Learn how to dissolve a nonprofit company in your state.
Whatever the underlying cause for shutting down your North Carolina 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:
The state of North Carolina has recognized your nonprofit company. You will formally cancel that registration and cease the corporation’s existence via the dissolution procedure. A well managed divorce accomplishes at least two significant goals:
It puts your company beyond of reach of creditors and other claims, and it enables you to meet your legal requirements for the correct allocation of any leftover assets.
Dissolution Authorization
Depending on whether or not your organization has members, the method for requesting dissolution will differ. If you are unclear if your nonprofit has members, consult your articles of incorporation, bylaws, or other comparable organizational papers.
The Nonprofit Corporation Act (“NCA”) of North Carolina allows for voluntary dissolution by either:
If there are members, the directors will act, followed by a vote of the members; if there are no members, the directors will vote.
A plan of dissolution is required to dissolve your organization. At the very least, the plan must provide for the payment and discharge of all of your nonprofit’s responsibilities and obligations, as well as the correct allocation of any residual assets. You may wish to hire an attorney to help you prepare the plan.
If your organization has voting members, the board must first adopt the dissolution plan before submitting it to the members. A majority vote of the directors is generally required for board approval of the plan, but check your articles of incorporation and bylaws for specific voting criteria. If the board wishes to have the dissolution authorized by members in a membership meeting, members must be given at least 10 days’ notice. A copy or description of the plan of dissolution must be included in the notification. The dissolution must be approved by a two-thirds majority of the votes cast or a simple majority of the votes eligible to be cast, whichever is fewer, under the NCA. Your board may also seek permission from members by written agreement or written ballot.
If your organization does not have members, the board must adopt the dissolution plan. A majority of the directors must generally approve the proposal. However, differing requirements requiring board approval may be found in your articles of incorporation and bylaws. The meeting must be announced at least five days in advance, and the notification must contain a copy or summary of the plan of dissolution.
If your rules demand that dissolution be authorized by someone else, that person must do so in writing.
Make careful to accurately document the 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.
Dissolution alone does not, among other things,:
After your board (and, if appropriate, members) have accepted the dissolution, you must submit articles of dissolution with the Secretary of State (“SOS”). You are not obliged by law to submit this document, but without it, you will not be able to complete the voluntary dissolution of your nonprofit organization effectively.
The articles of dissolution must include the following:
The SOS website has a blank form for the articles of dissolution that may be downloaded. The filing of the articles of dissolution costs $15. You must keep the original as well as one duplicate.
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. If you have any concerns, you should speak with a lawyer.
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.
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:
You may also notify unknown 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 five 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.
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.
Finally, dissolving and winding up your nonprofit company is simply one part of the closure process.