How to Dissolve a Nonprofit Corporation

Q: how is dissolving a nonprofit different from closing a regular business?

dissolving a nonprofit is very different, because you can't keep any leftover money or property for yourself. when a regular business closes, the owners can split up whatever money and assets are left, but with a nonprofit, all remaining assets must go to another tax-exempt organization or to the government. you also have to follow stricter rules about paperwork and getting approval from government agencies.

Q: what paperwork do i need to file with the irs when dissolving a nonprofit?

you must file a final form 990 tax return with the irs, but which version depends on your nonprofit's size. on whichever form you use, you need to check the "termination" box and answer "yes" when asked if you terminated or dissolved. you also need to attach schedule n, which lists all your dissolution documents. the form is due by the 15th day of the fifth month after your tax year ends.

Q: who has to vote to dissolve the nonprofit?

your board of directors must officially vote to dissolve the nonprofit, and this vote needs to be recorded in your meeting minutes. if your nonprofit has voting members (like a membership organization), they might need to vote instead of or along with the board. the exact voting rules can vary by state, so it's important to follow both your bylaws and your state's laws. make sure to document everything properly since you'll need proof of this vote for your government filings.

Q: what happens to our nonprofit's money and property when we dissolve?

first, you need to pay all your bills and debts. then, any leftover cash, equipment, or property gets transferred to another 501(c)(3) nonprofit or a government entity. you cannot distribute assets to board members, staff, or anyone else personally. the receiving organization should have a similar mission to yours when possible. if you have valuable items like real estate or equipment, you might need to get them appraised to determine their fair market value before transferring them.

Q: do i need to file anything with my state government?

yes, you typically need to file dissolution paperwork with your state government in addition to the irs forms. most states require you to file articles of dissolution with the secretary of state's office, and you may also need approval from your state's attorney general. some states have simple one-page forms, while others require detailed plans showing how you'll distribute your assets. you might also need to get tax clearance certificates proving you don't owe any state taxes. check with both your secretary of state and attorney general's office to make sure you complete all required steps.

Q: how long does it take to dissolve a nonprofit?

the dissolution process typically takes 30 to 60 days, but it can take longer if you have complicated debts or valuable property to transfer. simple dissolutions with no debts and only cash assets usually move faster than complex ones, but the timeline depends on several factors such as any outstanding debts or asset appraisals. having all your paperwork organized and working with an attorney can help speed up the process.

Q: what mistakes should i avoid when dissolving my nonprofit?

the biggest mistake is trying to distribute assets to board members or staff, which can result in serious tax penalties and personal liability. don’t skip required government filings or fail to properly notify creditors and stakeholders. other common mistakes include not keeping proper records of the dissolution process, forgetting to cancel contracts and licenses, and not getting required approvals from state agencies. consider hiring an attorney who specializes in nonprofit law to help you avoid costly errors.

Dissolving a nonprofit corporation requires you follow specific regulations and steps. Understanding the differences between for-profit and nonprofit dissolution will help you close up shop with relative ease.

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.

Dissolving a nonprofit organization is different from dissolving a for-profit company.

Because of its tax exempt status, nonprofit assets cannot be distributed to business members. Such distribution would violate the nonprofit status of the company. You are not permitted to give away or sell the assets of a nonprofit but must instead transfer them to a similar nonprofit organization.

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Steps to dissolving a nonprofit

File a final form

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.

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. 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.

990-N (e-postcard). This form is generally filed for nonprofits with gross receipts of $50,000 or less.
Form 990 EZ. 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 the 990 EZ.
Regular 990 Form. If your nonprofit has $200,000 or more in gross receipts or an asset total of $500,000 or more, you must complete this form.

File the paperwork

Along 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.

What to do after filing

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.

How long will dissolution take?

With just a bit of planning and form completion, you will have your Nonprofit Corporation dissolved within 30 to 60 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.

FAQs about nonprofit dissolution

How is dissolving a nonprofit different from closing a regular business?

Dissolving a nonprofit is very different, because you can't keep any leftover money or property for yourself. When a regular business closes, the owners can split up whatever money and assets are left, but with a nonprofit, all remaining assets must go to another tax-exempt organization or to the government. You also have to follow stricter rules about paperwork and getting approval from government agencies.

What paperwork do I need to file with the IRS when dissolving a nonprofit?

You must file a final Form 990 tax return with the IRS, but which version depends on your nonprofit's size. On whichever form you use, you need to check the "Termination" box and answer "yes" when asked if you terminated or dissolved. You also need to attach Schedule N, which lists all your dissolution documents. The form is due by the 15th day of the fifth month after your tax year ends.

Who has to vote to dissolve the nonprofit?

Your board of directors must officially vote to dissolve the nonprofit, and this vote needs to be recorded in your meeting minutes. If your nonprofit has voting members (like a membership organization), they might need to vote instead of or along with the board. The exact voting rules can vary by state, so it's important to follow both your bylaws and your state's laws. Make sure to document everything properly since you'll need proof of this vote for your government filings.

What happens to our nonprofit's money and property when we dissolve?

First, you need to pay all your bills and debts. Then, any leftover cash, equipment, or property gets transferred to another 501(c)(3) nonprofit or a government entity. You cannot distribute assets to board members, staff, or anyone else personally. The receiving organization should have a similar mission to yours when possible. If you have valuable items like real estate or equipment, you might need to get them appraised to determine their fair market value before transferring them.

Do I need to file anything with my state government?

Yes, you typically need to file dissolution paperwork with your state government in addition to the IRS forms. Most states require you to file articles of dissolution with the Secretary of State's office, and you may also need approval from your state's Attorney General. Some states have simple one-page forms, while others require detailed plans showing how you'll distribute your assets. You might also need to get tax clearance certificates proving you don't owe any state taxes. Check with both your Secretary of State and Attorney General's office to make sure you complete all required steps.

How long does it take to dissolve a nonprofit?

The dissolution process typically takes 30 to 60 days, but it can take longer if you have complicated debts or valuable property to transfer. Simple dissolutions with no debts and only cash assets usually move faster than complex ones, but the timeline depends on several factors such as any outstanding debts or asset appraisals. Having all your paperwork organized and working with an attorney can help speed up the process.

What mistakes should I avoid when dissolving my nonprofit?

The biggest mistake is trying to distribute assets to board members or staff, which can result in serious tax penalties and personal liability. Don’t skip required government filings or fail to properly notify creditors and stakeholders. Other common mistakes include not keeping proper records of the dissolution process, forgetting to cancel contracts and licenses, and not getting required approvals from state agencies. Consider hiring an attorney who specializes in nonprofit law to help you avoid costly errors.

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