A quick overview of the main steps to dissolve and wind up a 501(c)(3) nonprofit corporation under Rhode Island law.
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. The resolution usually should include a plan of distribution that explains how assets will be distributed. With the resolution and plan in hand, Rhode Island 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 members. The members then generally meet and vote to approve the resolution. Alternatively, members can provide unanimous written approval for the resolution.
Under the second method, it is up to the board alone to approve the resolution to dissolve. Generally, the dissolution must be approved by a majority of the directors in office at the time of approval.
Make sure to properly record the resolution to dissolve (including any plan of distribution), the directors’ votes, and, where necessary, the members’ votes or written consents. You’ll need this information for filings with the state and the IRS.
Notice to Creditors
After adopting the resolution to dissolve, you must “immediately” mail notice of the proposed dissolution to each of your nonprofit’s known creditors.
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 may also apply. If you have any questions, you should consult with a lawyer.
Before filing your articles of dissolution, Rhode Island requires that your nonprofit be in good standing with the Division of Taxation (DOT). You will need to file a request for a letter of good standing with the DOT. There is a $50 fee to file the request. A request form is available on the DOT website. It often can take a month or longer to get a letter of good standing.
Articles of Dissolution
After you’ve finished winding up your nonprofit, and gotten your letter of good standing from the DOT, 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 (Form No. 203) is available for download from the SOS website. There is a $10 filing 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), 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.
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 for 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.