Learn how to dissolve a nonprofit company in your state.
A nonprofit corporation may collapse because it is no longer able to get sufficient funds, the directors or members have irreconcilable disputes, or the organization simply decides that it has achieved its objectives and no longer requires its existence. Whatever the cause, if you decide to dissolve a Massachusetts 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 nonprofit organization in Massachusetts may differ based on many key characteristics. Keeping this in mind, the following limitations apply to this article:
It only applies to nonprofit companies in Massachusetts (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 applies to voluntary dissolutions made by the nonprofit’s directors and, where applicable, the nonprofit’s members (a nonprofit’s charter may be revoked involuntarily for administrative reasons, such as failing to file annual reports); and it only applies to Massachusetts “public charities” (virtually all tax-exempt Massachusetts nonprofits are public charities, but there are separate dissolution procedures for nonprofits that are not public charities).
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Advantages of Formal Dissolution
The Commonwealth of Massachusetts has recognized your 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.
Dissolution Authorization
The method for sanctioning dissolution will differ based on whether your nonprofit company comprises members with voting rights in addition to a board of directors. You’re undoubtedly aware whether your charity has such members. If you’re unclear, consult your articles of incorporation, bylaws, or other comparable organizational papers.
Before allowing the dissolution of your nonprofit, the Massachusetts Attorney General’s Office (“AGO”) requires you to comply with all registration and annual filing requirements. You may monitor the status of your nonprofit’s registrations and reports on the AG’s website.
Massachusetts law allows for voluntary dissolution via one of two methods:
a vote by the board of directors; alternatively, if there are members with voting rights on dissolution, a vote by those members.
If your organization does not have voting members, you must produce a petition for dissolution, which must then be voted on by your board. The petition must be approved by a majority vote of the directors.
Check your articles of incorporation or bylaws if your organization includes voting members. One of the latter papers may provide those members either the authority to allow dissolution by majority vote or the ability to condition dissolution on their consent.
Make careful to accurately record both the board’s petition and the votes of the directors and/or members. This information will be required for filings with the state and the IRS.
Also, keep in mind that you may dissolve a company by gaining the unanimous written permission of the board of directors or, if authorized by your articles of incorporation or bylaws, by the voting members. If you dissolve on this basis, you must have all of the directors (or voting members) sign a written permission document.
Filing a complaint with the Attorney General or the Court
You must submit documentation with a state agency once your board or members have accepted the dissolution. Which paperwork you submit and where you file them is determined by whether or not your nonprofit company has any assets left at the time of dissolution.
When your nonprofit folds, it has no assets left. The following papers must be prepared and filed with the AGO’s Division of Public Charities:
A Form PC-F, an officer’s certificate, and a petition for administrative dissolution are all required.
To complete the Form PC-F, you must answer a series of questions about various financial problems. Blank forms and instructions may be downloaded on the AGO’s website. The form must be signed in its whole (it cannot be a copy).
The officer’s certificate confirms and offers basic information regarding your nonprofit corporation’s decision to dissolve. The AGO website has a template for this certificate that you may download. The certificate must have an original signature (it cannot be a replica).
The petition for administrative dissolution should contain the following information:
when your nonprofit was established a statement of why it is dissolving a statement that it has met all legal requirements for authorizing dissolution a statement that it has complied with all registration and reporting requirements a statement that all funds received were used to support its mission and that any disbursements made were consistent with that mission; and an acknowledgement that AGO’s approval of the dissolution does not, in and of itself, op
A template petition may be downloaded on the AGO’s website. The petition must include an original signature (it cannot be a replica) and the date of filing.
In addition to filing the Form PC-F, officer’s certificate, and petition to the Division of Public Charities, you must inform all applicable state and federal authorities, such as the Secretary of the Commonwealth (“SOC”) and the IRS, of the dissolution of your organization.
When your nonprofit dissolves, it has assets. A petition must be filed with the Massachusetts Supreme Judicial Court (“SJC”). The petition, which should have been authorized by your board of directors or members, should outline the reasons for dissolution in some detail. To authorize the dissolution, the SJC must be satisfied that the residual assets of your charity will be donated to another nonprofit for identical philanthropic objectives. (Note: Current Massachusetts law authorizes the SJC to create rules or regulations that would allow a nonprofit with surviving assets of less than a specific amount to skip filing a petition with the Court and instead submit forms, affidavits, or other material to the AGO. However, according to a recent AGO statement, the SJC has not yet created such guidelines, therefore you must still submit a petition with the Court for the time being.)
There is presently no online template for a petition to the SJC. As a result, you’ll have to create your own—or, maybe better, have a skilled attorney do it for you.
For information on filing costs and processing timeframes, you should contact the AGO or the SJC directly.
Disbursement of Remaining Assets
When your organization folds, it may have no surviving assets. However, if it does, bear in mind that, according to IRS regulations, a dissolved 501(c)(3) organization must disperse its assets for tax-exempt reasons. In reality, this usually entails transferring assets to another 501(c)(3) organization. Aside from IRS restrictions, Massachusetts law requires that any residual money be used “for comparable public charity objectives” as those of your dissolving organization, as determined by the SJC. If you are unsure if this rule applies to your organization, you should consult with a lawyer.
Note on Federal Taxation
You must submit IRS Form 990 or IRS Form 990-EZ for federal tax reasons. You must submit a completed Schedule N (Liquidation, Termination, Dissolution, or Significant Disposition of Assets) as well as copies of your articles of dissolution, resolution to dissolve, and any documented dissolution plans, if applicable. When completing Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.