Learn how to dissolve a nonprofit company in your state.
If you want to dissolve a New Mexico 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.
This article solely addresses the most fundamental kind of voluntary dissolution of an existing New Mexico 501(c)(3) nonprofit company. Other sorts of charities or circumstances, such as forced dissolution, may have distinct regulations or processes.
The state of New Mexico 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 puts your company beyond of reach of creditors and other claims. Second, it enables you to meet your legal requirements for the correct disposition of any surviving corporate assets.
Depending on whether or not your nonprofit company has members, the method for requesting dissolution will differ. (If you’re unclear, see your articles of incorporation, bylaws, or other comparable organizational papers.)
The Nonprofit Corporation Act (“NCA”) of New Mexico allows for voluntary dissolution by either:
action by the directors followed by a vote of the members; or a vote of the directors if there are no members.
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. To dissolve a corporation, a resolution must be passed by a majority of the directors. If you have any surviving assets, you will almost certainly need to devise a distribution strategy. This, too, usually needs a majority of the votes cast by the directors. Your articles of incorporation or bylaws, on the other hand, may demand a larger majority vote to approve the dissolution or a plan of distribution.
If your nonprofit includes voting members, the board must first approve and present a resolution to the members to dissolve the organization. The members must then convene and vote on the resolution. Each member who is eligible to vote on dissolution must be given at least 10 days’ notice. The dissolution must be approved by a two-thirds majority of the members voting. A copy or summary of the distribution plan must be provided to members of the meeting in order for them to vote on it. A distribution plan must be approved by two-thirds of the members. Members may also pass the motion to disband without a formal meeting provided all members submit written approval for the dissolution.
If you have assets to distribute upon dissolution, your board will almost certainly need to approve a resolution suggesting a plan of distribution in addition to the resolution to dissolve. The plan of distribution specifies how the assets of the organization will be allocated upon its dissolution. It must follow the basic NCA guidelines for nonprofit asset allocation, which are detailed more below. Following board approval, members must approve the proposal by a two-thirds majority vote.
Before any member or board votes on dissolution, you should always verify your articles of incorporation and bylaws—if they include rules requiring a bigger majority vote on dissolution or a plan of distribution than the NCA requires, you must obey those rules.
Make careful to accurately document the board’s resolution, any distribution 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.
Be advised that dissolution does not prevent any legal action taken by or against your organization prior to dissolution. Dissolution does not exclude a claim or responsibility incurred by your nonprofit prior to dissolution, as long as the claimant files an action against your organization within two years following dissolution.
The NCA requires you to “immediately” send notification of the planned dissolution to each known creditor of your organization once your nonprofit has approved dissolution.
You will eventually need to submit articles of dissolution to finalize the dissolution of your organization. However, you must first get tax clearance from the Secretary of State’s Tax Compliance Division (“SOS”). This necessitates filling out and submitting a tax clearance application form to the Tax Compliance Division. Before submitting the form, you must be current on all yearly reports and payments. The form, which needs just a few details, is included in a tiny bundle of nonprofit dissolution documentation accessible on the SOS website.
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. It may be necessary to appoint one or more officers or directors to manage these issues.
In general, you may distribute money and property only after you have paid off all of your nonprofit’s obligations. The NCA has particular guidelines for distributions that 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. Distributions are typically forbidden for current and past members, directors, and officials. A lawyer should be consulted if you have any issues concerning appropriate wealth distribution.
You must submit articles of dissolution with the SOS once your organization has authorized dissolution, issued notice to creditors, gotten tax clearance, paid off all obligations, and dispersed any leftover assets.
The articles of dissolution must include the following:
You may already obtain an articles of dissolution form (Form DNPDV) from the SOS website, as well as a package including the application for tax clearance and instructions on submitting both the application and the articles of dissolution (Form DNP-DVI). The original and one copy of the articles of dissolution must be sent to the SOS, together with your certified tax clearance. The filing of the articles of dissolution costs $10.
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.
The SOS website has further information such as forms, postal addresses, phone numbers, and filing costs.