Learn how to dissolve a nonprofit company in your state.
It should be noted that Delaware does not have a distinct laws for nonprofit entities. Instead, requirements for Delaware NGOs are incorporated in the General Corporation Law of Delaware. Because the latter legislation is mainly intended for for-profit organizations, it is sometimes essential to “interpret” its provisions to apply to charities. To make things even more difficult, Delaware nonprofit companies are just one kind of “nonstock company.” (Unlike a regular for-profit company, a nonstock corporation does not issue capital stock.)
Table of Contents
Dissolution Authorization
Closing begins with dissolution, and you will need a determination to dissolve to do so. You may also need a distribution plan, which specifies how the nonprofit’s residual assets will be dispersed. With the resolution and strategy in hand, Delaware law allows for voluntary dissolution in the following manner:
the action of the governing body followed by a vote of the members; or if your organization does not have members, by a vote of the governing body.
The governing board must first pass the resolution to dissolve and then propose it to the members under the first approach. Members then gather and vote to adopt the resolution.
The resolution is approved by majority written approval using the second procedure. In such instances, no action by the governing body is required.
The governing body alone must adopt the resolution to dissolve under the third way. The resolution must typically be passed by a majority vote of the governing body. (As of 2010, Delaware law required nonprofit companies to have members, although there are significant exceptions.)
Make careful to correctly document the resolution to dissolve and distribution plan, as well as the votes of the governing body and members’ votes or written consents, if applicable. This information will be required for filings with the state and the IRS.
Certificate of Divorce
You must submit a certificate of dissolution with the Division of Corporations once your organization has authorized dissolution (DOC). The certificate of dissolution must include the following information:
the name of your charitable organization
the date of dissolution, the filing date of your nonprofit’s initial certificate of incorporation, a declaration that the dissolution was properly approved in accordance with the rules of Delaware’s General Corporation Law, and the names and addresses of your nonprofit’s directors and officers.
The DOC website has a blank form for the certificate of dissolution (“CERTIFICATE OF DISSOLUTION OF NON-STOCK CORPORATION (SECTION 276 (a)” accessible for download. A filing fee of at least $204 is required.
Winding Down
After your nonprofit has legally approved dissolution, it continues to exist merely for the purpose of completing certain last tasks known as “winding up” the firm. Winding up is primarily concerned with paying off any obligations and then distributing any leftover assets, although additional responsibilities may be included. In general, you may distribute money and property only after you have paid off all of your nonprofit’s obligations. A dissolving 501(c)(3) organization must also disperse its residual assets for tax-exempt purposes once all obligations have been paid. In reality, this generally entails donating assets to another 501(c)(3) charity or organizations. Other distribution criteria, such as those in your distribution plan, may also apply. If you have any concerns, you should speak with a lawyer.
Creditors and Other Claimants Should Be Warned
Giving notice to creditors and other claims is another aspect of winding up your dissolved charity. It is not required to provide notification. However, doing so will assist reduce your obligation and enable you to make final dispositions of residual assets more securely. Giving notice requires both newspaper publishing and mailings to all known claimants.
Note on Federal Taxation
You must submit IRS Form 990 or IRS Form 990-EZ for federal tax reasons. Schedule N (Liquidation, Termination, Dissolution, or Significant Disposition of Assets) must be completed, as well as copies of your certificate of dissolution, resolution to dissolve, and plan of distribution. When filling out Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.
Further Information
On the DOC website, you may discover further information such as forms, postal addresses, phone numbers, and filing costs.
Litigation initiated by or against your organization prior to dissolution will not be halted. Furthermore, new legal proceedings may be initiated by or against your organization for up to three years following its dissolution.
This article only covers the most fundamental procedures of voluntary dissolution once your organization has begun operations. There are several further, more specialized regulations that address topics such as:
uninvited dissolution
dissolution prior to beginning operations
dissolution of unusual nonprofits
what precise goods should be included in a distribution plan
providing adequate notice of member and governing body meetings
the needed number of member or governing body votes to approve dissolution; processes to approve dissolution in writing without a meeting; what information must be included in communications to creditors and claimants; and how to react to legal claims after dissolution.
Furthermore, your charter of incorporation or bylaws may include regulations that apply instead of or in addition to state law. You are highly advised to speak with a lawyer for further information on these and other issues.