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 Oregon 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 shutting a charity will differ based on a few key factors. Keeping this in mind, the following limitations apply to this article:
It only applies to non-profit organizations (not all nonprofits are incorporated)
It only applies to charities that have applied to the IRS and been explicitly 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 made by the nonprofit’s directors and, where applicable, the nonprofit’s members (a nonprofit may be dissolved involuntarily due to a court order or administrative reasons such as failing to file an annual report); and it only covers nonprofits that have begun operations (there are streamlined dissolution procedures for nonprofits that have not admitted members and do not yet have initial directors).
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Advantages of Formal Dissolution
The State of Oregon has recognized your nonprofit company. You will formally cancel that registration and cease the corporation’s existence via the dissolution procedure. A well-managed breakup accomplishes at least two significant goals:
It places your company beyond of reach of creditors and other claims, and it lets you to meet your legal duties for the correct disposition of any surviving corporate assets.
Dissolution Authorization
The method for sanctioning dissolution will differ based on whether your nonprofit company includes members in addition to a board of directors. If you are unclear if your nonprofit has members, consult your articles of incorporation, bylaws, or other comparable organizational papers.
The Nonprofit Corporation Act (“NCA”) of Oregon allows for voluntary dissolution as follows:
If there are members, the directors act, followed by a vote of the members; if there are no members, the directors vote.
A plan of dissolution is required to dissolve your organization. After all creditors have been paid, the plan must specify who will get your nonprofit’s remaining assets.
If your organization has voting members, the board must first adopt the dissolution plan before submitting it to the members. In general, adoption of the plan by the board of directors will need a majority vote of the directors, but you should verify your articles of incorporation and bylaws for specific voting criteria. If the board wishes to have the dissolution authorized by the members at a membership meeting, members must be given enough prior notice (usually seven days), and the notification must contain a copy or summary of the dissolution plan. The dissolution must be approved by a two-thirds majority of the votes cast or a simple majority of the votes eligible to be cast, whichever is fewer, under the NCA. Your bylaws or articles of organization may demand a larger vote. Your board may also seek permission from members by written consent or written ballot, in which case the document soliciting consent or ballot must include a copy or description of the plan of dissolution.
If your organization does not have members, the board must adopt the dissolution plan. A majority of the directors in office at the time of approval must generally approve the plan. However, you should review your articles of incorporation and bylaws for any differences in board approval requirements. You must provide all directors at least two days’ notice of the dissolution meeting, and the notification must contain a copy or summary of the dissolution plan.
If your rules demand that dissolution be authorized by someone else, that person must do so in writing.
Make careful to accurately document the plan of dissolution, 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.
Certain things are unaffected by dissolution.
Dissolution alone does not, among other things,:
transfer ownership of the nonprofit’s property
expose the nonprofit’s directors or officers to different standards of behavior than existed before to dissolution
alter quorum or voting criteria for the nonprofit’s board of directors or members change provisions for the nonprofit’s directors or officers’ selection, resignation, or removal or both change procedures for revising the nonprofit’s bylaws
Prevent the initiation of a process in the nonprofit’s corporate name; abate or postpone a proceeding continuing in the nonprofit’s corporate name on the effective date of dissolution; or terminate the power of the nonprofit’s registered agent.
First Notice to the Attorney General
You must notify the Attorney General of the dissolution on or before the day you file articles of dissolution for your nonprofit (AG). You cannot transfer any of your nonprofit’s assets until 20 days after notifying the AG, or unless the AG signals in writing that it will not take action on the transfer, whichever comes first.
The Oregon Department of Justice (DOJ) website has a blank form for the notification (the Closing Form) that may be downloaded. To finish the form, enter the name of your organization, indicate if you have filed articles of dissolution, and list all receivers of assets from your nonprofit at the time of its dissolution. You must also provide a copy of your dissolution strategy with the form.
Dissolution Articles
You’ll need to submit articles of dissolution with the Secretary of State once your board (and, if appropriate, members) have authorized the dissolution and after or on the same day you’ve filed notice with the AG (SOS). The NCA does not force you to submit this document; rather, it states that a nonprofit “may” dissolve by filing the articles. However, if you do not submit articles of dissolution, your nonprofit organization will not be lawfully dissolved.
The articles of dissolution must include the following:
the name of your nonprofit, the date dissolution was authorized if no member approval was required, a statement to that effect, and a statement that the plan of dissolution was approved by a sufficient vote of the board of directors if member approval was required, (a) the designation and number of members of, and number of votes entitled to be cast by, each class entitled to vote on dissolution; and (b) the total number of votes cast for and against dissolution.
The SOS website has a blank form for the articles of dissolution that may be downloaded. The filing of the articles of dissolution costs $50.
“Rising Winds”
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. It may be necessary to appoint one or more officers or directors to manage these issues.
In general, you may distribute money and property only after you have paid off all of your nonprofit’s obligations. The NCA has particular guidelines for distributions that you must follow. 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 regulations, such as those in your articles 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
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.
One method of providing notice under the NCA is to deliver a written document directly to identified claimants following dissolution. Proper written notice must include:
specify what information must be included in a claim
give a postal address to which a claim may be sent
mention the deadline, which cannot be less than 120 days from the date of the notification, by which your dissolved nonprofit must receive the claim; and declare that if the claim is not received by the time, it will be barred.
You may also notify unknown claimants by posting a notice in a newspaper. There are special standards for delivering notice by publishing, just as there are for sending direct notice to identified claimants. In general, claimants have five years from the date of newspaper publication to file a claim.
Some of the regulations for providing notice and responding to claims might be complicated. As a result, if you decide to give claimants notice, you should definitely consider seeking the advice of a business attorney.
Notice to the Attorney General
After “all or substantially all” of your nonprofit’s assets have been transferred—that is, after you have completed winding up your nonprofit—you must notify the AG of who got those assets other than creditors. The list must include each recipient’s address as well as the assets they received. For this reason, you may utilize the Closing Form provided on the DOJ website.
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
Additional information, such as forms, postal addresses, phone numbers, and filing costs, may be found on the SOS and DOJ websites.
Finally, dissolving and winding up your nonprofit company is simply one part of the closure process.