Need to close down your Kansas nonprofit corporation? Here’s a quick overview of the main steps to dissolve and wind up a 501(c)(3) nonprofit corporation under Kansas law.
NOTE: Kansas has no separate statute for nonprofit corporations. Instead, rules for Kansas nonprofits are included in Kansas’s General Corporation Law. Because the latter law is written primarily for for-profit corporations, it is often necessary to “translate” its rules for application to nonprofits. Also, to make matters even more complicated, Kansas nonprofit corporations are considered to be merely one kind of nonstock corporation. (A nonstock corporation, unlike a typical for-profit corporation, does not issue any capital stock.)
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. With the resolution in hand, Kansas law provides for voluntary dissolution as follows:
- by action of the governing body followed by a vote of the members
- by unanimous consent of the members; or
- if your nonprofit doesn’t have members, by a vote of the governing body.
Under the first method, the governing body 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.
Under the second method, members approve the resolution by unanimous written consent. In these cases, no action by the governing body is necessary.
Under the third method, it is up to the governing body alone to approve the resolution to dissolve. Typically, the resolution must be approved by a majority vote of the governing body.
Make sure to properly record the resolution to dissolve and the governing body’s votes or members’ votes or written consents. You’ll need this information for filings with the state and the IRS.
Certificate of Dissolution
After your nonprofit has approved dissolution you must file a certificate of dissolution with the Secretary of State (SOS). The certificate of dissolution must contain:
- the name of your nonprofit
- your Kansas business entity ID number
- the names and addresses of your nonprofit’s directors and officers
- the effective date for the dissolution (upon filing or up to 90 days later)
- if dissolution was authorized by member vote at a meeting, a statement that the dissolution is authorized in accordance with the provisions of Section 17-6804 of the General Corporation Law; and
- if dissolution was authorized by unanimous written consent of the members, the signatures of those members.
Blank certificate forms for dissolutions authorized by a member meeting and vote (Form NM 53-13) and for dissolutions authorized by unanimous member written consent (Form NW 53-313) are available for download from the SOS website. There is no state-issued form specifically for dissolutions authorized only by the governing body. You can also file online via the SOS website. There is a $20 filing fee.
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 have paid off all of your nonprofit’s debts. In addition, after all debts are paid, 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 may also apply. If you have any questions, you should consult with a lawyer.
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 certificate 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, as well as a link to online filing, on the SOS website.
Dissolution will not stop lawsuits started by or against your nonprofit before dissolution. Moreover, new legal actions can still be started by or against your nonprofit up to three 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:
- involuntary dissolution
- dissolution before starting operations
- dissolution of non-typical nonprofits
- giving proper advance notice of member and governing body meetings
- the required number of member or governing body votes to approve dissolution
- how specifically to approve dissolution in writing without a meeting; and
- how to respond to legal claims after dissolution.
In addition, your certificate 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.
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.