Learn how to dissolve a nonprofit company in your state.
Here’s a short rundown of the primary processes involved in dissolving and winding up a 501(c)(3) nonprofit company that is already operating under Hawaii law. Other forms of nonprofits have distinct regulations and processes, as do other circumstances such as forced dissolution.
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, Hawaii 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 pass 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 majority vote of the directors is the default norm for approval.
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.
You’ll need to submit articles of dissolution for your nonprofit, but first you must notify the Attorney General (AG) in writing of your decision to dissolve. A copy or description of your dissolution strategy must be included in the notification. You can’t transfer any of your nonprofit’s assets until the earliest of 20 days after submitting the notification to the AG, the AG’s written permission to the dissolution, or anything in writing from the AG stating that it will take no action on any transfers.
After your board (and, if appropriate, voting members) has authorized the dissolution and you’ve submitted the requisite notice with the AG, you’ll need to submit articles of dissolution to the Department of Commerce and Consumer Affairs’ Business Registration Division (BREG). The articles of dissolution must include the following:
The BREG website has a blank form for the articles of dissolution (Form DNP-7) that may be downloaded. The form comes with clear instructions. There is a filing fee of $10.
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. 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 may also apply. If you have any concerns, you should speak with a lawyer.
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.
After “all or nearly 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 acquired assets other than creditors. The list must include an address for each asset receiver as well as the assets received.
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.
On the BREG 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, depending on the circumstances, further legal proceedings might be brought against your organization up to five years after 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:
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.