.

4. Dissolving charities and the law
	4.1	The Charities Act 1993 requires:
		the trustees of registered charities to inform us if their charity ceases to exist; and
		that we must remove from the Register any charity that has ceased to exist or does not operate.
	4.2	After a charity has been dissolved the trustees have to arrange for its accounting books and records to be preserved for at least six years after the year in which they were made.
	4.3	If the charity’s property has been transferred to another charity we recommend that the recipient charity be asked to hold the records. Otherwise, the trustees may be able to arrange for the records to be held by a former trustee, a solicitor or accountant, another local charity or an umbrella body. The trustees also need to ensure that any grants or donations the charity has received for use for a specific purpose are either returned to the grantor or donor or the grantor or donor agrees to the application of the assets on dissolution.
	4.4	Former trustees remain responsible for decisions taken while they were in office and we can make enquiries about any actions they have taken even after their charity has wound up.

5. How can a charity be dissolved?
	If the trustees have decided that their charity should be dissolved there are four situations in which they might find themselves (the trustees should check the charity’s governing document and its financial records to see which situation will apply in their case). If they are in any doubt about what action they may take the trustees should consult their legal advisers or us. The four situations and the paragraphs of this guidance that are relevant to each of them are as follows (see also OG 202 B2):
	a)	There is a dissolution clause in the charity’s governing document that says how the property should be used (see section 6).
	b)	There is no power to dissolve but all the charity’s funds are expendable (see section 7).
	c)	There is no power to dissolve and the charity has permanent endowment funds that cannot be spent but its annual income is £1,000 or less (see section 8).
	d)	There is no power to dissolve, the charity has permanent endowment funds that cannot be spent and its annual income is over £1,000 (see section 9).
	See also section 5 of OG 202 A1 for a table that indicates the action to be taken in each of the above circumstances.

6. There is a dissolution clause in the charity's governing document
	6.1	The trustees must follow the procedure set out in the governing document. This will sometimes involve the calling of a meeting of all the members of the charity to discuss the proposed dissolution. The relevant clause will usually also direct how the charity’s remaining assets should be used. It will often say that these should be passed to a charity with similar purposes.
	6.2	When the trustees have completed the dissolution procedure they should send us either:
		a declaration using our form CSD 1344B; or, if it is easier,
		a copy of the minutes of the meeting at which the decision to dissolve the charity was taken or certified copies of the relevant resolutions; or,
		a letter which is clearly signed on behalf of the trustees and which clearly contains details of how and why the charity was dissolved and where remaining money was passed.
		This will enable us to update our records and remove the charity from the Register.
	6.3	If the first option is chosen the trustees should ensure that they have complied, or are able to comply, with all the statements in part 2 of the form.
	6.4	If the second option is chosen a copy of a document can be certified by one of the trustees or their secretary or clerk. The chosen person should write on the document "I certify that this is a true copy of [and then a brief description of the document such as the resolution passed by the members of the charity at their meeting on 1 January 2007 or the minutes of the trustees’ meeting held on 1 January 2007]" and date and sign the declaration indicating the capacity in which they sign. The minutes or resolutions should indicate how the assets of the charity have been used after settling any outstanding liabilities.

7. There is no specific power to dissolve but all the charity's funds are expendable
	If the governing document does not contain a specific power for the charity to be dissolved but all its funds are expendable, then it may be open to the trustees to bring the charity to an end by simply applying all its assets in furthering its purposes or transferring them to a charity with similar purposes. In the latter case the trustees can specify how the assets may be used by the receiving charity. Having applied or transferred the assets the trustees should either:
	complete the declaration form (CSD 1344B) that links to this guidance and return it to us, ensuring that they have complied, or are able to comply, with all the statements in Section 2 of the form; or
	if it is easier, send us a copy of the charity’s final accounts showing a nil balance and the destination of the assets; or
	send us a letter which is clearly signed on behalf of the trustees and which clearly contains details of how and when the charity was dissolved and where remaining money was passed.
	This will enable us to update our records and to remove the charity from the Register.

