Need to close down your Alabama nonprofit corporation? Here’s a quick overview of the main steps to dissolve and wind up a 501(c)(3) nonprofit corporation under Alabama law.
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. In addition, you’ll likely also need a plan of distribution that indicates how the nonprofit’s remaining assets will be distributed after all creditors have been paid. With a resolution and plan in hand, Alabama law provides for voluntary dissolution as follows:
Under the first method, the board first must adopt the resolution to dissolve and then submit it to the members. The members then generally meet and vote to approve the resolution. Alternatively, members can provide unanimous written approval for the resolution. The procedure for approving a separate plan of distribution is essentially the same.
Under the second method, it is up to the board alone to approve the resolution to dissolve. Generally, the resolution must be approved by a majority of the directors in office at the time of approval. The procedure for approving a plan of distribution is the same.
Make sure to properly record the resolution to dissolve, the plan of distribution, the directors’ votes, and, where necessary, the members’ votes or written consents. You’ll need this information for filings with the state and the IRS.
Statement of Intent to Dissolve
After adopting the resolution to dissolve, you must prepare and sign a statement of intent to dissolve. The statement must contain:
You must file the statement of intent to dissolve with the Office of the Judge of Probate in the county where your nonprofit’s certificate of formation was recorded.
After your nonprofit has formally authorized dissolution, it continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as “winding up” the company. Winding up is largely about paying off any debts and then distributing any remaining assets, but there may also be other tasks involved.
Generally speaking, you can only distribute money and property after you’ve paid off all of your nonprofit’s debts. For asset distributions, there are specific rules you need to follow. For example, your nonprofit must return any items that were loaned to it on the condition that they would be returned upon dissolution. In addition, after paying off debts and returning loaned assets, a dissolving 501(c)(3) organization must distribute its remaining assets for tax-exempt purposes. In practice, this usually means distributing assets to one or more other 501(c)(3) organizations. Other requirements for distributions, including items contained in your plan of distribution, may also apply. If you have any questions, you should consult with a lawyer.
Articles of Dissolution
After you have paid and discharged all debts and properly transferred any remaining property—in other words, after you’ve finished winding up your nonprofit—you’ll need to file articles of dissolution with the Office of the Judge of Probate in the county where your nonprofit’s certificate of formation was recorded. The articles of dissolution must contain:
A blank form for the articles of dissolution (Form DNP Corp Dissolution) is available for download from the Alabama Secretary of State (SOS) website. There is a $100 SOS filing fee plus any fees from the Judge of Probate. You must submit one original and two copies.
Federal Tax Note
For federal tax purposes, you’ll need to file IRS Form 990 or IRS Form 990-EZ. You must include a completed Schedule N (Liquidation, Termination, Dissolution, or Significant Disposition of Assets), as well as copies of your articles of dissolution, resolution to dissolve, and plan of distribution. When completing Form 990 or Form 990-EZ, you’ll need to check the “Terminated” box in the header area on Page 1 of the return. For additional guidance, check out Every Nonprofit’s Tax Guide, by Stephen Fishman (Nolo), go to the IRS website, or consult with a tax professional.
You can find additional information, such as forms, mailing addresses, phone numbers, and filing fees, on the SOS website.
Be aware that dissolving your nonprofit will not stop lawsuits for claims or liability incurred prior to dissolution. Generally, these claims may be brought for up to two years after dissolution.
This article covers only the most basic steps of voluntary dissolution after your nonprofit has started doing business. There are many additional, more specific rules, covering things like:
In addition, your articles of incorporation or bylaws may contain rules that apply instead of, or along with, state law. You are strongly encouraged to consult with a lawyer to obtain additional information on these and other points.
Final Note: Dissolving and winding up your nonprofit corporation is only one piece of the process of closing your organization. For further, general guidance on many of the other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.