Not all nonprofit corporations last forever. Among other possibilities, a nonprofit corporation 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 a Maine 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 Maine nonprofit organization will vary depending on several basic facts. Bearing that in mind, this article is limited in the following ways:
Benefits of Formal Dissolution
Your nonprofit corporation is registered with the State of Maine. Through the dissolution process, you will officially cancel that registration, and, by extension, 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.
The procedure for authorizing dissolution will vary depending on whether, in addition to a board of directors, your nonprofit corporation also has members with the right to vote. You probably already know if your nonprofit has such members. However, if you're unsure, you should check your articles of incorporation, bylaws, or similar organizational documents.
Maine's Nonprofit Corporation Act ("NCA") provides for voluntary dissolution through either:
If your nonprofit has voting members, the board first must adopt a resolution to dissolve the corporation and submit it to those members. The members then must meet to vote on the resolution. You are required to give ten days' advance notice of the proposed member meeting to each member entitled to vote. At the meeting, unless your articles of incorporation or board of directors require a greater vote or a vote by voting groups, a majority of all member votes entitled to be cast must approve the dissolution. (You may also be able to avoid a formal meeting of the members if all members provide their written consent to dissolve.)
If your nonprofit does not have voting members, the board must vote on the proposed dissolution. Unless your articles of incorporation require a greater vote, approval in this case requires a majority vote of the directors.
If you dissolve based on a vote, make sure to properly record both the board's resolution and the members' or directors' votes. You'll need this information for filings with the state and the IRS.
In cases where a nonprofit corporation has voting members, the NCA also allows you to avoid a vote at a formal meeting if all members entitled to vote provide their written consent to dissolve. If dissolution is authorized through unanimous written consent of the voting members, no action by the board is necessary. For dissolution through written consent to be effective, all voting members must sign and date a written consent form.
Statement of Intent to Dissolve
After your members or board has approved the dissolution, you must file a statement of intent to dissolve with the Secretary of State ("SOS"). Blank forms of the statement of intent to dissolve are available for download from the SOS website. Two different forms are available: Form No. MnonprofitA-11 is for dissolutions based on unanimous written consent and Form No. MnonprofitA-11A is for dissolutions based on a member or director vote.
The required content is slightly different for each of the two SOS forms. For Form No. MnonprofitA-11, you must attach a copy of the signed written consent document, and provide the following information:
For Form No. MnonprofitA-11A, you must attach a copy of the resolution adopted by either the voting members or, if there are no voting members, by the board of directors, and provide the following information:
The fee to file either form is $10. Expedited processing is available for an additional fee.
Following member or board approval of dissolution, your corporation 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 and/or directors to handle these matters.
Under the NCA, the main winding up tasks are:
Regarding the last two listed items, your nonprofit's first obligation is to discharge debts, liabilities, and obligations. Only then may your organization distribute any remaining assets. Also, when it comes to asset distribution, a dissolving 501(c)(3) organization must distribute its assets for tax-exempt purposes. In practice, this generally means distributing the assets to another 501(c)(3) organization. (In the words of the NCA, "the property and assets of a public benefit corporation [must be] transferred to a public benefit corporation engaged in activities substantially similar to those of the dissolving . . . corporation.") If you have any questions about whether this requirement applies to your nonprofit, you should check with a lawyer.
Note: The NCA states that, as of 1995, a Maine nonprofit corporation filing annual reports—which means most active nonprofits—must include provisions for disposing of the corporation assets in its bylaws. You should check your bylaws for a provision stating that a specific other nonprofit is to receive any remaining assets after debts, obligations, and liabilities have been paid and discharged.
Notice to Creditors and Other Claimants
You are required to give notice of the proposed dissolution to all known creditors of your nonprofit right after you have adopted the resolution to dissolve. You should consider consulting with an attorney for assistance in preparing and sending this notice.
Articles of Dissolution
After you have completed winding up your nonprofit, you must file articles of dissolution with the SOS. Apart from providing the name of your nonprofit, the articles must state that:
An articles of dissolution form is available for download from the SOS website. Note that the form includes a statement that your nonprofit is up to date with its annual reports. If you are behind in filing those reports, your filing may be delayed. If you complete your dissolution before June 1st, you do not need to file an annual report for the previous calendar year.
There is a $10 fee to file the articles. Expedited processing is available for an additional fee.
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 articles of dissolution, resolution to dissolve, and, if applicable, any written dissolution plans. 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.