8. There is no dissolution clause, the charity has permanent endowment funds that cannot be spent but its annual income is £1,000 or less
	8.1	If there is no specific power to dissolve the charity and it has funds that cannot be spent, then the trustees may be able to use the small charities provisions in section 75 of the Charities Act 1993. These provisions will apply if the charity does not hold any land constituting permanent endowment and its gross annual income was £1,000 or less in the previous financial year. The provisions let the trustees pass a resolution that will allow the charity’s permanent endowment funds to be spent as if they were income. This will enable the trustees to bring the charity to an end by applying all its funds on its purposes.
	8.2	Details of the small charities provisions and the procedure to be followed by trustees can be found in our publication Small Charities: Transfer of Property, Alteration of Trusts, Expenditure of Capital (CC44). See also OG 201 B3.
	8.3	Normally, on giving our approval to the resolution, we will remove the charity from the Register because it is no longer required to be registered with us. However, the trustees can ask for the charity to remain on the Register voluntarily. If the charity’s gross annual income in its current financial year is more than £5,000 it will have to remain on the Register because the registration will be compulsory.

9. There is no power to dissolve, that charity has permanent endowment funds that cannot be spent and its annual income is over £1,000
	9.1	If the charity’s governing document contains no power to dissolve and the charity has funds that cannot be spent and an annual income in its last financial year in excess of £1,000, it will not be possible for the charity to be wound up, although the trustees can ask for it to be removed from the Register if its annual income from all sources is not more than £5,000.
	9.2	However, if the trustees are concerned that it is not serving a useful purpose, it may be that its purposes need to be changed to provide greater scope for the use of its funds. Alternatively, it may be that a new trustee body is needed to take the charity in a different direction within its existing purposes.
	9.3	In either case there are three options available to the trustees:
	Where the charity’s governing document contains a suitable provision to allow the trustees to alter the charity’s purposes, or to appoint a new body of trustees, they can use this power to make the necessary amendments. Changes to the charity’s purposes may need our prior approval.
	Where the governing document of the charity:
	contains no suitable power of amendment; and
	the charity owns no land which must be used for its charitable purposes (such as a village hall or almshouses); and
	in the last financial year its income from all sources was not more than £5,000;
	the trustees can use the small charities provisions in the Charities Act 1993 to make the necessary changes. (See OG 201 B1 and OG 201 B2).
	The small charities provisions will let the trustees amend the charity’s purposes, or its trusteeship, or to transfer the charity’s property to another charity with similar, but more viable, purposes. Details of the provisions and the procedure to be followed by the trustees can be found in our publication Small Charities: Transfer of Property, Alteration of Trusts, Expenditure of Capital (CC44)
	If no other option is available to the trustees, they may be able to make a case to us for a Scheme to make changes to the charity’s purposes or trusteeship, to enable it to operate more effectively. In an appropriate case, a Scheme could also provide for the charity to be amalgamated with another. Details of the Scheme making procedure can be found in our publication Making a Scheme (CC36). See also OG 1 A2.

10. If the charity dissolves can the remaining money be shared out between employees or trustees?
	10.1	This would be a misapplication of charitable funds. After the charity’s debts have been paid any remaining funds should be applied in accordance with the requirements of the governing document. This will usually mean passing the money to another charity with similar purposes.
	10.2	The debts that will need to be paid before the final distribution of the charity’s remaining assets may include the payment of expenses properly incurred by trustees and employees in carrying out their duties and the final salaries or wages of employees and any other statutory payments to which they may be entitled.
	10.3	If the trustees want to make payments to any employees of the charity on top of those they must make under their employment contract or by employment law, they should write to us for advice.

11. Is there anything else the trustees may need to consider?
	If the charity that is dissolving is going to be replaced by another charity (perhaps an incorporated one), the trustees should consider whether the original charity is likely to receive income in the future (for example from legacies). We recommend that trustees take legal advice on this point.

12. Contacting us
	If you need to write to us about dissolving a small charity please send your correspondence to :
	Charity Commission Direct PO Box 1227 Liverpool L69 3UG
	If you have a query about dissolving a small charity you can also:
	visit our website at www.charitycommission.gov.uk (which allows you to ask questions online);
	telephone us on either 0845 3000 218 or, if you want to use minicom, 0845 3000 219;
	e-mail us at enquiries@charitycommission.gsi.gov.uk.

Index to further related information