Learn how to dissolve a nonprofit company in your state.
Not all non-profit organizations are eternal. Whatever the reason for winding down your Montana nonprofit company, you will need to go through the 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 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 applies to nonprofits recognized as “public benefit companies” under Montana law (which should overlap with a 501(c)(3) organization); and it only applies to voluntary dissolution based on a decision of the nonprofit’s directors and, where appropriate, members (a nonprofit may be involuntarily dissolved through a court decree).
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Advantages of Formal Dissolution
The State of Montana has recognized your nonprofit company. You will formally cancel that registration and, by consequence, 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 includes members in addition to a board of directors. (If you are unclear if your nonprofit has members, see your articles of incorporation, bylaws, or other comparable organizational papers.)
The Nonprofit Corporation Act (“NCA”) of Montana allows for voluntary dissolution by either:
a vote of the directors; or, if there are members, a vote of the members and a vote of the directors.
If your nonprofit has no members, the board must authorize dissolution. Specific regulations and procedures governing the board approval process should be found in your articles of incorporation and bylaws. In general, dissolution requires a resolution, and dissolution must be authorized by a majority of the directors in office at the time of approval. All directors must be given at least two days’ notice of the meeting on dissolution. When authorizing dissolution, the board of directors must also approve a dissolution plan that specifies how the nonprofit’s assets will be allocated once all creditors have been paid. If all board members sign a written permission permitting the dissolution, your board may disband without a formal meeting.
If your nonprofit includes voting members, the board must first approve and then present a resolution to the members to dissolve the company. If the board wishes to have the dissolution authorized by the members at a membership meeting, members must be given at least 10 days’ notice, which must include a copy or summary of the dissolution plan. The dissolution must be approved by a two-thirds majority of the members or a majority of the membership voting power, whichever is less. The board may also seek permission from the 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. Approval by written permission needs 80% of the voting power of the members.
The NCA also permits your articles of incorporation or bylaws to demand that dissolution be authorized by individuals other than the board or members. If your articles or bylaws include such a provision, you must additionally acquire written consent from those individuals.
Make careful to accurately document the board’s resolution and 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
modify quorum or voting criteria for the nonprofit’s board of directors or members, change provisions for the nonprofit’s directors or officers or both, or change rules 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
Unless your organization is a “nonprofit health entity,” you must notify the Attorney General (“AG”) in writing of your plan to dissolve at or before the time you file articles of dissolution to the Secretary of State (“SOS”). A copy or explanation of your plan of dissolution must be included in your notification to the AG. In response to the notification, the AG should give your nonprofit with written approval to proceed with dissolution. You are not permitted to transfer any of your nonprofit’s assets until 20 days after giving notification to the AG, or unless the AG offers written authorization, whichever comes first.
If your organization is a “nonprofit health entity,” it is subject to a separate section of Montana law. For information on any mandatory filings with the AG, you should speak with an attorney.
Dissolution Articles
You must submit articles of dissolution with the SOS once your board (and, if relevant, voting members) have authorized the dissolution. 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 NGO and the date of dissolution
a statement that dissolution was approved by a sufficient vote of the board if member approval was not required, a statement to that effect if member approval was required, (a) the designation, number of memberships outstanding, number of votes entitled to be cast by each class entitled to vote separately on dissolution, and number of votes indisputably voting 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 that may be downloaded. The filing of the articles of dissolution costs $15. The SOS guarantees that papers will be processed within 10 business days. For a charge, several types of expedited processing (24-hour, 1-hour) are available.
“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. It may be necessary to appoint one or more officers and/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. When it comes to distributions, the NCA has precise guidelines 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. After dissolution, you must send written notification to known claims under the NCA. 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 for your dissolved nonprofit to receive the claim, which cannot be less than 120 days from the effective date of the written notification; and declare that the claim will be barred if not received by the deadline.
There are also extra criteria for unidentified claims.
Some of the regulations for providing notice and responding to claims might be complicated. As a result, when it comes to providing notice to claimants, you should carefully consider seeking the advice of a business attorney.
Last Call for the Attorney General
When “all or nearly all” of your nonprofit’s assets have been transferred following dissolution permission, your board of directors must send to the AG a list of who got those assets, other than creditors. More precisely, the list must include each person’s or entity’s address as well as the item they each got.
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.