Not all nonprofit corporations last forever. Among other possibilities, a nonprofit corporation may close because it’s no longer able to get necessary funding, the directors or members have irreconcilable differences, or the organization simply decides that it has met its goals and no longer needs to exist. Whatever the underlying reason, if you choose to close down a Nevada nonprofit corporation, you’ll need to go through a process called dissolution. Dissolution requires a vote or other formal authorization, the filing of key documents with government agencies, and a group of other tasks collectively known as winding up and liquidating the corporation.
The specific steps for closing a nonprofit organization will vary depending on several basic facts. Bearing that in mind, this article is limited in the following ways:
Your nonprofit corporation is registered with the State of Nevada. Through the dissolution process, you will officially cancel that registration, and, by extension, officially end the corporation’s existence. A properly-handled dissolution achieves at least two important goals. First, it will put your organization beyond the reach of creditors and other claimants. Second, it will allow you to fulfill your legal obligations regarding the proper distribution of any remaining corporation assets.
Nevada’s nonprofit corporation act (“NCA”) divides voluntary dissolutions into two categories:
Dissolution initiated by directors. For dissolutions initiated by the directors, the procedure for authorizing dissolution will vary depending on whether your nonprofit corporation also has members. (If you’re unsure of whether your nonprofit has members, check your articles of incorporation, bylaws, or similar organizational documents.)
If your nonprofit does not have members, it is up to the board to approve dissolution. You should look to your articles of incorporation and bylaws for specific rules and requirements regarding the board approval process. Generally, the board will need to approve a resolution to dissolve. (The resolution may also need to be approved by some other party or organization—check your articles of incorporation.) Once the resolution is approved, you must file a certificate of dissolution with the Secretary of State (“SOS”).
If your nonprofit does have members, then, after your board adopts a resolution to dissolve, it must call a meeting of the members to vote on the matter. (The resolution may also need to be approved by some other party or organization—check your articles of incorporation.) Members must be given proper advance notice of the meeting. Approval requires the consent of a majority of the voting power of the members. After the members approve the resolution, you must file a certificate of dissolution with the SOS.
Regardless of whether your nonprofit has voting members, make sure to properly record the board’s resolution, the directors’ votes, and, where necessary, the members’ votes. You’ll need this information for filings with the state and the IRS.
Dissolution at request of members. A nonprofit can also voluntarily dissolve if a majority of its members (and any other person or organization whose approval is required by the articles of incorporation) submit a written request to dissolve. The request must:
The written request must be submitted to the directors. In addition, a copy of the same request, along with the appropriate certificate of dissolution, must be submitted to the SOS.
Regardless of which method you use to voluntarily dissolve your organization, you should also prepare a plan of distribution that explains how your nonprofit’s assets will be distributed.
Note: Dissolution alone does not stop pending legal actions brought by or against your nonprofit. In addition, dissolution alone does not stop the bringing of new lawsuits by or against your nonprofit for a period of up to three years after dissolution (the exact length of time depends on the details of the suit).
The specific certificate of dissolution you must file with the SOS will depend on how you dissolved your nonprofit.
If your nonprofit’s dissolution was authorized by your board (and, where applicable, members), your certificate of dissolution must contain:
If your dissolution was based on a written request from members, your certificate of dissolution basically just needs to provide the name of your nonprofit and the effective date for the filing. Remember: You must submit both a certificate of dissolution and a copy of the members’ written request to dissolve to the SOS.
A blank form for each type of certificate of dissolution, along with instructions and required cover sheets, is available for download from the SOS website. The basic filing fee for either form is $50. Certified copies and various forms of expedited processing are available for additional fees.
After your nonprofit has formally authorized dissolution, it continues to exist for the purpose of taking care of certain final matters that, collectively, are known as “winding up” and “liquidating” the company. It may be appropriate to designate one or more officers and/or directors to handle these matters.
Under the NCA, key winding-up and liquidation tasks include:
Generally speaking, distributions of money and property are made only after you have paid off all of your nonprofit’s debts. When it comes to distributions, the NCA has specific rules you will 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 distribution rules, contained in your articles of incorporation, bylaws, or a plan of distribution, may also apply. If you have any questions, you should consult with a lawyer.
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, if you have one, plan of dissolution. 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, more specific 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, cover sheets, instructions, mailing addresses, phone numbers, and filing fees, on the SOS website.
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.