A summary of the essential stages involved in dissolving and winding up a 501(c)(3) nonprofit company under Rhode Island law.
Table of Contents
Dissolution Authorization
Closing begins with dissolution, and you will need a determination to dissolve to do so. The resolution should normally contain a distribution plan that describes how assets will be dispersed. With the resolution and strategy in hand, Rhode Island 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 way requires the board to first accept the resolution to dissolve before submitting it to the members. Members then gather and vote to adopt the resolution. Members may also grant unanimous written approval for the resolution.
The board must adopt the resolution to dissolve under the second approach. In general, the dissolution must be agreed by a majority of the directors who are in office at the time.
Make careful to correctly document the resolution to dissolve (including any distribution plan), the votes of the directors, and, if required, the votes or signed consents of the members. This information will be required for filings with the state and the IRS.
Creditors’ Notice
After passing the resolution to dissolve, you must “immediately” send notice of the planned dissolution to all known creditors of your organization.
“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. Apart from notifying creditors, winding up is primarily concerned with paying off any obligations and then distributing any residual assets, although there are often additional activities involved.
In general, you may distribute money and property only after you’ve paid off all of your nonprofit’s obligations. Then there are certain regulations to follow when it comes to asset distributions. 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.
Clearance of Taxes
Rhode Island mandates that your nonprofit be in good standing with the Division of Taxation before submitting your articles of dissolution (DOT). You must submit a request to the DOT for a letter of good standing. The request is subject to a $50 charge. The DOT website has a request form. A letter of good standing might typically take a month or more to get.
Dissolution Articles
After you’ve completed winding up your nonprofit and received your DOT letter of good standing, you must submit articles of dissolution with the Secretary of State (SOS). The articles of dissolution must include the following:
a statement that all of the nonprofit’s debts, obligations, and liabilities have been paid or that adequate provision has been made for their payment a copy of the nonprofit’s plan of distribution or a statement that no plan was adopted
a statement that all of the nonprofit’s remaining property and assets have been transferred, conveyed, or distributed in accordance with the Rhode Island Nonprofit Corporation Act; and a statement that no suits against the nonprofit are pending in any court, or that adequate provision has been made for the satisfaction of any judgment, order, or decree that may be entered against it in any pending suit.
The SOS website has a blank form for the articles of dissolution (Form No. 203) that may be downloaded. There is a filing fee of $10.
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 distribution. When filling out Form 990 or Form 990-EZ, tick the “Terminated” box in the header section on Page 1 of the return.
Further Information
On the SOS and DOT websites, you may discover postal addresses, phone numbers, filing costs, and forms.
Dissolving your nonprofit will not prevent litigation brought by or against it for claims or liabilities accrued prior to dissolution. In most cases, these claims may be submitted up to two years following the dissolution.
This article just goes through the fundamentals of voluntary dissolution. There are several further, more specialized regulations that address topics such as:
uninvited dissolution
what particular elements should be included in a distribution plan providing enough prior notice for member and director meetings
the needed number of member or director votes to approve dissolution; how to approve dissolution in writing without a meeting; what information must be included in letters to creditors; and how to react to legal claims following dissolution.
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.
Dissolving and winding up your nonprofit company is simply one part of the closure process.