Learn how to dissolve a nonprofit company in your state.
If you decide to dissolve a Minnesota nonprofit company, you must go through a dissolution 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 will differ based on a few key factors. Keeping this in mind, the following limitations apply to this article:
It only applies to nonprofit companies in Minnesota (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 choice made by the nonprofit’s directors and, when appropriate, the organization’s members (a nonprofit may be dissolved involuntarily due to a court order or administrative grounds such as failure to submit an annual renewal); and
It only applies to charities that have previously designated or elected a board of directors (there are expedited processes for NGOs that do not yet have a board of directors).
Table of Contents
Advantages of Formal Dissolution
The State of Minnesota has recognized your nonprofit company. You will formally cancel that registration and cease 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.
Dissolution Authorization
The method for sanctioning dissolution will differ based on whether your nonprofit company comprises members with voting rights in addition to a board of directors. You’re undoubtedly aware whether your charity has such members. If you’re unclear, consult your articles of incorporation, bylaws, or other comparable organizational papers.
Minnesota’s Nonprofit Corporation Act (“NCA”) allows for voluntary dissolution through one of two methods:
a vote of those eligible to vote for dissolution; or
If there are no such members, the directors will vote.
If your organization has voting members, the board must first pass a resolution dissolving the company. Adoption of the resolution needs a majority vote of the directors. The resolution must contain a dissolution plan that specifies how the nonprofit’s residual assets will be allocated once creditors are paid. The resolution and plan must then be sent to the voting members, who must meet and vote on the resolution. Each member eligible to vote must be given five days’ notice of the scheduled member meeting. The NCA does not specify whether dissolution can be approved by a less-than-unanimous vote of members, instead stating only that “If the proposed dissolution is approved by the members with voting rights, the dissolution must be started.” If you have voting members, you should check your articles of incorporation or bylaws for any provisions requiring a certain number or percentage of members to approve dissolution.
If your organization lacks voting members, only the board of directors must vote on the proposed dissolution. As previously noted, the NCA needs a majority vote of the board of directors to be approved.
If you dissolve by vote, be sure to correctly document the board’s decision and plan, the votes of the directors, and, if required, the votes of the members. This information will be required for filings with the state and the IRS.
Provided a nonprofit company includes voting members, the NCA enables you to forgo a vote at a formal meeting if all voting members submit written authorization to disband. To be effective, dissolution by written permission requires all voting members to sign and date a written consent document.
Notification of Intention to Dissolve
After your board (and, if appropriate, voting members) agree the dissolution, you must submit two notices of intent to dissolve: one with the Secretary of State (“SOS”) and one with the Attorney General’s Office (“AG”). There is no form provided for submitting the notification to the SOS, therefore you will have to write your own. According to the NCA, the notification of intent to dissolve that is to be presented to the SOS must include:
the name of your charitable organization
the date and location of the meeting at which the resolution was passed by the board and, if appropriate, the members; and
a declaration confirming the essential permission of the directors and members was obtained.
In most cases, filing your notification with the SOS has no effect on legal claims made by or against your organization.
The AG website has a blank form for the notification to be sent to the AG. The AG notification demands far more information than the SOS notice, including precise information about your nonprofit’s assets and how they will be transferred. Remember that you cannot transfer or transmit any of your organization’s assets for at least 45 days after notifying the AG. This is known as the “waiting period,” and in certain situations, the AG may extend it by an additional 30 days.
“Rising Winds”
Following member or board consent of dissolution, your corporation continues to exist merely for the purpose of completing certain last tasks known as “winding up” the business. It may be necessary to appoint one or more officers and/or directors to manage these issues.
The major winding up duties under the NCA are:
recovering debts owed to your nonprofit
debts, responsibilities, and liabilities of your nonprofit
Selling, leasing, transferring, or otherwise disposing of all or substantially all of the property and assets of your organization
dispersing any physical or intangible property, including money, that remains after the nonprofit’s commitments, obligations, and liabilities have been satisfied.
There are a few things you should remember about the final two chores mentioned. First, because of the AG’s “waiting time,” you won’t be allowed to do any of these duties until you obtain permission from the AG.
Second, your organization is required to disperse its assets in the following order of priority:
Any assets maintained for “special purpose” must be returned (this might, for example, include items formally on loan to your organization)
You must pay all expenses related to the dissolution process, including legal fees.
You must settle all debts, liabilities, and commitments owed by the organization; and
Any distributions mandated by your articles of incorporation or bylaws must be made.
It is important to note that distributions are provided only when all debts, liabilities, and responsibilities have been satisfied. Furthermore, keep in mind that the distribution of assets is subject to the limits of Minnesota’s charitable trust rules.
Finally, a 501(c)(3) organization that is dissolving must disperse its remaining assets for tax-exempt reasons. In reality, this usually entails transferring any leftover assets to another 501(c)(3) organization. If you are unsure if this rule applies to your organization, you should consult with a lawyer.
Creditors and Other Claimants Should Be Warned
After submitting your notifications of intent with the SOS and AG, you have the option of notifying creditors and possible claims against your nonprofit of the impending dissolution. Giving notice requires both the publication of notice in a newspaper once a week for four weeks and the mailing of notice to known creditors and claimants. Claimants typically have at least 90 days to reply to the notification. (If you do not provide notice, creditors and claimants normally have two years to file a claim.) There are a number of other requirements regarding both giving notice and responding to claims; some of these laws may be difficult to grasp. As a result, if you decide to serve notice on creditors and other claimants, you should consult with an attorney.
Filing a complaint with the Attorney General
When you have finished winding up your nonprofit, including transferring “all or substantially all” of its assets, you must submit the AG a list of the individuals to whom the assets were transferred or conveyed. This document does not have a form or template. For additional information, you should contact the AG.
Dissolution Articles
Finally, after you have completed the process of winding up your nonprofit, including paying or arranging for the payment of creditors and claims and submitting your list of transferees with the AG (as mentioned above), you must file articles of dissolution with the SOS. The following must be stated in the articles of dissolution:
whether you published and sent notices to your nonprofit’s creditors and claims
If you did provide notice, the latest day it was delivered and (a) that payment to creditors and claimants submitting a claim within the time period required by law has been paid or provided for, or (b) the longest term under the law within which claims must be lodged has elapsed.
if you failed to provide notice that your nonprofit’s debts, obligations, and liabilities had been paid and discharged, or that appropriate preparations had been made for them
that the corporation’s remaining assets have been dispersed in accordance with the NCA’s priority order, or that reasonable provision has been made for the distribution
that no legal, administrative, or arbitration procedures are now pending by or against your nonprofit, or that adequate provision has been made for the satisfaction of any judgment, order, or decree that may be entered against it in a pending process; and
If appropriate, you must have submitted the AG a notice of intent to dissolve and the waiting time has either elapsed or been waived by the AG.
The SOS does not have a form or template for your articles of dissolution. (The SOS has a form for new charities that haven’t yet selected a board of directors, but that form isn’t appropriate here.) As a result, you’ll need to construct this document yourself. You should definitely consider retaining the services of an attorney to help you with this file.
Note on Federal Taxation
You must submit IRS Form 990 or IRS Form 990-EZ for federal tax reasons, together with a completed Schedule N (Liquidation, Termination, Dissolution, or Significant Disposition of Assets) and copies of your articles of dissolution, resolution to dissolve, and any documented dissolution plans. When completing Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.