Learn how to dissolve a nonprofit company in your state.
Do you need to dissolve your Alabama nonprofit corporation? Here’s a short rundown of the essential processes involved in dissolving and winding up a 501(c)(3) nonprofit company in Alabama.
Table of Contents
Dissolution Authorization
Closing begins with dissolution, and you will need a determination to dissolve to do so. 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 a resolution and a strategy in place, Alabama law allows for voluntary dissolution in the following ways:
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.
The board must first approve the resolution to dissolve and then present it to the members under the first approach. Members then gather and vote to adopt the resolution. Members may also grant unanimous written approval for the resolution. The process for approving a different distribution plan is roughly the same.
The board must adopt the resolution to dissolve under the second approach. In general, the resolution must be passed by a majority of the directors who are in office at the time. The method for approving a distribution plan is the same.
Make careful to accurately document the decision to dissolve, the plan of distribution, the votes of the directors, and, if required, the votes or written consents of the members. This information will be required for filings with the state and the IRS.
Intention to Dissolve Statement
You must develop and sign a declaration of intent to dissolve after passing the resolution to dissolve. The following information must be included in the statement:
If there are members entitled to vote on dissolution, (a) a statement giving the date of the member meeting at which the resolution to dissolve was adopted, that a quorum was present at the meeting, and that the resolution received the necessary votes, or (b) a statement that the resolution was adopted by the written consent of all members entitled to vote.
The declaration of intent to dissolve must be filed with the Office of the Judge of Probate in the county where the certificate of incorporation for your nonprofit was registered.
Winding Down
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’ve 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, such as those in your distribution plan, may also apply. If you have any concerns, you should speak with a lawyer.
Dissolution Articles
You’ll need to file articles of dissolution with the Office of the Judge of Probate in the county where your nonprofit’s certificate of formation was recorded after you’ve paid and discharged all debts and properly transferred any remaining property—in other words, after you’ve finished winding up your nonprofit. The articles of dissolution must include the following:
the name of your charitable organization
a declaration that your nonprofit’s statement of intent to dissolve has been submitted, together with the filing date
a document indicating that all of your nonprofit’s debts, obligations, and liabilities have been paid in full or that appropriate provision has been made for their payment and discharge
a copy of your nonprofit’s distribution plan, if any, or a declaration that no plan was implemented
a statement that all of the nonprofit’s remaining property and assets have been transferred in accordance with the Alabama Nonprofit Corporation Act; and a statement that no suits against the nonprofit are pending in any court, or that adequate provision has been made for the satisfaction of any judgment, order, or decree that may be entered against it in any pending suit.
The Alabama Secretary of State (SOS) website has a blank form for the articles of dissolution (Form DNP Corp Dissolution). The SOS filing cost is $100, plus any fees imposed by the Judge of Probate. One original and two copies must be submitted.
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 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
The SOS website has further information such as forms, postal addresses, phone numbers, and filing costs.
You should be aware that dissolving your organization will not prevent litigation for claims or liabilities accrued prior to dissolution. In most cases, these claims may be submitted up to two years following the 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 specific items should be included in a distribution plan; giving proper advance notice of member and director meetings; the required number of member votes to approve dissolution; specific steps to approve dissolution in writing without a meeting; and how to respond to legal claims after 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.