How to Dissolve a Charitable Non-Profit Organization

By Heather Frances J.D.

Charities provide important services to their communities, but many charities eventually cease to operate. For example, a nonprofit may complete its mission, or it might run out of funding or community support. However, dissolving a charitable nonprofit that is registered with the state is not as simple as closing the doors. A nonprofit must follow proper dissolution procedures according to state law, or it might incur fines or other penalties.

Charities provide important services to their communities, but many charities eventually cease to operate. For example, a nonprofit may complete its mission, or it might run out of funding or community support. However, dissolving a charitable nonprofit that is registered with the state is not as simple as closing the doors. A nonprofit must follow proper dissolution procedures according to state law, or it might incur fines or other penalties.

Vote to Dissolve

Before beginning dissolution procedures, your organization must vote to adopt a resolution to dissolve. Depending on your state’s laws and your own corporate bylaws, this might require a vote of the members of the organization or the directors. For example, Texas requires that two-thirds of the members with voting rights adopt the resolution at a meeting, or the written consent of all voting members, or the written consent of a majority of the organization’s directors. Without a proper vote to dissolve, your organization cannot file the appropriate dissolution paperwork with your state.

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State Dissolution Requirements

Since nonprofit corporations are formed under state laws, you must follow your state’s requirements to finalize the dissolution. Typically, this involves filing articles of dissolution or similar document with your state’s corporate registration office. Your state might provide forms to make this process easier. This dissolution notice must list certain information about your nonprofit, such as a description of the vote to dissolve and a statement that you have arranged to pay any outstanding debts. Dissolution might also require state approval of your plan to distribute corporate assets.

Distributing Assets

If your nonprofit has assets remaining after all outstanding bills are paid, you must properly distribute those assets. Your state’s laws might prescribe a method for distributing assets, and your corporate bylaws might also contain directions for distribution. Charities often distribute their assets to other organizations with similar charitable goals. Members of the organization typically are not permitted to receive assets beyond their normal compensations. You might have to obtain state approval before distributing any assets.

Tax Filings

If your state requires your nonprofit to file tax returns, it is likely that your nonprofit must file a final dissolution tax return. For example, California requires a dissolving nonprofit to file a final state tax return and verify its current status with the state’s Franchise Tax Board. You must also file final federal tax forms. You must file federal returns by the 15th day of the fifth month after the end of the period for which your return is due. This means that if your organization follows a calendar year for tax purposes and terminates at the end of the calendar year, your return is due May 15 of the following year.

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Steps for Dissolving a Nonprofit

References

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The Duties and Responsibilities of a Board in Dissolving a 501(c)(3)

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