Dissolving a non-profit corporation is a significant decision that requires careful consideration and adherence to legal procedures. Whether your organization is winding up before it begins operations or ceasing activities after having been operational, understanding the proper steps is crucial to ensure a smooth and compliant dissolution process.
When to Consider Dissolution
A non-profit corporation may choose to dissolve for various reasons, such as achieving its mission, financial challenges, or strategic realignment. Regardless of the reason, the dissolution process is governed primarily by the corporation’s articles of incorporation and the relevant state laws.
Authorization of Dissolution
The process for authorizing dissolution depends on whether the non-profit has commenced doing business:
- Before Commencing Business: If the non-profit has not yet started operations, the incorporators or the initial board of directors can typically approve dissolution through a majority vote.
- After Commencing Business: If the organization has begun its activities, the authorization process becomes more involved:
- Board of Directors and Members: If the non-profit has members with voting rights, the board proposes dissolution, which then requires approval from the members, often by a two-thirds majority vote. In cases where there are no members or members do not possess voting rights, the board alone can authorize dissolution through a majority vote.
- Written Consent: Some state laws allow for dissolution approval through written consent instead of a formal meeting and vote.
Filing for Dissolution
Once dissolution is approved by the necessary parties, the non-profit must file specific documents with the appropriate state authority. This is usually the Secretary of State’s office, though some states may require filings with the Attorney General’s office as well.
Key Documents Required:
- Certificate or Articles of Dissolution: These documents must include:
- The name of the non-profit corporation.
- The date and manner of authorization for dissolution.
- The effective date and time of the filing.
- Signatures of the appropriate directors or officers.
- Additional Documentation: Some states may require an article or certificate of termination to confirm that the dissolution process is complete.
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Effective Date and Winding Up
Articles of dissolution typically become effective upon filing unless a later date is specified. After dissolution, the non-profit’s existence continues solely to manage the winding-up process, which includes:
- Collecting and distributing assets.
- Returning or transferring assets held on a conditional basis.
- Discharging debts and liabilities.
- Arranging the settlement of any remaining obligations.
In certain states, a dissolving non-profit must submit an asset distribution plan to the state Attorney General’s office or another designated agency to ensure assets are handled in compliance with state regulations.
Finalizing IRS Requirements
For organizations recognized under Section 501(c)(3) of the Internal Revenue Code, additional steps must be taken:
- Final IRS Form 990: The non-profit must file a final Form 990, marking it as a final return and indicating that the organization has liquidated, terminated, or dissolved.
- Schedule N: This schedule should detail the liquidation, termination, dissolution, or significant disposition of assets.
- Filing Deadline: The final Form 990 must be filed within four months and 15 days after the non-profit’s termination date.
Addressing Licenses, Permits, and Employees
Beyond state and federal filings, the non-profit must:
- Notify Regulatory Authorities: Inform any local, state, or federal agencies that issued licenses or permits to the organization.
- Employee Obligations: If the non-profit has employees, it must address termination procedures, including winding down benefit plans and providing any required notices.
Closing thoughts
Dissolving a non-profit corporation involves a series of legal and administrative steps that must be carefully followed to ensure compliance with state laws and IRS regulations. Proper authorization, thorough documentation, and timely filings are essential to successfully wind up the organization’s affairs.
