Not all nonprofit corporations last forever. Among other possibilities, a nonprofit 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 an Oregon 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 will vary depending on several basic facts. Bearing that in mind, this article is limited in the following ways:
- it only covers nonprofit corporations (not all nonprofits are incorporated)
- it only covers nonprofits that have applied to the IRS and been approved specifically 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 order, or for administrative reasons such as failing to file an annual report); and
- it only covers nonprofits that have started operations (there are streamlined dissolution procedures for nonprofits that have not admitted members and do not yet have initial directors).
Benefits of Formal Dissolution
Your nonprofit corporation is registered with the State of Oregon. Through the dissolution process, you will officially cancel that registration, and officially end the corporation’s existence. A properly-handled dissolution achieves at least two important goals:
- it puts your organization beyond the reach of creditors and other claimants; and
- 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. If you’re unsure of whether your nonprofit has members, you should check your articles of incorporation, bylaws, or similar organizational documents.
Oregon’s Nonprofit Corporation Act (“NCA”) provides for voluntary dissolution as follows:
- if there are members, by action of the directors followed by a vote of the members; or
- if there are no members, by a vote of the directors.
To dissolve your nonprofit, you will need a plan of dissolution. The plan must indicate who will receive your nonprofit’s remaining assets after all creditors have been paid.
If your nonprofit has voting members, the board first must approve the plan of dissolution and then submit it to the members. Generally, board approval of the plan will require a majority vote of the directors, but you should check your articles of incorporation and bylaws for different voting requirements. If the board wants the dissolution to be approved by the members at a membership meeting, members must be given proper advance notice (generally seven days) and the notice must include a copy or summary of the plan of dissolution. Under the NCA, a two-thirds majority of the votes actually cast, or a simple majority of the votes entitled to be cast, whichever is less, is required to approve the dissolution. Your articles of incorporation or bylaws may require a greater vote. Your board may also obtain approval from the members through written consent or written ballot, in which case the material soliciting the consent or ballot must contain a copy or summary of the plan of dissolution.
If your nonprofit does not have members, it is up to the board to approve the plan of dissolution. Generally, the plan must be approved by a majority of the directors in office at the time of approval. However, you should check your articles of incorporation and bylaws for different rules regarding board approval. You must give at least two days’ notice of the meeting on dissolution to all directors and the notice must include a copy or summary of the plan of dissolution.
If your bylaws require that dissolution also be approved by any other person, that person must provide approval in writing.
Make sure to properly record the plan of dissolution, the directors’ votes, and, where necessary, the members’ votes. You’ll need this information for filings with the state and the IRS.
Certain Matters are Unchanged by Dissolution
Among other things, dissolution alone does not:
- transfer title to the nonprofit’s property
- subject the nonprofit’s directors or officers to standards of conduct different from those that applied before dissolution
- change quorum or voting requirements for the nonprofit’s board of directors or members
- change provisions for selection, resignation, or removal of the nonprofit’s directors or officers or both
- change provisions for amending the nonprofit’s bylaws
- prevent commencement of a proceeding by or against the nonprofit in its corporate name
- abate or suspend a proceeding pending by or against the nonprofit on the effective date of dissolution; or
- terminate the authority of the nonprofit’s registered agent.
Initial Notice to Attorney General
On or before the date that you file articles of dissolution for your nonprofit, you must give notice regarding the dissolution to the Attorney General (AG). You can’t transfer any of your nonprofit’s assets until 20 days after giving the AG notice, or until the AG indicates in writing that it will not take action regarding the transfer, whichever is earlier.
A blank form for the notice (the Closing Form) is available for download from the Oregon Department of Justice (DOJ) website. To complete the form, you’ll need to provide the name of your nonprofit, indicate whether you have filed articles of dissolution, and list all recipients of assets from your nonprofit at the time of its dissolution. You must also attach a copy of your plan of dissolution to the form.
Articles of Dissolution
After your board (and, where applicable, members) have approved the dissolution, and after or on the same date you’ve filed notice with the AG, you’ll need to file articles of dissolution with the Secretary of State (SOS). Strictly speaking, the NCA does not require you to file this document, instead stating that a nonprofit “may” dissolve by filing the articles. However, if you don’t file articles of dissolution, you won’t properly complete the voluntary dissolution of your nonprofit organization.
The articles of dissolution must contain:
- the name of your nonprofit
- the date dissolution was authorized
- if approval by members was not required, a statement to that effect and a statement that the plan of dissolution was approved by a sufficient vote of the board of directors
- if approval by members was required, (a) the designation and number of members of, and number of votes entitled to be cast by, each class entitled to vote on dissolution; and (b) the total number of votes cast for and against dissolution by each class entitled to vote
- if approval of dissolution is required by anyone other than board members, a statement that the approval was obtained; and
- an indication of whether you have sent a notice of dissolution to the AG.
A blank form for the articles of dissolution is available for download from the SOS website. There is a $50 fee to file the articles of dissolution.
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. It may be appropriate to designate one or more officers or directors to handle these matters.
Generally speaking, you can only distribute money and property after you have paid off all of your nonprofit’s debts. For 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.
Notice to Creditors and Other Claimants
One other part of winding up your dissolved nonprofit involves giving notice to creditors and other claimants. Giving notice is optional. However, doing so will help limit your liability and also allow you to more safely make final distributions of remaining assets.
Under the NCA, one way to give notice is by sending a written document directly to known claimants after dissolution. Proper written notice must:
- describe information that must be included in a claim
- provide a mailing address where a claim may be sent
- state the deadline, which may not be fewer than 120 days from the date of the notice, by which your dissolved nonprofit must receive the claim; and
- state that the claim will be barred if not received by the deadline.
You also may give notice to unknown claimants by publishing in a newspaper. As with sending direct notice to known claimants, there are specific rules for giving notice through publication. Generally speaking, claimants have five years after the date of newspaper publication to bring a claim.
Some of the rules for giving notice and responding to claims can be hard to understand. Therefore, if you choose to give claimants notice, you should strongly consider getting assistance from a business attorney.
Final Notice to Attorney General
After “all or substantially all” of your nonprofit’s assets have been transferred—in other words, after you have finished winding up your nonprofit—you must send the AG a notice indicating who, other than creditors, received those assets. The list must show the address of each recipient and what assets each received. You may use the Closing Form available on the DOJ website for this purpose.
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 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.
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.