Dissolving an organization can be difficult and emotional. Whether it is for involuntary or voluntary reasons, there are certain key items and considerations that should occur in that final dance before the music stops and the organization calls it a night.
Follow the 5-Steps for Dissolving a Nonprofit
There are generally five key steps of choreography to keep an organization in-rhythm and on-beat during its last dance, including:
- Hold a vote with the board of directors. The organization’s board of directors should vote to dissolve the organization. This process should be done in accordance with the organization’s articles of incorporation and bylaws — and be documented in official meeting minutes.
- Write and implement a formal “plan of dissolution.” This plan is a written description of how the organization plans to distribute any remaining assets and address any remaining liabilities. A good plan documents action steps and assignments and includes a timeline to help maintain accountability throughout the dissolution process.
- Settle all liabilities and terminate The organization should address any liabilities, future commitments under contracts, and payment of taxes as applicable. It also needs to determine if it has any donor-restricted funds which may need to be returned to the donor.
- Distribute remaining assets. As required by law, a nonprofit organization that is ceasing existence is required to transfer all remaining assets to another tax-exempt organization or to the government. It is unlawful to give any property away to individuals – including board members, volunteers, staff, or beneficiaries. It is acceptable to sell the organization’s assets only if they are sold at fair market value.
- Notify federal and state agencies of the dissolution. This step includes notifying the state agency that handles corporate registrations. Also, the IRS needs to be notified.
Be Considerate of All Partners – Nonprofit Staff, Board, and Volunteers
As an organization moves through the steps of dissolving the entity, it should consider its closure’s impact on the community, its staff, and those served by the nonprofit organization’s mission.
The nonprofit’s leaders should communicate consistently and clearly to its staff, volunteers, and clients. They should inform donors and other sponsors of the organization’s decision to close, and let them know specifically how the remaining funds will be used. Beneficiaries of the organization should be referred, as possible, to other organizations that may be able to provide similar assistance.
Finally, it is important to document the life of the nonprofit organization. Perhaps most importantly, nonprofit leaders should consider how best to honor its staff, board, and volunteers for all of their hard work and dedication to helping fulfill the mission of the organization over the years. Standing ovations are always appreciated!
Consult with CRI’s Nonprofit CPAs
Deciding to bring your organization’s performance to an end is never easy. Creating a comprehensive plan plus utilizing available resources and experienced advisors are critical to success. Contact CRI to walk you through the important steps of dissolving your organization.