Learn how to dissolve a nonprofit company in your state.
Here’s a rundown of the primary tasks you’ll need to do to dissolve your Tennessee nonprofit company. This article solely addresses the most fundamental kind of voluntary dissolution of an existing Tennessee 501(c)(3) nonprofit company. Other forms of nonprofits have distinct regulations and processes, as do other circumstances such as forced dissolution.
Table of Contents
Dissolution Authorization
Closing begins with dissolution, and you will need a determination to dissolve to do so. The resolution should contain a dissolution plan outlining how the nonprofit’s residual assets will be allocated after all creditors have been paid. With the resolution and strategy in hand, Tennessee law allows for voluntary dissolution in the following manner:
If your nonprofit has members, by action of the directors followed by a vote or other permission of the members; otherwise, by a vote of the directors.
Under the first way, the board must normally first accept the resolution to dissolve, including the plan of dissolution, before submitting it to the members. The members then gather and vote on the dissolution. Members may also authorize dissolution with written approval.
The resolution and plan must be approved by the board alone under the second procedure. Typically, a majority of the directors in office at the time of approval must approve the resolution and plan.
Make careful to accurately document the resolution and plan, the votes of the directors, and, if required, the votes or consents of the members. This information will be required for filings with the state and the IRS.
First Notice to the Attorney General
You must submit articles of dissolution for your nonprofit (see below), but you must notify the Tennessee Attorney General and Reporter of the dissolution on or before that date (AG). A copy or description of your dissolution strategy must be included in the notification. You cannot transfer any of your nonprofit’s assets until 20 days after notifying the AG, or unless the AG signals in writing that it will not take action on the transfer, whichever comes first.
Dissolution Articles
You’ll need to submit articles of dissolution with the Secretary of State once your board (and, if appropriate, voting members) have authorized the dissolution and after or on the same day you’ve filed notice with the AG (SOS). The articles of dissolution must include the following:
a statement that the resolution to dissolve was duly adopted by the members if approval by members was not required, a statement that the resolution was duly adopted by a majority of the board of directors if approval by members was not required, a statement that the resolution was duly adopted by a majority of the board of directors
a copy of the resolution or written permission permitting the dissolution if dissolution approval by one or more third parties other than the members or directors was necessary, a declaration that such approval was received, and a statement that the nonprofit notified the AG.
The SOS website has a blank form for the articles of dissolution (Form SS-4411) that may be downloaded.
“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. Winding up is primarily concerned with paying off any obligations and then distributing any leftover assets, although additional responsibilities may be included.
In general, you may distribute money and property only after you have paid off all of your nonprofit’s obligations. There are various regulations that must be followed while distributing assets. 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 criteria may also apply. If you have any concerns, you should speak with a lawyer.
Creditors and Other Claimants Should Be Warned
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. After dissolution, you may send notification to known claims. You may also notify unknown claimants by posting a notice in a newspaper.
Notice to the Attorney General
After “all or nearly all” of your nonprofit’s assets have been transferred—that is, after you have completed winding up your nonprofit—you must notify the AG of who acquired assets other than creditors. The list must include an address for each asset receiver as well as the assets received.
Clearance of State Taxes
To complete your nonprofit’s closure, you must submit articles of termination with the SOS. When the SOS receives the articles, its Division of Business Services will contact the Department of Revenue (DOR) to confirm that your organization has filed all necessary reports and paid all due taxes and penalties. Your articles of termination will be refused if the DOR cannot offer tax clearance verification.
Articles of Dissolution
You must submit articles of termination with the SOS once you have closed your organization. (In certain circumstances, when there is little to no need to wind up, a company may end up submitting both the articles of dissolution and the articles of termination at the same time.) The following items must be included in the termination articles:
the name of your charitable organization
a declaration that all of the nonprofit’s assets have been dispersed to creditors and other parties allowed by the Tennessee Nonprofit Corporation Act; and a statement that the nonprofit’s dissolution has not been overturned.
The SOS website has a form for articles of termination (Form SS-4412) that may be downloaded. There is a filing cost of $20.
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.
Further Information
The SOS website has further information such as forms, postal addresses, phone numbers, and filing costs.
Be advised that dissolving your nonprofit will not prevent any litigation initiated by or against your organization prior to dissolution. Furthermore, for claims or responsibility accrued before to dissolution, fresh legal proceedings may be brought up to two years following dissolution.
This article only covers the most fundamental procedures of voluntary dissolution once your organization has begun operations. There are several further, more specialized regulations that address topics such as:
uninvited dissolution
dissolution of unusual nonprofits
what particular components should be included in a dissolution plan that provides sufficient prior notice of member and director meetings
the necessary number of member and/or director votes to approve dissolution potential dissolution approval by individuals other than directors and members how to approve dissolution in writing without a meeting
What information must be included in notifications to creditors and claimants, as well as how to react to legal claims upon dissolution.
Furthermore, your articles of incorporation or bylaws may incorporate restrictions that apply instead of or in addition to state law. You are highly advised to speak with a lawyer for further information on these and other issues.
Dissolving and winding up your nonprofit company is simply one part of the closure process.