Need to learn how to close down your nonprofit corporation in Arkansas? Here is a quick overview of the main steps to dissolve and wind up a 501(c)(3) nonprofit corporation under Arkansas law.
Authorizing Dissolution
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. The resolution should include a plan of dissolution that indicates how the nonprofit's remaining assets will be distributed after all creditors have been paid. With the resolution and plan in hand, Arkansas law provides for voluntary dissolution as follows:
- if your nonprofit does not have members, by a vote of the directors; or
- if your nonprofit does have members, by action of the directors followed by a vote or other consent of the members.
Under the first method, it is up to the board alone to approve the dissolution. Generally, approval requires a majority vote of the directors in office at the time of the vote.
Under the second method, the board first must approve the resolution and plan of dissolution and then submit it to the members. The members then generally meet and vote to approve the dissolution. Alternatively, members may approve of dissolution by written consent.
Make sure to properly record the resolution to dissolve, plan of dissolution, directors' votes, and, where necessary, the members' votes or written consents. You'll need this information for filings with the state and the IRS.
Articles of Dissolution
After your board (and, where applicable, voting members) have approved the dissolution, you'll need to file articles of dissolution with the Secretary of State's Business and Commercial Services division (BCS). 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 separately on dissolution, and (b) either the total number of votes cast for and against dissolution by each class entitled to vote separately on dissolution or the total number of undisputed votes cast for dissolution by each class and a statement that the number cast for dissolution by each class was sufficient for approval by that class; and
- if approval of dissolution by some person or persons other than the members or the board of directors was required, a statement that the approval was obtained.
A blank form for the articles of dissolution (Form NPD-4) is available for download from the BCS website. There is a $50 filing fee.
Winding Up
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.
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 asset distribution requirements 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. You can mail notice directly to known claimants after dissolution. You can also give notice to unknown claimants by publishing in a newspaper.
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 guidance, check out Every Nonprofit's Tax Guide, by Stephen Fishman (Nolo), go to the IRS website, or consult with a tax professional.
Additional Information
You can find additional information, such as forms, mailing addresses, phone numbers, and filing fees, on the BCS website.
Be aware that dissolving your nonprofit will not stop lawsuits started by or against it before dissolution. Moreover, for claims or liability incurred prior to dissolution, it may be possible to start new legal actions up to two years after dissolution.
This article covers only the most basic steps of voluntary dissolution after your nonprofit has started doing business. There are many additional, more specific rules, covering things like:
- involuntary dissolution
- dissolution before starting operations
- dissolution of non-typical nonprofits
- what specific items should be contained in a plan of dissolution
- giving proper advance notice of member and director meetings
- the required number of member or director votes to approve dissolution
- possible required approval of dissolution by people other than directors and members
- steps to approve dissolution in writing without a meeting
- what needs to be included in notices to creditors and claimants; and
- how to respond to legal claims after dissolution.
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.
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.
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