How to Dissolve a Texas Nonprofit Corporation

Learn how to dissolve a nonprofit company in your state.

Do you need to dissolve your Texas nonprofit corporation? Here’s a short rundown of the essential stages involved in winding up and terminating a 501(c)(3) charitable company in Texas.

Dissolution Authorization

Closing begins with winding up, and you will need a resolution to wind up your organization. You’ll also need a distribution plan, which outlines how the nonprofit’s leftover assets will be allocated once all creditors have been paid. With the resolution and strategy in hand, Texas law allows for voluntary dissolution in the following manner:

If your nonprofit does not have members, a vote of the directors is required; otherwise, action of the directors is required followed by a vote of the members.

The board must pass the resolution to wind up under the first procedure. Approval is required by default by a two-thirds majority of the directors in office at the time of the vote. Written consent may also be used to provide approval. The procedure for approving the distribution plan is the same.

In the second process, the board must normally first adopt the resolution before submitting it to the members. Members then gather and vote to ratify the dissolution. The procedure for approving the distribution plan is the same. Texas law differentiates between organizations with management “vested in” the members on the one hand, and nonprofits managed by a board of directors but with voting rights on the other. This article does not discuss the distinctions in how these two kinds of organizations approve dissolution.

Make careful to correctly document the resolution to wind up, the plan of distribution, the votes or written consents of the directors, and the votes of the members, if any. This information will be required for filings with the state and the IRS.

“Rising Winds”

After your organization has been legally permitted to wind up, it exists only for the purpose of completing the winding-up procedure. The procedure consists mostly of paying off any obligations and then distributing any residual assets, although additional chores may be required. If your organization is not administered by its members, the directors will be in charge of shutting it down. If your nonprofit is run by its members, the members will handle the dissolution.

After you’ve paid off all of your nonprofit’s obligations, you may distribute money and property. Then there are certain regulations to follow when it comes to asset distributions. 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 conditions for asset distribution may also apply. If any assets remain after you have completed your distribution plan, they must be allocated by the local district court. If you have any issues about distribution, you should speak with a lawyer.

Termination Certificate

After you’ve completed the dissolution of your nonprofit, you must submit a certificate of termination with the Secretary of State (“SOS”). The certificate must have the following information:

The name of your nonprofit should be an indicator that it is a nonprofit entity.
the date your nonprofit was established
the SOS file number assigned to your organization the names and addresses of all directors of your nonprofit
an indication of the occurrence necessitating your nonprofit’s dissolution (for example, a voluntary choice authorized in line with Texas law and the nonprofit’s governing documents)
a declaration that the filing entity has followed the rules of the Texas Business Organizations Code regulating its dissolution
a statement that all of the nonprofit’s property has been disposed of in accordance with chapter 11 and chapter 22 of the Texas Business Organizations Code” a statement that there is no suit pending against the nonprofit corporation or that adequate provision has been made therefore; and\s a statement that the distribution of any remaining property has been done in accordance with a duly adopted plan of distribution.

The SOS website has a blank form for the certificate of termination (Form 652) that may be downloaded. It is advised that you use the SOS form, which provides guidelines and suitable phrasing for each part. A filing fee of $5 is required.

Creditors and Other Claimants Should Be Warned

After termination, you may notify known creditors and other claims of your nonprofit’s demise. It is not required to provide notification. However, doing so may minimize the time during which at least certain claims may be filed against your organization and enable you to make final distributions of residual assets with more confidence. Texas law requires that recognized claimants be notified by registered or certified letter.

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) must be included, as well as copies of your certificate of termination, resolution to wind up, and plan of distribution. 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

On the SOS website, you may discover further information such as forms, postal addresses, filing fees, and access to the state’s online filing system.

Be careful that dismissing your organization will not put an end to any litigation initiated by or against it before to termination. Furthermore, depending on the circumstances, you may be able to file fresh legal proceedings up to three years after your organization has been dissolved.

This article just covers the most fundamental aspects of voluntary dissolution. There are several further, more specialized regulations that address topics such as:

winding up and termination of non-typical charities involuntarily winding up and termination of non-typical nonprofits (for example, cooperative associations)
distinctions between member-managed nonprofits and director-managed nonprofits with voting members what specific items should be included in a plan of distribution giving proper advance notice of member or director meetings the required number of member votes to approve winding up or a plan of distribution in writing steps to approve winding up and a plan of distribution in writing

Furthermore, your certificate of organization or bylaws may include provisions that apply instead of or in addition to state law.

Texas’ nonprofit rules are distinctive and complicated, and are included under the state’s more general Business Organizations Code. You are highly advised to speak with a lawyer for further information on winding up and terminating a Texas nonprofit company.

Winding up and dissolving your nonprofit company is simply one part of the closure process.