How to Dissolve a Nonprofit Corporation
How to Dissolve a Nonprofit Corporation
Sometimes you simply need to close up business and your nonprofit corporation needs to be wrapped up or dissolved. Not to worry; with a few careful steps, you can do it with relative ease.
You may need to dissolve a nonprofit for many reasons. The dissolution of a 501(c)(3), otherwise known as a nonprofit organization, occurs most commonly because of a merger with another 501(c)(3) nonprofit. It is important to note, that dissolving a nonprofit organization is different from dissolving a for-profit company. In a nonprofit (because of its tax exempt status), assets cannot be distributed to business members since such distribution would violate the nonprofit status of the company. You are not permitted to give away or sell the assets of a nonprofit; rather you must transfer them to a similar nonprofit organization.
In this type of dissolution, the IRS mandates that the board of directors of the nonprofit organization complete certain requirements to "dissolve," or shut down, the 501(c)(3). If your are terminating your organization or going out of business by merging with another organization, you need to file a final form by the 15th day of the fifth month after the end of the period for which your tax return is due.
How to Dissolve a Nonprofit
Vote for Dissolution. 501(c)(3) dissolution involves having your nonprofit organization officially vote for dissolution of the corporation. If no voting members exist in your nonprofit, the board can move to close and terminate the business of the nonprofit.
File Form 990. This is the official IRS form that wraps up your nonprofit and declares it dissolved for tax purposes. If you don’t file this form, the IRS may continue to consider your business operational. There are three Form 990 options, the amount of assets and your gross earnings for the fiscal year that you are terminating (dissolving), determines which form you need. The IRS needs to know that this is your final tax return.
- Generally, if your nonprofit has gross receipts of $50,000 or less, you should use the 990-N (e-postcard).
- If your nonprofit gross receipts were under $200,000 dollars and your total assets were under $500,000 for that tax year, you can choose to file Form 990 EZ.
- If your nonprofit has a $200,000 or more in gross receipts or an asset total of $500,000 or more, you must complete the Regular 990 Form to dissolve a business.
Completing the form is rather simple. Just fill in the boxes on the correct version of Form 990. Check the box labeled: "Termination," which can be found at the top of the first page. Answer "yes" for terminated, liquidated, dissolved, or distributed net assets. If your business is set to have a successor or may be being transferred to another business, you should enter that corporation name on the line shown.
File the Paperwork. With your Form 990, the IRS will want a certified copy of your articles of dissolution (or merger) and plans (if any) to liquidate or merge your nonprofit. Schedule N of Form 990 lists specific documents to be filed and those are available on the IRS website.
Check with the Attorney General. Next, to make sure that your nonprofit dissolution is completed properly, you must check with the Attorney General's Office in your state to find out if supplemental filings are required in your particular state of incorporation. Some states will insist upon receiving certified copies of your articles of dissolution and your 990 Form.
With just a bit of planning and form completion, you will have your Nonprofit Corporation dissolved within thirty to sixty days, depending upon your state. Step by step, you can do it. Of course, always check with your tax advisor to stay current on the ever-changing Tax Code Requirements.
LegalZoom can help you dissolve a nonprofit corporation. Start by answering a few simple questions. LegalZoom will create the necessary paperwork and file it with the appropriate state agency for you.