Not all nonprofit corporations last forever. Among other possibilities, a nonprofit corporation may close because it’s no longer be 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 an Oklahoma 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 an Oklahoma nonprofit will vary depending on several basic facts. Bearing that in mind, this article is limited in the following ways:
- it only covers Oklahoma 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 (not all nonprofits are exempt from paying taxes, and not all tax-exempt nonprofits are 501(c)(3) 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 decree); and
- it only covers dissolution of nonprofits that have already started operations (there are separate procedures for dissolving nonprofits that haven’t yet started doing business).
Benefits of Formal Dissolution
Your Oklahoma nonprofit corporation is registered with the State of Oklahoma. Through the dissolution process, you will officially cancel that registration and officially end the corporation’s existence. More specifically, for a nonprofit that’s closing down, a properly-handled dissolution achieves at least two important goals. First, it ultimately 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.
Oklahoma Nonprofit Corporation Law
Oklahoma does not have a comprehensive statute that applies specifically to nonprofits. Instead, various sentences and paragraphs on “not for profit” and “nonstock” corporations” are included in the state’s General Corporation Act (“GCA”). (A nonstock corporation is a corporation that does not issue any stock, nor, by extension, have any shareholders. Generally speaking, an Oklahoma not-for-profit (nonprofit) corporation will be a nonstock corporation whose certificate of incorporation includes a statement “that the corporation does not afford pecuniary gain, incidentally or otherwise, to its members as such.”)
The GCA contains the rules for dissolving and winding up nonprofits. Because the GCA, overall, is geared mainly toward for-profit corporations, it is not always obvious how its rules should apply to nonprofit organizations. Therefore, you are strongly urged to consult with a knowledgeable lawyer for assistance in dissolving your Oklahoma nonprofit corporation.
The procedure for authorizing dissolution will vary depending on whether, in addition to a board of directors, your nonprofit corporation also has voting members. (If you’re unsure of whether your nonprofit has voting members, you should check your certificate of incorporation, bylaws, or similar organizational documents.)
The GCA provides for voluntary dissolution through:
- action by the board of directors followed by a member vote
- if members are entitled to vote to elect directors, a vote by the members; or
- if there are no voting members, a vote by the board of directors.
Under the first method, your board of directors must adopt a resolution to dissolve and submit that resolution to the voting members. The members then must vote on the resolution at a member meeting. You are required to give advance notice of the meeting to each member entitled to vote on the resolution. At the member meeting, a majority of members must approve the dissolution. (Note: While the GCA is not entirely clear on this point, it may be possible to avoid a member meeting and vote if all voting members give their written consent to dissolve. In that case, you would need signatures from all voting members on a consent form approving the resolution to dissolve.)
The second method applies if your nonprofit’s voting members have the right to elect the organization’s directors. In such cases, a majority vote of the members in favor of a resolution to dissolve should suffice to approve dissolution.
The third method applies if your nonprofit does not have voting members. In that case, a majority of the directors in office at the time of dissolution must vote to adopt a resolution to dissolve.
Make sure to properly record the resolution to dissolve, the directors’ votes, and, where necessary, the members’ votes. You’ll need this information for filings with the state and the IRS.
Certificate of Dissolution
After your directors (and, where necessary, the voting members) have approved the dissolution of your nonprofit, you must file a certificate of dissolution with the Secretary of State (“SOS”). The certificate of dissolution must contain:
- the name of your nonprofit
- the date your nonprofit was incorporated
- the date dissolution was authorized
- the name and street address of your organization’s registered agent
- one of the following three statements:
- dissolution has been authorized by the board of directors and the members of the nonprofit
- dissolution has been authorized by a vote of the members of the nonprofit entitled to vote to elect directors
- dissolution has been authorized at a meeting of the board by adoption of a resolution to dissolve by a majority of directors then in office (use this if there are no members entitled to vote on dissolution), and
- the names and addresses of the nonprofit’s directors and officers.
The SOS has a blank certificate of dissolution form available for download from the SOS website (currently, SOS Form 0007-07/12). There is a $25 fee to file the certificate. You can file your dissolution by mail, in person, or online. To file online you must have registered an online account with the SOS.
Under the GCA, dissolution alone does not terminate any legal or similar action pending by or against your organization at the time of dissolution, or for a period of three years after the date of dissolution.
Following dissolution, your organization 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 the winding up.
Under the GCA, key winding up tasks include:
- gradually settling and closing the organization
- prosecuting and defending lawsuits
- disposing of and conveying the organization’s property
- discharging the organization’s liabilities; and
- properly distributing any remaining assets.
Regarding the last two items, discharging liabilities and distributing assets, the GCA does not provide much guidance specifically for nonprofits. However, generally speaking, you can only distribute money and property after you have paid off all of your nonprofit’s debts. Moreover, your nonprofit must return any items that were loaned to it on the condition that they would be returned upon dissolution. And, 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 certificate of incorporation, bylaws, or a plan of distribution, may also apply. If you have any questions, you should consult with a lawyer.
Notice to Creditors and Other Claimants
After you have approved the dissolution of your nonprofit, you must publish a notice of dissolution one time in a newspaper. In addition, you have the option to send a written notice directly to known claimants. The notice of dissolution must state:
- that all claims must be in writing and inform the corporation of the identity of the claimant and the substance of the claim
- the mailing address to which a claim must be sent
- the date by which a claim must be received by the corporation, which can't be less than 60 days from the date of the notice
- that the claim will be barred if not received by the deadline stated in the notice
- that the corporation may make distributions to other claimants and its shareholders without further notice to the claimant; and
- the aggregate amount, on an annual basis, of all distributions made to shareholders for each of the three years prior to the date the corporation dissolved.
There are many additional rules regarding the details both of giving notice and responding to claims. The rules were intended first and foremost to apply to for-profit corporations, and, in any case, can be hard to understand. Therefore, when dealing with giving notice of dissolution, you should strongly consider getting assistance from a business attorney.
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 certificate of dissolution, resolution to dissolve, and, if applicable, plan of dissolution. 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.
You can find additional information, such as forms, mailing addresses, 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.