Learn how to dissolve a nonprofit company in your state.
Here’s a short rundown of the basic stages of dissolving and winding up an existing 501(c)(3) nonprofit company in Idaho. 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, Idaho 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.
The first option requires the board to first accept the resolution, which includes the plan, before submitting it to the members. Members then gather and vote to ratify the dissolution. Members may also offer written agreement for the dissolution.
The resolution and plan must be approved by the board alone under the second procedure. The default norm is that approval must be approved by a majority vote of the directors in office at the time.
Make careful to accurately document the resolution 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
After your board of directors (and, if appropriate, voting members) has authorized the dissolution, you must file articles of dissolution with the Secretary of State (SOS). The articles of dissolution must include the following:
the name of your NGO and the date of dissolution
a statement to that effect and a statement that dissolution was approved by a sufficient vote of the board if approval by members was not required, a statement to that effect and a statement that dissolution was approved by a sufficient vote of the board if approval by members was required, (a) the designation and number of members of, and the number of votes entitled to be cast by, each class entitled to vote on dissolution; and (b) either the total number of votes cast for and against dissolution
The SOS website has a blank form for the articles of dissolution (Form 205) that may be downloaded. Instructions are included with the form. There is a minimum filing cost of $30.
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 obligations, such as those in your articles of incorporation, bylaws, or plan of dissolution, 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, 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 careful that dissolution will not put an end to any litigation initiated by or against your organization prior to dissolution. Furthermore, depending on the circumstances, fresh legal proceedings may be initiated by or against your organization for up to five years following its 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 prior to beginning operations
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 expressly agree dissolution in writing without a meeting; what information must 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.