Learn how to dissolve a nonprofit company in your state.
Whatever the underlying cause for winding down your Mississippi nonprofit company, you will need to go through the 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 Mississippi (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 applies to nonprofits that are classified as “charitable organizations” under Mississippi law (any Mississippi nonprofit that is a 501(c)(3) organization is, by definition, a Mississippi “charitable organization”); and it only applies to voluntary dissolution based on a decision by the nonprofit’s directors and, where applicable, the nonprofit’s members (a nonprofit may be involuntarily dissolved through a court order, or for administrative reasons such as failing to file a requested status report).
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Advantages of Formal Dissolution
The state of Mississippi has recognized your nonprofit company. 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.
Dissolution Authorization
The method for sanctioning dissolution will differ based on whether your nonprofit company includes members in addition to a board of directors. If you are unclear if your nonprofit has members, consult your articles of incorporation, bylaws, or other comparable organizational papers.
Mississippi’s Nonprofit Corporation Act (“NCA”) allows for voluntary dissolution through one of two methods:
a vote of the directors; or, if there are members, a vote of the members and a vote of the directors.
If your nonprofit has no members, the board must authorize dissolution. Specific regulations and procedures governing the board approval process should be found in your articles of incorporation and bylaws. In general, dissolution requires a resolution, and dissolution must be authorized by a majority of the directors in office at the time of approval. All directors must be given at least two days’ notice of the meeting on dissolution. When authorizing dissolution, the board of directors must also approve a dissolution plan that specifies how the nonprofit’s assets will be allocated once all creditors have been paid.
If your nonprofit includes voting members, the board must first approve and then present a resolution to the members to dissolve the company. If the board wishes to have the dissolution authorized by the members at a membership meeting, members must be given at least 10 days’ notice, which must include a copy or summary of the dissolution plan. The dissolution must be approved by a two-thirds majority of the members or a majority of the membership voting power, whichever is less. The board may also seek permission from the members by written consent or written ballot, in which case the document soliciting consent or ballot must include a copy or description of the plan of dissolution. Written permission needs approval by 80% of the voting power of the members.
Make careful to accurately document the board’s resolution and plan of dissolution, 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.
Certain things are unaffected by dissolution.
Dissolution alone does not, among other things,:
transfer ownership of the nonprofit’s property
expose the nonprofit’s directors or officers to different standards of behavior than existed before to dissolution
modify quorum or voting criteria for the nonprofit’s board of directors or members, change rules for the nonprofit’s directors or officers’ nomination, resignation, or removal, or change procedures for revising the nonprofit’s bylaws
Prevent the initiation of a process in the nonprofit’s corporate name; abate or postpone a proceeding continuing in the nonprofit’s corporate name on the effective date of dissolution; or terminate the power of the nonprofit’s registered agent.
Dissolution Articles
You must submit articles of dissolution with the Secretary of State once your board (and, if relevant, voting members) have authorized the dissolution (“SOS”). The NCA does not force you to submit this document; rather, it states that a nonprofit “may” dissolve by filing the articles. However, if you do not submit articles of dissolution, you will not be able to properly conclude your nonprofit’s voluntary dissolution.
The articles of dissolution must include the following:
the name of your NGO and the date of dissolution
a statement that dissolution was approved by a majority vote of the board a statement that all debts, obligations, and liabilities of the corporation have been paid and discharged or that adequate provision has been made for them a statement that the corporation’s remaining property and assets have been transferred to another charitable organization or other charitable organizations, as defined by the NCA, engaged in substantially similar activities to those of the corporation
The SOS website has a blank form for the articles of dissolution that may be downloaded. The filing of the articles of dissolution costs $25.
“Rising Winds”
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. 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:
preserving and protecting the nonprofit’s assets and minimizing its liabilities discharging or making provision for discharging the nonprofit’s liabilities and obligations disposing of nonprofit properties that will not be distributed in kind returning, transferring, or conveying assets held by the nonprofit in accordance with a condition requiring return, transfer, or conveyance, which condition occurs as a result of the dissolution
Asset Distribution Guidelines
In general, distributions of money and property are given only when all of your nonprofit’s obligations have been paid off. When it comes to distributions, the NCA has precise guidelines you must follow. For example, your nonprofit is required to return any things leased to it on the condition that they be returned upon dissolution. A dissolving 501(c)(3) organization must also disperse its remaining assets for tax-exempt purposes after paying off obligations and repaying borrowed assets. In reality, this generally entails donating assets to another 501(c)(3) charity or organizations. Other distribution regulations, such as those in your articles of incorporation, bylaws, or distribution plan, may also apply. If you have any concerns, you should speak with a lawyer.
Creditors and Other Claimants Should Be Warned
Another aspect of winding up your dissolved charity is notifying creditors and other claims of its demise. It is not required to provide notification. However, doing so will assist to reduce your nonprofit’s liabilities and enable it to allocate assets to other charitable organizations more securely.
One method of providing notice under the NCA is to deliver a written document directly to identified claimants following dissolution. Proper written notice must include:
specify what information must be included in a claim
give a postal address to which a claim may be sent
mention the deadline for your dissolved nonprofit to receive the claim, which cannot be less than 120 days from the effective date of the written notification; and declare that the claim will be barred if not received by the deadline.
You may also notify prospective claimants by posting a notice in a newspaper. There are special standards for delivering notice by publishing, just as there are for sending direct notice to identified claimants. In general, claimants have two years from the date of newspaper publication to file a claim.
Some of the regulations for providing notice and responding to claims might be complicated. As a result, if you decide to give claimants notice, you should definitely consider seeking the advice of a business attorney.
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 articles of dissolution, resolution to dissolve, and plan of dissolution. When filling out Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.