Calming any rough internal waters as quickly as possible improves the potential for a successful outcome. You will need to provide a certified copy of your articles of dissolution or merger, resolutions and plans of liquidation or merger along with your Form 990 or 990-EZ. You may also need to provide other documentation requested in Schedule N. Distribution of assets requires that the organization find other charities or exempt entities that will accept the assets.
It is acceptable to sell the organization’s assets only if they are sold at fair market value. In this type of dissolution, the IRS mandates that the board of directors of the nonprofit organization complete certain requirements to “dissolve,” or shut down, the 501. If your are terminating your organization or going out of business by merging with another organization, you need to file a final form by the 15th day of the fifth month after the end of the period for which your tax return is due.
Nonprofit Chief Financial Officer Resource Center
The decision must take place at an official meeting that is duly called and documented. 501 dissolution involves having your nonprofit organization officially vote for dissolution of the corporation. If no voting members exist in your nonprofit, the board can move to close and terminate the business of the nonprofit. The way to inform the IRS of the organization’s dissolution is by filing the organization’s final IRS Form 990 (and 990-T if applicable). Form 990-N filers should file a final 990-N for the most recently completed fiscal year. The nonprofit corporation files articles of dissolution with the secretary of state, where it is incorporated. All of your nonprofit’s liabilities, including taxes, need to be identified.
Visit the IRS website to learn their requirements, then read your bylaws, specifically looking for your dissolution clause. Any nonprofit organization that has done marketing has addressed the question “What makes us unique?
- In addition, because of dissolution’s legal implications at both state and federal levels, we recommend that at this stage of planning an organization’s board engage legal council for the duration of the implementation process.
- Certifies that your organization does not intend to conduct such activities in the future.
- It’s a good idea for the board to also document who will be responsible for what, and by when, in order to maintain accountability throughout the dissolution process.
- It is the real impact that constitutes the legacy, not just the effort of making a contribution.
An organization’s board and senior management must pick up and carry the burden of this difficult emotional process, coordinate, and follow through on each step. This is a critical time for skilled leadership, governance, and generative thinking. A tax-exempt organization with a filing requirement must ordinarily file its required annual return or notice by the 15th day of the 5th month after the end of its normal tax year . If you terminate before the end of your normal tax year, your tax year will close early. In that case, if you are required to file an annual return (Form 990, Form 990-EZ or Form 990-PF), that return will be due by the 15th day of the 5th month after the termination date. As required by law, a nonprofit organization that is ceasing existence is required to transfer all remaining assets to another tax-exempt organization or to the government. It is unlawful to give any property away to individuals – including board members, volunteers, staff, or beneficiaries.
Dissolving A Nonprofit Corporation
The dissolution clause of a corporation directs the disposal of any of the organization’s final assets after its liabilities are paid. To obtain nonprofit status, the dissolution clause must describe how the assets will be disbursed if the nonprofit ceases, with another nonprofit required to be the recipient of the closing organization’s assets. This process might require a court petition and a court-appointed trustee to oversee the disbursement.
Usually, it is voluntary because money or resources run out or the mission becomes outdated. Fortunately, many organizations have taken this path, and there are clear guidelines and procedures to guide the process. It is key that all remaining assets be distributed in a manner that is consistent with 1) federal and state law, 2) your organization’s bylaws or articles of incorporation, 3) the plan of dissolution. Visit your state’s secretary of state website to learn your state’s requirements for closing a nonprofit, which usually begins with a notification of intent to close. The organization should have a registered agent who will take these steps. The secretary of state’s website should allow you to look up your organization and find your agent, and might also include shutdown steps for a corporation.
In addition, because of dissolution’s legal implications at both state and federal levels, we recommend that at this stage of planning an organization’s board engage legal council for the duration of the implementation process. The process of closing a nonprofit organization takes many months. It is important that those implementing the dissolution are prepared for this time frame and equipped with responses to questions from the community about the status of the process. Dissolution, or the closing of an organization in its current state, is more common than one might think. But when an organization seriously considers ending its life, it’s a difficult and complex process. It is a time of mixed and strong emotions for those involved, including a nonprofit board, senior staff, administrative and line staff, partners, and stakeholders. The state where you are organized may have its own procedures that apply when a nonprofit organization ceases its activities.
Forms & Instructions
The formal process of shutting down your nonprofit starts with a vote by your board of directors. Your bylaws might require notification of or a vote by your membership to give someone else a chance to come forward to run the organization. Once approval has been given to close the nonprofit, meet with an attorney to take the required steps, especially if you are in financial or legal trouble. Contact your secretary of state and the IRS to let them know you are dissolving the corporation.
Nonprofits, just like for-profits, can choose to reorganize their structure through the bankruptcy process.
Next, make a plan to pay off current debts and terminate recurring or future liabilities. (Some nonprofits have future restricted revenue or future liabilities on their books. This is where the expertise of an accountant may be needed!). Determine whether all of these obligations can be satisfied by existing cash or whether some assets need to be sold to free up cash to pay the liabilities.
