Find out how to dissolve a non-profit company in Maryland.
If you decide to dissolve a Maryland nonprofit company, you must follow a certain procedure. The dissolution of a company needs a vote or other official authorisation, the submission of crucial paperwork with government authorities, and a number of additional processes known together as winding up the business.
The particular methods for terminating a nonprofit organization in Maryland may differ based on a few key characteristics. Keeping this in mind, the following limitations apply to this article:
It only applies to nonprofit companies in Maryland (not all nonprofits are incorporated)
It only applies to charities that have applied to the IRS and been explicitly authorized as 501(c)(3) tax-exempt organizations (not all nonprofits are tax-exempt, and not all tax-exempt nonprofits are 501(c)(3) organizations).
It only covers voluntary dissolution based on a decision by the nonprofit’s directors and, where applicable, the nonprofit’s members (a nonprofit may be dissolved involuntarily through a court decree, or its charter may be “forfeited” for administrative reasons such as failing to file an annual report); and it only covers dissolution and winding up of nonprofits that have already had an organization meeting of the board of directors (there are separate procedures for dissolution and winding up).
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Advantages of Formal Dissolution
Your Maryland nonprofit company has been registered with the state. You will formally cancel that registration and, by consequence, the corporation’s existence via the dissolution procedure. A well managed dissolution accomplishes at least two essential objectives for a nonprofit that is winding down. For starters, it will eventually place your company beyond of reach of creditors and other claims. Second, it will enable you to meet your legal requirements for the correct disposition of any surviving corporate assets.
Nonprofit Corporation Law in Maryland
Maryland does not have a complete laws that pertains particularly to nonprofits, and the phrase “nonprofit company” is not used in Maryland law. Maryland, on the other hand, provides a restricted set of statutes for “nonstock companies.” A nonstock company is one that does not issue stock and, as a result, does not have any shareholders. In general, a Maryland nonprofit corporation is a nonstock corporation whose articles of incorporation state that the corporation “is organized exclusively for charitable, religious, educational, and scientific purposes,” and that no part of the corporation’s net earnings will benefit or be distributed to its members, trustees, officers, or other private persons other than to pay reasonable compensation for services and make payments and distributions.
The few rules that apply particularly to nonstock companies mention very little concerning their dissolution. Nonstock company statutes, for the most part, depend on Maryland’s General Corporation Law (“GCL”) for provisions regulating dissolution and winding up. Because the GCL’s standards are primarily meant for for-profit enterprises, it is not always clear how the laws should apply to nonprofit organizations. As a result, you should seek the advice of an experienced attorney before dissolving your Maryland nonprofit company.
Dissolution Authorization
Dissolution is permitted by a resolution adopted by a majority of the nonprofit’s whole board of directors, according to the GCL. You must ensure that both the board’s resolution and the directors’ votes are accurately recorded. This information will be required for filings with the state and the IRS.
Creditors’ Notice
You must submit articles of dissolution with the Maryland State Department of Assessments and Taxation once a majority of your board has authorized the dissolution (“SDAT”). If your organization has known creditors, however, you must notify them of the authorized dissolution at least 20 days before filing your articles of dissolution. Notices should be issued to the addresses listed in your organization’s records for the creditors.
Dissolution Articles
Multiple pieces of information concerning your dissolved company must be included in the articles of dissolution, including:
the name of your company
the address of your corporation’s principal office the name and address of a resident agent of the corporation who will serve for one year after dissolution and until the corporation’s affairs are wound up the name and address of each director of the corporation the name, title, and address of each officer of the corporation a statement that the corporation’s dissolution was approved in the manner and by the vote required by law and the charter of the corporation (which generally will be a majority vote of the board of directors)
a declaration that notice of the authorized dissolution was addressed to all known creditors of the company, as well as the date of mailing, or a statement that the corporation has no known creditors; and a statement that the corporation has been dissolved.
An authorized person must sign the articles. (Unless your bylaws or a board of directors resolution permits for another person to sign, this normally indicates a president, vice president, chairman, chief executive officer, chief operational officer, or chief financial officer.) An authorized person must additionally witness and testify to the signing. (Unless your bylaws or a resolution of the board of directors permits for another person to witness and testify, this normally implies the corporation’s secretary, treasurer, chief financial officer, assistant treasurer, or assistant secretary.)
The filing of the articles of dissolution costs $100. The typical processing time is 7-8 weeks. For an extra cost, you may request expedited processing (within 7 business days). Hand-delivered papers are also expedited, but there is an extra cost. You may submit via fax in addition to mail and hand-delivery, but you will be charged the accelerated processing cost.
The SDAT website has an article of dissolution form with instructions accessible for download. Most types of Maryland companies, including nonstock corporations, may utilize this form.
Be aware that following your organization’s dissolution, the name will be accessible for use by others.
“Rising Winds”
After your board accepts dissolution, your nonprofit continues to exist exclusively for the purpose of taking care of some last tasks that, together, are known as “winding up” the firm. The board may choose to appoint one or more officers and/or directors to conduct the winding up.
Among the key winding up responsibilities stated in the GCL and the nonstock companies legislation are:
carrying out the nonprofit’s contracts; selling all or a portion of the nonprofit’s assets at public or private sale; suing or being sued in the name of the nonprofit; collecting and distributing nonprofit assets; paying and discharging, or making adequate provision to pay and discharge, every liability and obligation of the nonprofit; and properly distributing any remaining nonprofit assets.
In terms of the final two things on the list, your organization’s first responsibility is to discharge debts and commitments. Only then may any leftover assets be distributed to groups or individuals other than creditors and claimants.
A 501(c)(3) organization that is dissolving must disperse its remaining assets for tax-exempt reasons. In reality, this usually entails transferring the assets to another 501(c)(3) organization. The legislation governing nonstock companies provides for the possibility of certain residual assets being allocated to designated other organizations. These more detailed standards would typically be found in your nonprofit’s articles of incorporation, bylaws, or a distribution plan authorized by your board of directors. If you have any issues concerning your nonprofit’s asset distribution rules, you should check with a lawyer.
Note on Federal Taxation
You must submit IRS Form 990 or IRS Form 990-EZ for federal tax reasons. You must submit a completed Schedule N (Liquidation, Termination, Dissolution, or Significant Disposition of Assets) as well as copies of your articles of dissolution, resolution to dissolve, and any documented dissolution plans, if applicable. When completing Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.