How to Close Down a Non-Profit

By Heather Frances J.D.

Nonprofits, like other organizations, don't last forever. Officers of a nonprofit may want to close because the nonprofit has fulfilled its obligations or because it is insolvent. Regardless of the reason, an orderly dissolution is usually in the organization's best interests. Your nonprofit's founding documents might provide a dissolution method, or you can create your own dissolution plan.

Nonprofits, like other organizations, don't last forever. Officers of a nonprofit may want to close because the nonprofit has fulfilled its obligations or because it is insolvent. Regardless of the reason, an orderly dissolution is usually in the organization's best interests. Your nonprofit's founding documents might provide a dissolution method, or you can create your own dissolution plan.

Check Your Foundational Documents

Nonprofits typically must file articles of incorporation and other documents with the state to officially form nonprofit corporations, and nonprofits also have the option to create bylaws to govern their operations. If your nonprofit's articles of organization or bylaws address dissolution, you must follow the processes identified in those documents. Your grant policies, loan documents or donor agreements might also contain restrictions or directions for your nonprofit's dissolution, or your state's laws may address dissolution.

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Decide to Dissolve

Before you can dissolve your nonprofit, your nonprofit must first make a formal decision to close down. Your articles of incorporation or bylaws likely identify what group of individuals, such as officers or a board of directors, have authority to make a dissolution decision. The dissolution decision may be made informally first, but it typically must be finalized at an official, documented meeting. In nonprofit membership organizations, for example, the board makes a dissolution recommendation to the members who then must approve the dissolution.

Develop a Plan

Your nonprofit must create a plan to close down, allowing an orderly, legal dissolution. It is typically a good idea to formalize your plan in a document that you and the rest of the nonprofit's personnel can refer to throughout the closing. Your plan can include details of how your organization's assets are to be distributed, how your organization will preserve its legacy, how the closing will be announced and who will take care of final legal filings. The details of each section will vary based on what type of organization you have, how big it is and the reason for its closure.

Execute Your Plan

Once your organization has created its dissolution plan, you may want to have it approved by the board or the nonprofit's members to ensure it has the organization's support. Then, it is time to implement the plan. Assigning a deadline to each plan element can help your dissolution proceed without unnecessary delay. It may also help to document the process so you know what steps you have completed and what steps you still have to take.

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Steps for Dissolving a Nonprofit

References

Related articles

What Is a Dissolution Clause?

When you form a new organization, business or partnership, you create a new entity that has a legal life of its own. If you later need to shut down that entity, a dissolution clause can help by providing direction for the shutdown. Such dissolution clauses are sometimes required, but they can be useful even when they are optional.

Wisconsin Non-Profit Laws

A nonprofit is an organization formed to serve the public good, such as for a charitable, scientific, religious or educational purpose. The goal of a nonprofit is not to create profits for investors. The Wisconsin nonprofit laws provide guidelines for forming and operating a nonprofit in the state. Nonprofits generally follow the requirements of non-stock corporations, but have strict restrictions on profit distributions. All nonprofits should be careful to follow the legal requirements of their states, and may face fines or dissolution if not in compliance.

Maryland Rules for Dissolving Non-Profits

After making the difficult decision to close your nonprofit organization, there are a number of steps you must take to ensure the proper people and agencies are aware of the decision. You must notify the state of your intent to dissolve and pay remaining debts. There are limitations on how the remaining assets of the organization may be distributed. Nonprofits with 501(c)(3) have additional filing requirements with the IRS.

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