How to Close a Nonprofit Organization
Nonprofit organizations are corporations with similar structures and legal duties as for-profits. When it comes to winding up and closing a nonprofit, directors have an obligation to put corporate affairs in order and report all happenings to the secretary of state for the state in which the corporation operates. Additionally, because nonprofits have special privileges such as tax exemptions and in some cases, the ability to issue tax deductions for donated funds, both the state and the Internal Revenue Service require directors to keep detailed accounting records.
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Instructions
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Vote to initiate the dissolution process at a board of directors meeting. Ideally, have all board members present and take detailed notes. The vote to dissolve is an important legal action about which government agencies may later inquire or demand proof.
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File "wind-up" paperwork with your state secretary of state's office. Most states make forms available online; however, you can always request for them to be mailed to you. Although forms vary by state, their general purpose is to inform the state that your board of directors has voted to begin the dissolution process. Some states require you to enclose a copy of the minutes for the board of directors meeting at which the dissolution motion was passed and to specify whether the vote was unanimous or majority.
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Review your bookkeeping and bank statements to ensure that you have proper accounting of all corporate monies, including accounts receivable and accounts payable. Create a spreadsheet or report reflecting these.
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Pay all bills and amounts owed. State governments require a corporation clear all debts and outstanding obligations before dissolution.
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Determine with your board of directors what to do with any residual monies. Nonprofits cannot put any money in the pockets of individuals. However, they can create a trust fund to deal with any unexpected leftover bills or costs that may have been forgotten, give the money to another nonprofit or spend it on something associated with the nonprofit's mission such as charitable acts or educational resources for those in need.
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Create a final spreadsheet outlining the payment of final expenses and disbursement of residual monies. Select a board member who will act as a point of contact for state and federal agencies and who will hold onto corporate records for several years after the dissolution.
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Complete dissolution forms from your secretary of state. Many states require you to disclose what the nonprofit did with residual monies as well as proof of a board of directors' dissolution vote. Include any spreadsheets, reports and meeting minutes requested as well as any filing fees.
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File the final state and federal tax returns for the nonprofit corporation.
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Complete IRS Form 990 or 990-EZ to file for termination of your nonprofit corporation status. The form requires a basic accounting of residual monies and their uses. The IRS may approve the dissolution upon receipt, or it may query the contact person for additional financial and legal documents.
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References
- Internal Revenue Service; Termination of an Exempt Organization; July 2010
- California Attorney General; General Guide for Dissolving a California Nonprofit Organization; February 2011
- California Secretary of State: Domestic Nonprofit Corporation Dissolution Filing Requirements
- Washington Secretary of State; Washington Nonprofit Corporation Articles of Dissolution; July 2010
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