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 North Dakota 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 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:
- it only covers North Dakota nonprofit corporations (not all nonprofits are incorporated)
- it only covers nonprofits that have applied to the IRS and been approved as 501(c)(3) tax-exempt organizations
- it only covers voluntary dissolution based on a decision by the nonprofit’s directors and, where applicable, the nonprofit’s members (a nonprofit may be involuntarily dissolved through a court order, or for administrative reasons such as failing to file an annual report)
- it only covers dissolution and winding up of nonprofits that have already named or elected a board of directors (there are streamlined procedures for dissolving nonprofits that don’t yet have a board of directors); and
- it does not cover court-supervised voluntary dissolutions (at a certain point during a voluntary dissolution, various people can ask a court to step in and supervise the process).
Benefits of Formal Dissolution
Your nonprofit corporation is registered with the State of North Dakota. Through the dissolution process, you will officially cancel that registration, and officially end the corporation’s existence. For a nonprofit that is closing down, a properly-handled dissolution achieves at least two important goals. First, it puts your organization beyond the reach of creditors and other claimants. Second, it allows you to fulfill your legal obligations regarding the proper distribution of any remaining corporation assets.
The procedure for authorizing dissolution will vary depending on whether, in addition to a board of directors, your nonprofit corporation also has members with the right to vote. You probably already know if your nonprofit has such members. However, if you’re unsure, you should check your articles of incorporation, bylaws, or similar organizational documents.
North Dakota’s Nonprofit Corporation Act (“NCA”) provides for voluntary dissolution through either:
- a vote by directors followed by a vote of members entitled to vote on dissolution; or
- a vote by directors, if there are no members.
If your nonprofit has voting members, the board first must adopt by majority vote a resolution to dissolve the corporation. The resolution must include a plan of dissolution that states how remaining assets will be distributed after creditors are paid. You then have to submit the resolution and plan to the voting members, who must meet and vote on the resolution. You are required to give five days’ advance notice of the member meeting to each member entitled to vote. Generally, a majority of the members must approve the dissolution. However, check your articles of incorporation and bylaws for any provisions requiring a greater percentage vote for approval of dissolution.
If your nonprofit does not have voting members, the board, alone, must vote on the proposed dissolution.The NCA requires at least a majority vote of the directors for approval. However, your articles of incorporation or bylaws may require a greater board majority for approval.
You don’t need a formal meeting to vote on dissolution. The NCA allows for approval of dissolution without a meeting if there is unanimous written consent. So, if all your directors provide their consent in writing, or all your members provide consent in writing, you can avoid a formal board and/or member meeting. Moreover, your articles of incorporation may allow directors or members to approve of dissolution by less-than-unanimous written consent. For written consents to be effective, directors or members giving consent must sign and date a written consent form.
Make sure to properly record both the board’s resolution and plan, and the directors’ and (if applicable) members’ votes. You’ll need this information for filings with the state and the IRS.
Notice of Intent to Dissolve
After your board (and, where applicable, voting members) have approved the dissolution, you must file two notices of intent to dissolve: one with the Secretary of State (“SOS”) and one with the Attorney General (“AG”). A form for the notice to be submitted to the SOS (Form SFN 58782) is available for download from the SOS website. There is no form available for the notice to be filed with the AG.
The notice to be sent to the SOS must contain:
- the name of your nonprofit
- the date and place of the meeting at which the resolution was approved by the board (and by the members if applicable), or that approval was approved by written consent; and
- a statement that the requisite approval of the directors and members was received.
Filing your notice with the SOS generally does not affect legal claims by or against your organization, or its directors, officers, or members.
The notice for the AG requires substantially more information than the notice for the SOS, including detailed information about your nonprofit’s assets and how they will be transferred. As a general rule, you cannot transfer or convey any of your organization’s assets for at least 45 days after giving notice to the AG. This is known as the “waiting period.” Moreover, in some cases, the AG may extend the waiting period by an additional 30 days. You should consider getting assistance from an attorney to prepare your notice to the AG.
Following approval of dissolution by your directors (and, as necessary, members) and the filing of notices to the SOS and AG, your corporation continues to exist only for the purpose of taking care of certain final matters that, collectively, are known as “winding up” the company. It may be appropriate to designate one or more officers or directors to handle these matters.
Under the NCA, the main winding up tasks are:
- collecting debts owing to your nonprofit
- paying or making provision to pay your nonprofit’s debts, obligations, and liabilities
- selling, leasing, transferring, or otherwise disposing of your nonprofit’s property and assets; and
- properly distributing property, including money, remaining after the discharge of your nonprofit’s debts, obligations, and liabilities.
There are a few points you should keep in mind regarding the last two listed tasks. First, because of the AG’s “waiting period,” you won’t be able to take care of some of these tasks until you’ve received the AG’s approval.
Second, your nonprofit has an obligation to distribute its assets according to a particular order of priority:
- return any assets held for “special use” (this might, for example, include items formally on loan to your organization)
- pay any costs associated with the dissolution proceedings, including attorney fees
- pay all of the nonprofit’s debts, liabilities, and obligations; and
- make any distributions required by your articles of incorporation or bylaws.
Distributions are made only after you have paid all debts, liabilities, and obligations. In addition, distribution of assets is subject to the limitations of North Dakota’s laws regarding private foundations and charitable trusts.
Finally, a dissolving 501(c)(3) organization must distribute its remaining assets for tax-exempt purposes. In practice, this generally means distributing remaining assets to another 501(c)(3) organization.
If you have any questions about how properly distribute any of your nonprofit’s assets, you should check with a lawyer.
Notice to Creditors and Other Claimants
After filing your notices of intent with the SOS and AG, you have the option to give notice of the proposed dissolution to creditors and any potential claimants against your nonprofit. Giving notice requires both publishing in a newspaper once a week for four consecutive weeks, and mailing notice directly to known creditors and claimants. Generally, claimants have at least 90 days to respond to the notice. (If you do not give notice, creditors and claimants may have two years to bring claims.) There are a variety of additional rules both about how to give notice and how to respond to claims; some of these rules can be hard to understand. Therefore, if and when you choose to give notice to creditors and other claimants, you should consider getting assistance from an attorney.
Filing with Attorney General
When you have completed winding up your nonprofit, including transferring all or substantially all of your nonprofit’s assets, you must send the AG a list of persons to whom the assets were transferred or conveyed. There is no form or template available for this document. You should contact the AG or a knowledgeable attorney for more details.
Articles of Dissolution
Finally, once you have finished winding up your nonprofit—including paying, or providing for payment of, creditors and claimants, and filing your list of transferees with the AG—you must file articles of dissolution with the SOS. The articles of dissolution must state:
- whether you gave notice to your creditors and claimants by publication and mailings
- if you did not give notice, that (a) your nonprofit’s debts, obligations, and liabilities have been paid and discharged or that adequate provisions have been made, or (b) two years have elapsed since you filed your intent to dissolve with the SOS
- if you did give notice, the last date on which the notice was given, and that (a) you have paid or provided for payment of all creditors and claimants who filed timely claims, and (b) the statute of limitations for filing claims has expired
- that any remaining assets have been distributed in accordance with the NCA, or that adequate provision has been made for that distribution; and
- that there are no pending legal, administrative, or arbitration proceedings by or against your nonprofit, or that adequate provision has been made for the satisfaction of a judgment, order, or decree that may be entered against it in any pending proceeding.
An articles of dissolution form, along with instructions, is available for download from the SOS website. There is a $20 fee to file the articles of dissolution.
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) and copies of your articles of dissolution, resolution to dissolve, and any written dissolution plans. When completing either 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.
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.