Here's an overview of the main steps you will need to take to close down a nonprofit corporation. This article only covers the most basic kind of voluntary dissolution of a typical Louisiana 501(c)(3) nonprofit corporation that's already doing business. There are different rules and procedures for other types of nonprofits, and for other situations such as an involuntary dissolution.
Caution: Louisiana's nonprofit corporation laws are unique and complex. You are strongly urged to work with a knowledgeable Louisiana attorney to assist you with your dissolution.
Types of Voluntary Dissolution
In general terms, there are two types of voluntary dissolution under Louisiana law: "short form" dissolution and "long form" dissolution. Short form dissolution is available where, at the time of dissolution, a nonprofit has no debt and no immovable property. (The most common kind of "immovable property" property is real estate—land and buildings.) Conversely, long form dissolution applies where, at the time of dissolution, a nonprofit does have debt or does have immovable property. While the process for your nonprofit to authorize dissolution may be the same for both forms of dissolution, long form dissolution involves significant additional steps.
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. The resolution must include information about how the nonprofit's remaining assets will be distributed after all creditors have been paid. With the resolution in hand, Louisiana law provides for voluntary dissolution as follows:
Under the first method, the members generally meet and vote to approve the resolution. (Unlike many other states, Louisiana does not clearly require action by the governing body of a nonprofit, such as a board of directors, before the members vote.) Alternatively, members can provide unanimous written consent for the resolution without meeting.
Under the second method, it is up to the incorporators to approve the resolution to dissolve. All of the incorporators must approve the dissolution. (Unlike many other states, Louisiana law does not clearly indicate that a board of directors of a nonprofit without members can authorize dissolution.)
Make sure to properly record the resolution to dissolve, members' votes, or, where necessary, incorporators' votes. You'll need this information for filings with the state and the IRS.
Affidavit to Dissolve (Short Form Dissolution)
If you are dealing with a short form dissolution, then, after your members have authorized dissolution, you'll proceed directly to filing an affidavit to dissolve your corporation with the Secretary of State (SOS). The SOS has an affidavit form—Form SS339, Affidavit to Dissolve Corporation—that you can download from the SOS website. The affidavit must be signed in the presence of a notary. There is a $75 fee to file the affidavit.
When the filing has been processed, you will receive a certificate of dissolution from the SOS. You should file a copy of this certificate with the Clerk of Court where your nonprofit maintains its registered office. (If your nonprofit is located in Orleans Parish, you should file a copy of the certificate with the recorder of mortgages.)
After the affidavit is filed, the members will be personally liable for any debts or claims. Therefore, it is important that you confirm there are no outstanding debts or claims before filing for short form dissolution. You may want to consult with an attorney to help ensure that short form dissolution makes sense in your particular case.
Notice and Certificate (Long Form Dissolution)
For long form dissolutions, after the members authorize the dissolution, they will need to appoint a person (or people) to act as a liquidator for the corporation. Appointment of the liquidator usually will be based on a majority vote of the members. Generally speaking, all the rights, powers, and duties of the officers and board of directors are transferred to the liquidator, and, unless the liquidator decides otherwise, the authority and duties of the officers and directors end when the liquidator is appointed.
However, the appointment of the liquidator will not be operative until you take care of two tasks:
When filing the certificate (which is sometimes called an amendment of dissolution) with the SOS, you must include a copy of the notice you published in a newspaper along with an affidavit from the publisher of the newspaper attesting to the publication.
The certificate serves a purpose similar to the affidavit that is used for short form dissolutions. The fee to file the certificate is $75. The SOS does not publish any form for the certificate of dissolution, so you will have to draft your own.
Note: You should strongly consider having an attorney assist you in preparing both the published notice and the certificate.
Liquidation (Long Form Dissolution)
After you have published the notice of dissolution and filed a certificate of dissolution with the SOS, the liquidator can proceed with liquidating your corporation. If the members do not authorize liquidation without court involvement, a court will appoint a liquidator, and a different set of rules may apply to some liquidation activities. However, this article does not cover court-supervised liquidations.
Liquidation can include any of a large number of tasks. However, much of the process can be boiled down to paying off any debts and then distributing any remaining assets. Generally speaking, the liquidator can only distribute money and property after paying off all of your nonprofit's debts. Then, for asset distributions, there are specific rules. 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 may also apply.
Notice to Creditors and Other Claimants (Long Form Dissolution)
One other key part of liquidation is giving notice to creditors and other claimants of your nonprofit's dissolution. Giving notice involves both (a) sending a notice to all known creditors and persons believed to have valid claims against your nonprofit, and (b) publishing notice in a newspaper.
Liquidator's Certificate (Long Form Dissolution)
When the liquidator has completed liquidation, he or she needs to sign a liquidator certificate and submit it to the SOS. There is no fee to file the certificate. However, before completing processing the liquidator's certificate, the SOS will check for certificates from the Department of Revenue (DOR) and the Louisiana Workforce Commission (LWC) showing that no taxes, fees, or other charges are due.
Once the SOS processes the liquidator's certificate, they will send back a certificate of dissolution. A copy of the certificate of dissolution must be filed with the recorder of mortgages in the parish where your nonprofit had its last registered office. This is different from the certificate of dissolution you would receive in a short form dissolution, which, as noted above, generally should be filed with a Clerk of Court.
There is no state-issued form for the liquidator certificate, so you will have to draft your own—or, to help ensure the certificate contains the necessary information, have an attorney draft it.
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 affidavit of dissolution or various certificates, and resolution to dissolve. 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.
You can find additional information, such as forms, mailing addresses, and filing fees, on the SOS website.
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:
In addition, your articles of incorporation or bylaws may contain rules that apply instead of, or along with, state law.
You are strongly advised to get a lawyer to assist you with closing your Louisiana nonprofit corporation.
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.