A quick overview on the main steps to dissolving and winding up a 501(c)(3) nonprofit corporation under Washington law.
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. You will also need a plan of distribution that explains how assets will be distributed as you close down your nonprofit.
With the resolution to dissolve in hand, Washington law provides for voluntary dissolution as follows:
Under the first method, the board first must approve the resolution to dissolve and then submit it to the voting members. The members then generally meet and vote to approve the resolution. At least a two-thirds majority is required for approval. Alternatively, all members may provide their written consent to dissolve.
Under the second method, it is up to the board alone to approve the resolution to dissolve. Generally, the plan must be approved by a majority of the directors in office at the time of approval.
After approving dissolution, you need to prepare and, ultimately, adopt a plan of distribution. However, at least 20 days before adopting the plan, you must send a notice to the Attorney General (AG) by registered or certified mail. The AG, in turn, must approve your plan before it can be adopted by your organization. If the AG doesn't file an objection within 20 days after you've mailed the notice, it's assumed that the AG has given its approval. The process for adopting the plan of distribution is the same as for the resolution to dissolve: If you have voting members, the board adopts a resolution recommending the plan and submits it to the members for a vote; if you don't have voting members, the board alone must vote to approve the plan.
Make sure to properly record the resolution to dissolve, the plan of distribution, the directors' votes, and, where necessary, the members' votes. You'll need this information for filings with the state and the IRS.
Notices to Creditors, AG, and DOR
After adopting the resolution to dissolve, you must "immediately" mail notice of the proposed dissolution to each of your nonprofit's known creditors, to the AG in regard to assets held for charitable purposes, and to the Department of Revenue (DOR) (see Tax Clearance below). Each notice should contain a copy of the plan of distribution.
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. Apart from giving notice to creditors, winding up is largely about paying off any debts and then properly distributing any remaining assets, but there are often other tasks involved.
Generally speaking, you can only distribute money and property after you've paid off all of your nonprofit's debts. Then, for asset distributions, there are specific rules you 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 requirements for distributions, including matters contained in your plan of distribution, may also apply. If you have any questions, you should consult with a lawyer.
Before filing your articles of dissolution (see below), Washington requires that your nonprofit obtain a Revenue Clearance Certificate from the Department of Revenue (DOR). To get the certificate, you'll need to submit a Revenue Clearance Certificate Application to the DOR. The application, including instructions, is available for download from the DOR website. Be aware that it can take a month or longer for the DOR to process your application and send you the certificate. You must attach the certificate to your articles of dissolution.
Articles of Dissolution
After you've finished winding up your nonprofit, and gotten your clearance certificate from the DOR, you'll need to file articles of dissolution with the Secretary of State (SOS). The articles of dissolution must contain:
A blank form for the articles of dissolution ("Nonprofit Corporation – Dissolution") is available for download from the SOS website. There is no filing fee unless you want expedited processing.
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 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.
Be aware that dissolving your nonprofit will not stop lawsuits by or against your organization for claims or liability incurred prior to dissolution. Generally, these claims can be brought up to two years after dissolution.
This article covers only the most basic steps of voluntary dissolution. There are many additional, more specific rules, covering things like:
In addition, your articles 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.