Learn how to dissolve a nonprofit company in your state.
Whatever the underlying cause for the closing of your North Dakota 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 North Dakota (not all nonprofits are incorporated)
It only applies to NGOs that have applied to and been authorized by the IRS as 501(c)(3) tax-exempt organizations.
It only applies to voluntary dissolutions made by the nonprofit’s directors and, when relevant, its members (a nonprofit may be involuntarily dissolved through a court order, or for administrative reasons such as failing to file an annual report)
It only applies to nonprofits that have already named or elected a board of directors (streamlined procedures exist for nonprofits that do not yet have a board of directors); and it does not apply to court-supervised voluntary dissolutions (at a certain point during a voluntary dissolution, various people can ask a court to step in and supervise the process).
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Advantages of Formal Dissolution
The state of North Dakota 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 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.
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.
The Nonprofit Corporation Act (“NCA”) of North Dakota allows for voluntary dissolution by either:
a vote by directors, followed by a vote by members eligible to vote on dissolution; or a vote by directors if no members exist.
If your organization includes voting members, the board must first approve a resolution to dissolve the company by majority vote. The resolution must contain a dissolution plan outlining how leftover assets will be allocated once creditors have been paid. The resolution and plan must then be sent to the voting members, who must meet and vote on the resolution. Each member authorized to vote must be notified of the member meeting five days in advance. In general, the dissolution must be approved by a majority of the members. Check your articles of incorporation and bylaws for any clauses needing a higher % vote for dissolution approval.
If your organization does not have voting members, the proposed dissolution must be voted on by the board alone.
The NCA needs a majority vote of the directors to be approved. Your articles of incorporation or bylaws, on the other hand, may need a larger board majority for approval.
A formal gathering is not required to vote on dissolution. The NCA allows for dissolution to be approved without a meeting provided there is unanimous written agreement. So, if all of your directors offer written approval, or all of your members submit written consent, you may bypass a formal board and/or member meeting. Furthermore, your bylaws may empower directors or members to authorize dissolution with less-than-unanimous written permission. To be effective, directors or members providing permission must sign and date a formal consent form.
Make careful to accurately document the board’s resolution and plan, as well as the votes of the directors and (if appropriate) members. This information will be required for filings with the state and the IRS.
Notification of Intention to Dissolve
Following approval by your board (and, if relevant, voting members), you must submit two notices of intent to dissolve: one with the Secretary of State (“SOS”) and one with the Attorney General (“AG”). The SOS website has a form for submitting the notification (Form SFN 58782) that may be downloaded. There is no form available for filing the notification with the AG.
The notification to be issued to the SOS must include the following information:
the name of your organization, the date and location of the meeting at which the resolution was passed by the board (and members if applicable), or that approval was authorized by written permission, and a declaration that the required approval 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, its directors, officials, or members.
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. As a general rule, you must wait at least 45 days after providing notice to the AG before transferring or conveying any of your organization’s assets. This is referred to as the “waiting time.” Furthermore, in exceptional situations, the AG may prolong the waiting time by another 30 days. You might consider hiring an attorney to help you draft your notification to the AG.
“Rising Winds”
Following acceptance of dissolution by your directors (and, if required, members) and the submission of notifications to the SOS and AG, your corporation exists merely to take care of some last tasks known as “winding up” the business. It may be necessary to appoint one or more officers or directors to manage these issues.
The major winding up duties under the NCA are:
collecting debts owed to your nonprofit; paying or making provisions to pay your nonprofit’s debts, obligations, and liabilities; selling, leasing, transferring, or otherwise disposing of your nonprofit’s property and assets; and properly distributing property, including money, remaining after your nonprofit’s debts, obligations, and liabilities have been discharged.
There are a few things you should remember about the final two chores mentioned. First, due to the AG’s “waiting period,” 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)
pay any dissolution-related expenses, including legal fees
Pay off all of the nonprofit’s debts, liabilities, and responsibilities, as well as make any distributions mandated by your articles of organization or bylaws.
Distributions are made only when all debts, liabilities, and responsibilities have been satisfied. Furthermore, wealth distribution is subject to the constraints of North Dakota’s legislation governing private foundations and charitable trusts.
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 have any issues regarding how to disperse the assets of 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 fail to provide notice, creditors and claimants may have up to two years to file a claim.) There are additional restrictions for both giving notice and responding to claims; some of these requirements might 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 or an experienced attorney.
Dissolution Articles
Finally, you must submit articles of dissolution with the SOS after you have done winding up your nonprofit, including paying or arranging for payment of creditors and claims and filing your list of transferees with the AG. The following must be stated in the articles of dissolution:
If you did not give notice, whether you gave notice to your creditors and claimants by publication and mailings, that (a) your nonprofit’s debts, obligations, and liabilities have been paid and discharged or that adequate provisions have been made, or (b) two years have elapsed since you filed your intent to dissolve with the SOS, the last date on which the notice was given, and that (a) you have paid or provided for payment of all creditors and claimants
The SOS website has an article of dissolution form and guidelines accessible for download. The filing of the articles of dissolution costs $20.
Note on Federal Taxation
You must submit IRS Form 990 or IRS Form 990-EZ for federal tax reasons. 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 must be included. When completing Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.
Further Information
On the SOS and AG websites, you may find further information such as forms (where applicable), postal addresses, phone numbers, filing fees, and general guidelines.
Finally, dissolving and winding up your nonprofit company is simply one part of the closure process.