Learn how to dissolve a nonprofit company in your state.
Nonprofit companies may not remain in perpetuity and may shut because they are no longer able to get essential funds, the directors or members have irreconcilable disputes, or they simply decide that the organization has achieved its mission and no longer needs to exist. Whatever the cause, if you decide to dissolve an Oklahoma nonprofit company, you must go through a dissolution procedure. The dissolution of a company needs a vote or other official authorisation, the submission of crucial paperwork with government authorities, and a number of additional processes known together as winding up the business.
The particular methods for terminating a charity in Oklahoma may differ based on a few key variables. Keeping this in mind, the following limitations apply to this article:
It only applies to nonprofit companies in Oklahoma (not all nonprofits are incorporated)
It only applies to NGOs that have applied to the IRS and have been authorized as 501(c)(3) tax-exempt organizations (not all nonprofits are tax-exempt, and not all tax-exempt nonprofits are 501(c)(3) organizations).
It only covers voluntary dissolution based on a decision by the nonprofit’s directors and, where applicable, the nonprofit’s members (a nonprofit can be dissolved involuntarily through a court decree); and it only covers dissolution of nonprofits that have already begun operations (there are separate procedures for dissolving nonprofits that haven’t yet begun doing business).
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Advantages of Formal Dissolution
The State of Oklahoma has registered your Oklahoma nonprofit company. You will formally cancel that registration and cease the corporation’s existence via the dissolution procedure. A well managed dissolution accomplishes at least two essential objectives for a nonprofit that is winding down. For starters, it will eventually place your company beyond of reach of creditors and other claims. Second, it will enable you to meet your legal requirements for the correct disposition of any surviving corporate assets.
Nonprofit Corporation Law in Oklahoma
Oklahoma lacks a comprehensive legislation that applies exclusively to charitable organizations. Instead, the state’s General Corporation Act includes many phrases and paragraphs on “not for profit” and “nonstock” businesses (“GCA”). (A nonstock company is one that does not issue stock and so does not have shareholders. In general, an Oklahoma not-for-profit (nonprofit) company is a nonstock corporation with a certificate of formation that states “that the organization does not give monetary advantage, inadvertently or otherwise, to its members as such.”
The GCA outlines the procedures for dissolving and winding up nonprofit organizations. Because the GCA is primarily aimed at for-profit enterprises, it is not often clear how its provisions should apply to nonprofit organizations. As a result, you should seek the advice of an experienced attorney before dissolving your Oklahoma nonprofit company.
Dissolution Authorization
The method for sanctioning dissolution will differ based on whether your nonprofit company includes voting members in addition to a board of directors. (If you’re not sure if your nonprofit has voting members, see your certificate of incorporation, bylaws, or other organizational papers.)
The GCA allows for voluntary dissolution via:
If members are eligible to vote to elect directors, action by the board of directors is followed by a member vote; otherwise, action by the board of directors is taken.
The first approach requires your board of directors to pass a resolution to dissolve and present it to the voting members. The resolution must then be voted on by the members in a member meeting. You must notify each member authorized to vote on the resolution in advance of the meeting. A majority of members must agree the dissolution at the member meeting. (Note: While the GCA is not totally clear on this issue, avoiding a member meeting and vote may be feasible provided all voting members give their written approval to disband. In such instance, all voting members would need to sign a permission document supporting the motion to disband.)
If your nonprofit’s voting members have the opportunity to elect the organization’s directors, choose the second approach. In such instances, dissolution shall be approved by a majority vote of the members in support of a resolution to dissolve.
If your organization does not have voting members, the third option is available. In such event, a majority of the directors in office at the moment of dissolution must vote to dissolve the corporation.
Make careful to accurately record the motion to dissolve, the votes of the directors, and, if required, the votes of the members. This information will be required for filings with the state and the IRS.
Certificate of Divorce
After your nonprofit’s directors (and, if required, voting members) have accepted the dissolution, you must submit a certificate of dissolution with the Secretary of State (“SOS”). The certificate of dissolution must include the following information:
the name of your charitable organization
the date your nonprofit was established and the date dissolution was approved
one of the following three statements: the name and street address of your organization’s registered agency
The nonprofit’s board of directors and members have approved its dissolution.
The dissolution has been allowed by a vote of the nonprofit’s members who are eligible to vote for directors.
Dissolution has been allowed at a board meeting by approval of a resolution to dissolve by a majority of directors then in office (use this if no members are eligible to vote on dissolution), as well as the names and addresses of the nonprofit’s directors and officers.
The SOS website now provides a blank certificate of dissolution form accessible for download (currently, SOS Form 0007-07/12). The certificate must be filed for a price of $25. You have the option of filing your dissolution by mail, in person, or online. To file online, you must first create an account with the SOS.
According to the GCA, dissolution does not end any legal or similar action ongoing by or against your organization at the time of dissolution or for three years after the date of dissolution.
“Rising Winds”
Following dissolution, your organization continues to exist only for the purpose of completing certain last tasks known as “winding up” the corporation. It may be necessary to appoint one or more officers or directors to conduct the dissolution.
Key winding up duties under the GCA include:
progressively settling and shutting the organization, pursuing and defending litigation, disposing of and transferring the organization’s property, discharging the organization’s obligations, and distributing any leftover assets.
The GCA does not give any advice especially for organizations on the latter two measures, discharging obligations and distributing assets. However, in general, you may only distribute money and property after paying off all of your nonprofit’s obligations. Furthermore, any things lent to your organization on the condition that they be returned upon dissolution must be returned. 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 regulations, such as those in your charter of incorporation, bylaws, or distribution plan, may also apply. If you have any concerns, you should speak with a lawyer.
Creditors and Other Claimants Should Be Warned
You must publish a notice of dissolution in a newspaper once after you have authorized the dissolution of your organization. You also have the option of sending a written notification to known claimants. The dissolution notification must include the following information:
that all claims must be in writing and must inform the corporation of the claimant’s identity and the substance of the claim the mailing address to which a claim must be sent the date by which a claim must be received by the corporation, which cannot be less than 60 days from the date of the notice that the claim will be barred if not received by the deadline stated in the notice that the corporation may make distributions to other claimants and its shareholders
There are several other standards governing the specifics of providing notice and responding to claims. The regulations were designed primarily for for-profit organizations and, in any case, may be difficult to grasp. As a result, when it comes to issuing notice of dissolution, you should definitely consider seeking the advice of a business attorney.
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 dissolution, resolution to dissolve, and, if appropriate, plan of dissolution. When completing 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, including as forms, postal addresses, and filing costs.
Finally, dissolving and winding up your nonprofit company is simply one part of the closure process.