Learn how to dissolve a nonprofit company in your state.
A nonprofit may shut due to irreconcilable conflicts among its directors or members, the organization simply deciding that it has completed its aims and no longer needs to exist, or it is no longer able to get sufficient funds. If you decide to dissolve a New York nonprofit organization for whatever reason, you must go through a procedure known as dissolution. 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 processes 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 NGOs that have applied to the IRS and have been authorized as 501(c)(3) tax-exempt organizations.
It only applies to voluntary dissolutions made by the nonprofit’s directors and, if appropriate, members (a nonprofit may be involuntarily dissolved through a court order, or for administrative reasons such as failing to file annual financial reports)
It excludes court-supervised liquidations after voluntary dissolutions, as well as important facts pertaining to particular nonprofit subcategories.
Concerning the last issue, New York law defines four categories of nonprofit corporations: Type A, Type B, Type C, and Type D. Your nonprofit’s structure is determined by the purpose for which it was established. This article focuses on Type-B NGOs, which are organizations created for philanthropic, educational, religious, scientific, literary, or artistic objectives, or to prevent cruelty to children or animals.
Because of the complexities of New York law for nonprofit companies (including the fact that the state differentiates many “categories” of nonprofits), you should seriously consider hiring an experienced attorney to help you dissolve your organization.
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Advantages of Formal Dissolution
The State of New York has recognized your nonprofit company. You will cancel that registration and legally stop 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 puts your company beyond of reach of creditors and other claims. Second, it enables you to meet your legal requirements for the correct disposition of any surviving corporate assets.
Dissolution Authorization
Depending on whether your organization has members and assets to distribute, the method for permitting dissolution will differ. Other considerations, such as particular clauses in your nonprofit’s charter of organization, may also be relevant.
In general, New York’s Not-for-Profit Corporation Law (“N-PCL”) allows for voluntary dissolution by either:
a vote of the directors and a vote of the members; or a vote of the directors if there are no members.
If your organization includes voting members, your board must establish a dissolution plan and put it to a vote of the members. The plan must identify whether or not your organization has assets and obligations at the time of dissolution. (An exception exists in circumstances where less than $25,000 in assets have been put aside especially to cover expenditures associated with “winding up” the organization.) If there are assets, your plan must include extra details such as their worth, if they are needed to be utilized for a certain purpose, and how those assets will be divided. The plan must be approved by two-thirds of the members of a nonprofit with assets. If your organization lacks assets, the plan must be authorized by the number of members stated in your charter of incorporation or bylaws. Any gathering to vote on dissolution must be properly announced to directors and members.
If your organization does not have members, the board of directors authorizes the plan of dissolution and asset distribution. The plan must contain information on the assets and liabilities of the organization at the time of dissolution. In general, the plan must be authorized by a majority of the board of directors, or by the number of directors specified in your charter of incorporation or bylaws. If there are not enough directors in office to create a quorum at the time of the vote, the plan must be adopted unanimously by the directors.
Make careful to correctly document the plan of dissolution and asset distribution, the votes of the directors, and, if required, the votes of the members. This information will be required for filings with state authorities, the IRS, and maybe a state court.
Approval of the Court/Notification to the Attorney General
If your organization has assets, you must additionally acquire clearance from a judge of the supreme court in the judicial district where your nonprofit’s headquarters is situated after the directors (and members) have allowed dissolution. You must file a verified petition with the relevant court, together with the plan of dissolution and distribution of assets and certified copies of the consents of directors (and members). You must also notify the attorney general of the submission, along with copies of the petition, plan, and consents.
If your organization has no assets to distribute or any outstanding obligations at the time of dissolution, or has less than $25,000 in assets put aside particularly to cover expenditures linked to winding up the charity, state supreme court permission is not necessary. Your organization, however, must still submit a certified copy of its plan of dissolution with the attorney general. According to the N-PCL, the plan must be submitted within 10 days of your nonprofit approving it. The attorney general’s office, on the other hand, recommends that you should only file with them once you’ve “followed out such plan, settled any lingering obligations, and filed a final financial report demonstrating a zero balance.”
Consider hiring an attorney to help you with filings with the Supreme Court and the Attorney General.
Certain things are unaffected by dissolution.
