Steps for Dissolving a Nonprofit

By Holly Cameron

Nonprofit organizations usually aim to raise funds for a particular social, educational, charitable or religious purpose. Those in control of the organization may choose to dissolve it if it has achieved its purpose or if other circumstances dictate that dissolution is the best course of action. The precise steps for dissolving a nonprofit depend on the legal basis of the organization and the state where it is registered, but basic principles apply in almost all circumstances.

Voting

The nonprofit’s bylaws or articles of incorporation usually set out a specific procedure for dissolution. In most cases, the directors must meet and take a vote on the decision to dissolve. If the nonprofit also has members who are not directors, the directors should contact the members and invite them to vote on the issue. The members may either convene a separate meeting to discuss the matter or may confirm their agreement in writing. If the members cannot agree, the bylaws or articles usually allow dissolution by a majority vote.

Filing

The nonprofit must file certain documentation with the state authorities in which it is incorporated to confirm the dissolution. For example, the state of Delaware requires nonprofit corporations to file a formal certificate of dissolution with the secretary of state in accordance with Section 275 of the Delaware General Corporations Act.

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Tax

Most nonprofit organizations have Section 501(c)(3)tax-exempt status with the IRS. When the organization decides to dissolve, it must notify the IRS and submit a final tax return by the 15th day of the fifth month after the date of termination. If the nonprofit is also registered for state tax purposes, it must notify the relevant state authorities of the effective date of dissolution.

Transfer of Assets

Nonprofit organizations often hold assets in trust for their specific aims and purposes. In most cases, if any assets remain after the decision to dissolve, the directors and members will agree to distribute them in accordance with the nonprofit’s stated purposes. If this is not possible – for example, if the nonprofit’s purposes have been fulfilled – the organization must decide how to distribute any remaining assets. In some states, the directors must seek permission from state authorities before doing this. For example, in California, the nonprofit corporation should contact the attorney general’s office for permission before distributing assets on dissolution.

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How to Dissolve a Charitable Non-Profit Organization
 

References

Related articles

California 501C Non Profit Organization Rules

Although there are rules and regulations for nonprofit organizations in California, 501(c) organizations are, by definition, federally regulated by the IRS. Nonprofits must first register with the state of California before applying for exempt status with the IRS. There are a number of obligations that a nonprofit must meet before it is granted 501(c) status.

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.

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.

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