Learn how to dissolve a nonprofit company in your state.
Not all non-profit organizations are eternal. A nonprofit company may collapse due to a lack of required money, irreconcilable conflicts among the directors or members, or the organization simply decides that it has completed its mission and no longer needs to exist. Whatever the cause, if you decide to dissolve a Nebraska 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 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 designated as “public benefit corporations” under Nebraska law (by definition, any Nebraska nonprofit that is a 501(c)(3) organization is a Nebraska “public benefit corporation”); and it only applies to voluntary dissolution based on a decision made by the nonprofit’s directors and, where applicable, the nonprofit’s members (an nonprofit may be involuntarily dissolved through a court decree, or for administrative reasons such as failing to file a biennial report or pay required fees).
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Advantages of Formal Dissolution
The state of Nebraska 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 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 Nebraska 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 assets
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 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
You must notify the Attorney General (“AG”) in writing of your intention to dissolve at or before the time you submit 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.
Dissolution Articles
You must submit articles of dissolution with the SOS once your board (and, if relevant, voting members) have authorized the dissolution. (Technically, the NCA does not compel you to submit this document; instead, 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.
Because the SOS does not give a form or template for the articles of dissolution, you must create your own. There is a basic price of $5 to file the articles, plus a $5 per page fee. Online filing is also possible via the state’s eDelivery system.
“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.
The major winding up duties under the NCA are:
safeguarding the nonprofit’s assets and limiting its liabilities
discharging the nonprofit’s liabilities and obligations disposing of nonprofit properties that will not be distributed in kind returning, transferring, or conveying assets held by the nonprofit on the condition that they be returned in the event of dissolution transferring the nonprofit’s assets as provided in the articles of incorporation or bylaws transferring the nonprofit’s assets as provided in the articles of incorporation or bylaws transferring the nonprofit’s assets as provided in the articles of incorporation or bylaws
In general, asset distributions are given only after you have satisfied all of your nonprofit’s commitments and obligations. If your organization has things on conditional loan to it, such items must be returned to the person who lent them to you, pursuant to the conditions of the loan. Finally, a 501(c)(3) organization that is dissolving must disperse its remaining assets for tax-exempt reasons. In reality, this usually entails donating such assets to one or more other 501(c)(3) organizations. If you have any issues regarding how to split assets after a divorce, you should see a lawyer.
Creditors and Other Claimants Should Be Warned
Another aspect of winding up your dissolved charity is notifying creditors and other claims of its demise. It is not required to provide notification. However, doing so will assist to reduce your charity’s liabilities and enable it to allocate assets to other nonprofit organizations 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 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.
You may also notify unknown (possible) 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.
Last Call for the Attorney General
When “all or substantially all” of your nonprofit’s assets have been transferred upon dissolution approval, your board of directors must send to the Attorney General a list of who got those assets, other than creditors, and what assets each person or business received.
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 completing Form 990 or Form 990-EZ, you’ll need to tick the “Terminated” box in the header section on Page 1 of the return