Dissolution alone does not, among other things,:
transfer ownership of the nonprofit’s property from the company to the board of directors
modify the quorum or voting criteria for the nonprofit’s board of directors or members change the conditions for the election, appointment, resignation, or removal of directors or officers
change provisions for amending, repealing, or adopting bylaws; or generally affect any legal remedy available to or against the nonprofit, its directors, officers, or members, for any right or claim existing prior to dissolution (a key exception relates to creditors and other claimants who receive notice of the dissolution).
“Rising Winds”
After your nonprofit has legally approved dissolution and, if required, gotten court permission for the dissolution, it exists simply to handle certain last tasks known as “winding up” the corporation. Key winding up responsibilities under the N-PCL include completing or terminating contracts, collecting and selling assets, discharging or paying obligations, and doing any other required actions to liquidate the company. It may be necessary to appoint one or more officers or directors to manage these issues.
Under the N-PCL, you must normally settle your obligations and distribute your assets within 270 days after filing your plan with the attorney general or being authorized by a judge of the Supreme Court. However, if there is a valid reason why you cannot finish the procedure within 270 days, the attorney general may give you a one-year extension.
Furthermore, you may normally only distribute money and property once you have paid off all of your nonprofit’s obligations. In addition, a dissolved 501(c)(3) organization must disperse its remaining assets for tax-exempt reasons. In reality, this generally entails donating assets to another 501(c)(3) charity or organizations. Along these lines, the N-PCL requires your organization to disperse funds acquired and retained for specific defined purposes to one or more other nonprofits engaged in substantially comparable activities. Assets owed to creditors who are unknown or cannot be located must eventually be paid to the state comptroller. Other distribution criteria may apply, as specified in your charter of incorporation, bylaws, or other documents. If you have any concerns, you should speak with a lawyer.
If your organization has no assets or obligations, dissolving it should be a considerably easier process—and, according to the attorney general, you shouldn’t have to submit anything with their office until the process is complete.
Clearance of State Taxes
To finalize the dissolution of your organization, you must eventually obtain a certificate of dissolution. However, before you can submit the certificate, you must first get approval from New York’s Department of Taxation and Finance (“DTF”). You may obtain the consent by contacting or writing to the Corporation Tax Dissolution Unit of the New York State Tax Department.
Certificate of Divorce
After you have properly authorized and carried out your plan of dissolution and asset distribution, you must complete a certificate of dissolution, get it certified by the attorney general, and submit it with the New York Department of State (“DOS”). The certificate must have the following information:
the name of your nonprofit the date its certificate of incorporation was submitted the name and address of each officer and director the “type” (A, B, C, or D) of your nonprofit at the time of dissolution
a declaration indicating whether or not the organization retained assets that were legally obligated to be utilized for a certain purpose on the day the plan of dissolution was adopted.
a statement that your charity has elected to dissolve a statement that dissolution was permitted (for example, by a majority vote of the directors)
A statement that the plan of dissolution and asset distribution was approved by a justice of the state supreme court (in which case a copy of the court’s order must be attached to the certificate), or a statement that a copy of the plan of dissolution and asset distribution was properly filed with the attorney general.
A blank certificate of dissolution form (currently Form DOS-1561-f-l) is available for download from the DOS website.
To apply for permission from the attorney general, you must utilize a verified petition and attach a final financial report outlining the disposal of all of your nonprofit’s assets and obligations, as well as any applicable governmental approvals and fees, along with the certificate of dissolution. (For example, if you’ve done business in New York City, you could require permission from the city’s Department of Finance.)
When submitting your certificate with the DOS after receiving permission from the attorney general, you must mention the attorney general’s approval of the dissolution. You must also provide any necessary consents, such as those from the DTF. The fee for filing the certificate of dissolution with the DOS is $30.
Creditors and Other Claimants Should Be Warned
Giving notice to creditors and other claimants is another aspect of winding up. You may provide notice under the N-PCL by publishing it in a newspaper for two consecutive weeks and sending it to known creditors or claimants. In most cases, creditors and claimants have at least six months to submit their 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 hiring an attorney.
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 certificate 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 DOS website and the attorney general’s charities website, you may find more information such as forms, filing costs, informative FAQ sheets and other instructions, as well as postal addresses and phone numbers (including for the New York State Tax Department’s Corporation Tax Dissolution Unit).
Remember that nonprofit corporation legislation in New York is complicated; you should definitely consider hiring an attorney to help you dissolve your company.