Learn how to dissolve a nonprofit company in your state.
Here’s a short rundown of the essential processes involved in dissolving and winding up a 501(c)(3) nonprofit company in Arizona.
Table of Contents
Dissolution Authorization
Closing begins with dissolution, and you will require a proposal to dissolve to do so. The proposal should contain a dissolution plan outlining how the nonprofit’s residual assets will be allocated after all creditors have been paid. With the proposal and plan in hand, Arizona 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 or other permission of the members.
The request to dissolve and plan of dissolution must be approved by the board alone under the first procedure. A majority of the directors must typically accept the idea.
The board must first accept the proposal to disband before submitting it to the members under the second approach. The members then gather and vote to adopt the proposal, including the dissolution plan. Members may also offer written approval for the resolution.
Make careful to correctly document the request to dissolve, the plan of dissolution, 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.
Dissolution Articles
You must submit articles of dissolution with the Arizona Corporation Commission once your nonprofit has authorized dissolution (ACC). The articles of dissolution must include the following:
the name of your nonprofit, the date of dissolution, and a declaration that the dissolution was properly approved by an act of the members or an act of the board of directors, as well as the appropriate permission of other parties.
The ACC website provides a blank form for the articles of dissolution (Form C022) as well as instructions for completing the form (Form C022i). You must additionally give your state-issued ACC file number and date of incorporation when utilizing the ACC form, which is encouraged. For filings, you need also include the ACC’s cover page (available on the ACC website). There is a filing cost of $25.
Within 60 days following the ACC’s approval of your file, you must publish a copy of the articles of dissolution. Furthermore, the articles of dissolution are not deemed final until the ACC gets notification from the Department of Revenue that your organization is exempt from state income tax.
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 have paid off all of your nonprofit’s obligations. 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 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.
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, proposal 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
On the ACC website, you may discover further information such as forms, postal addresses, phone numbers, and filing costs.
Be careful that dissolution will not put an end to any litigation initiated by or against your organization prior to dissolution. Furthermore, even after dissolution, additional legal actions might be brought by or against your organization for claims or obligation accrued before to dissolution. Depending on the circumstances, the period following dissolution during which fresh proceedings may be brought against your organization might last up to five years.
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 needed number of votes from directors or members to authorize dissolution
how to precisely authorize dissolution in writing without a meeting where and how to post your dissolution articles
What information should be included in notifications to creditors; and how to react 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.