When a nonprofit no longer has the volunteer, community or financial support it needs to operate, it might become necessary to end operations. Closing a nonprofit organization requires a series of legal steps that help protect its board members from personal liabilities that might come from an incorrect dissolution. What steps you take will depend on your type of nonprofit the organization and the entity’s bylaws, which should contain a dissolution clause. It’s a good idea for the board to also document who will be responsible for what, and by when, in order to maintain accountability throughout the dissolution process. The board of directors will vote to dissolve the organization, but its job doesn’t end there. Before making an important decision such as dissolving a nonprofit, the board of directors needs to reach consensus and take an official corporate action to affirm that dissolution is the right path.
Can I start a nonprofit without a board of directors?
A nonprofit is a corporation and, just like its for-profit cousins, nonprofit corporations exist independently of the people who founded them. It is a legal requirement for a nonprofit to have a board of directors.
If your organization is based in another state, scroll down for additional instructions. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic.
With effective and efficient finance office operations, you are ready to produce the Data and Analysis necessary to make appropriate decisions about using your organization’s resources. Submit the closing form at or before the time the corporation delivers articles of dissolution to the Secretary of State. Finally, we strongly recommend creating written communication procedures that include the board, staff, and other key personnel and organizations. Your letter should include your complete legal name , your EIN, and your address. If you have the letter the IRS sent you informing you of your EIN, please include it with your letter. If you answer yes to any of the questions, you will need to provide the name of the person involved and an explanation of the circumstances. The Center offers many training programs, resources and ways to help nonprofits strengthen capacity and foster sustainability.
Can An Executive Director Close A Nonprofit Without The Board’s Approval?
After filing these notifications, the organization continues to exist until all existing invoices and other business including legal procedures are completed. All other business, such as signing contracts and running programs, is no longer permitted. Before your organization completes the steps below, the board of directors should have voted to dissolve the corporation and approved a plan to distribute any remaining assets.
Most states require that an organization’s assets be distributed to other charitable organizations or governmental bodies. These laws ensure that assets amassed for charitable or other nonprofit activities continue to be used for similar purposes. While we often advocate transparency, in this case we advise strict information control. A board and key staff must feel safe in exploring all issues without fear that the community or other staff will prematurely hear about plans that may never be implemented. You can imagine the effect on an organization’s credibility if the word were to get out that it was closing its doors, only to have a last-ditch fundraising effort become highly successful. In the meantime, staff may have launched job searches, and key community partners may harbor serious doubts about the organization’s ability to deliver quality services. To ensure solid information management, the question of where meetings take place is also a factor.
Step #4 Distributing The Assets
Charities are required to distribute assets to another qualified charitable organization when they dissolve. Once your organization has made a decision about where to distribute its remaining assets, but before it actually makes those distributions, you should submit the organization’s dissolution plan to the Oregon DOJ for review.
Who owns the assets of a nonprofit?
A nonprofit corporation has no owners (shareholders) whatsoever. Nonprofit corporations do not declare shares of stock when established. In fact, some states refer to nonprofit corporations as non-stock corporations.
Even if your LLC didn’t do any business last year, you may still have to file a federal tax return. Closing an LLC is not as simple as locking the door and walking away. There are several steps you must take to protect yourself from liability and withdraw remaining assets from the company. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.
When an LLC goes out of business, officially dissolving it is an important step that will shield the business owner from future liability. This form is generally filed for nonprofits with gross receipts of $50,000 or less. Final financial statements should reflect no remaining liabilities . If your organization cannot satisfy its debts and has insufficient remaining assets, bankruptcy might be the best option. A collaborative national project calling on board members to advance their nonprofits’ missions through greater advocacy. Honorable and thoughtful leave-taking involves acknowledgment of the result of people coming together for a common cause and shared values.
In 2004 Lee opened his practice as an organization development consultant. He specializes in helping people manage growth and change and has worked in the nonprofit sector for over four decades. Lee holds a Master of Arts degree in Counseling Psychology, post graduate credits in Organizational Management, and a Certificate in Organization Development. In addition to coaching and mentoring nonprofit executives, Lee designs and facilitates, board development, strategic planning, and leadership development. He enjoys assisting companies and organizations develop high performing teams. The basis of Lee’s work lies in his love of participating in meaningful personal and organizational change. This portion of an organization’s plan details how an organization controls the release of sensitive information to each of the groups identified under a dissolution plan’s section on areas of impact.
Determine Your Status
The board of a nonprofit can also petition the court to order an involuntary closure if its board deadlocks over the decision or if the organization has not been active for some time. CRI is a member of PrimeGlobal, a worldwide association of independent accounting firms and business advisors. PrimeGlobal does not and cannot offer any professional services to clients. Each independent member of PrimeGlobal is a separate firm and an independent legal entity. PrimeGlobal is not a partnership and independent member firms are not acting as agents of PrimeGlobal or other independent member firms.