Closure (business)
Encyclopedia
Closure is the term used to refer to the actions necessary when it is no longer necessary or possible for a business
or other organization to continue to operate. Closure may be the result of a bankruptcy
, where the organization lacks sufficient funds to continue operations, as a result of the proprietor of the business dying, as a result of a business being purchased by another organization (or a competitor) and shut down as superfluous, or because it is the non-surviving entity in a corporate merger. A closure may occur because the purpose for which the organization was created is no longer necessary.
While a closure is typically of a business or a non-profit organization
, any entity
which is created by human beings can be subject to a closure, from a single church to a whole religion, up to and including an entire country if, for some reason, it ceases to exist.
Closures are of two types, voluntary or involuntary. Voluntary closures of organizations are much rarer than involuntary ones, as, in the absence of some change making operations impossible or unnecessary, most operations will continue until something happens that causes a change requiring this situation.
The most common form of voluntary closure would be when a group of people decide to start some organization such as a social club, a band, or a non-profit organization, then at some point those involved decide to quit. If the organization has no outstanding debts or pending operations to finish, closure may consist of nothing more than the informal organization ceasing to exist. This is referred to as the organizers walking away from the organization.
If an organization has debts that cannot be paid, it may be necessary to perform liquidation of its assets. If there is anything left after the assets are converted to cash, in the case of a for-profit organization, the remainder is distributed to the stockholders; in the case of a non-profit, by law any remaining assets must be distributed to another non-profit.
If an organization has more debts than assets, it may have to declare bankruptcy. If the organization has viability, it reorganizes itself as a result of the bankruptcy and continues operations. If it is not viable for the business to continue operating, then a closure occurs through a bankruptcy liquidation
: its assets are liquidated, the creditors are paid from whatever assets could be liquidated, and the business ceases operations.
Possibly the largest "closure" in history was the destruction of the Soviet Union
into the composite countries that represented it. In comparison, the end of East Germany can be considered a merger rather than a closure as West Germany
assumed all of the assets and liabilities of East Germany. The end of the Soviet Union was the equivalent of a closure through a bankruptcy liquidation, because while Russia
assumed most of the assets and responsibilities of the former Soviet Union, it did not assume all of them. There have been issues over who is responsible for unpaid parking tickets accumulated by motor vehicle
s operated on behalf of diplomatic mission
s operated by the former Soviet Union in other countries, as Russia claims it is not responsible for them.
Several major business closures include the bankruptcy of the Penn Central railroad, the Enron scandal
s, and MCI Worldcom's bankruptcy and eventual merger into Verizon.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
or other organization to continue to operate. Closure may be the result of a bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
, where the organization lacks sufficient funds to continue operations, as a result of the proprietor of the business dying, as a result of a business being purchased by another organization (or a competitor) and shut down as superfluous, or because it is the non-surviving entity in a corporate merger. A closure may occur because the purpose for which the organization was created is no longer necessary.
While a closure is typically of a business or a non-profit organization
Non-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
, any entity
Entity
An entity is something that has a distinct, separate existence, although it need not be a material existence. In particular, abstractions and legal fictions are usually regarded as entities. In general, there is also no presumption that an entity is animate.An entity could be viewed as a set...
which is created by human beings can be subject to a closure, from a single church to a whole religion, up to and including an entire country if, for some reason, it ceases to exist.
Closures are of two types, voluntary or involuntary. Voluntary closures of organizations are much rarer than involuntary ones, as, in the absence of some change making operations impossible or unnecessary, most operations will continue until something happens that causes a change requiring this situation.
The most common form of voluntary closure would be when a group of people decide to start some organization such as a social club, a band, or a non-profit organization, then at some point those involved decide to quit. If the organization has no outstanding debts or pending operations to finish, closure may consist of nothing more than the informal organization ceasing to exist. This is referred to as the organizers walking away from the organization.
If an organization has debts that cannot be paid, it may be necessary to perform liquidation of its assets. If there is anything left after the assets are converted to cash, in the case of a for-profit organization, the remainder is distributed to the stockholders; in the case of a non-profit, by law any remaining assets must be distributed to another non-profit.
If an organization has more debts than assets, it may have to declare bankruptcy. If the organization has viability, it reorganizes itself as a result of the bankruptcy and continues operations. If it is not viable for the business to continue operating, then a closure occurs through a bankruptcy liquidation
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
: its assets are liquidated, the creditors are paid from whatever assets could be liquidated, and the business ceases operations.
Possibly the largest "closure" in history was the destruction of the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
into the composite countries that represented it. In comparison, the end of East Germany can be considered a merger rather than a closure as West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
assumed all of the assets and liabilities of East Germany. The end of the Soviet Union was the equivalent of a closure through a bankruptcy liquidation, because while Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
assumed most of the assets and responsibilities of the former Soviet Union, it did not assume all of them. There have been issues over who is responsible for unpaid parking tickets accumulated by motor vehicle
Motor vehicle
A motor vehicle or road vehicle is a self-propelled wheeled vehicle that does not operate on rails, such as trains or trolleys. The vehicle propulsion is provided by an engine or motor, usually by an internal combustion engine, or an electric motor, or some combination of the two, such as hybrid...
s operated on behalf of diplomatic mission
Diplomatic mission
A diplomatic mission is a group of people from one state or an international inter-governmental organisation present in another state to represent the sending state/organisation in the receiving state...
s operated by the former Soviet Union in other countries, as Russia claims it is not responsible for them.
Several major business closures include the bankruptcy of the Penn Central railroad, the Enron scandal
Enron scandal
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
s, and MCI Worldcom's bankruptcy and eventual merger into Verizon.