How to Dissolve a Nonprofit Corporation in Tennessee

Here is an overview of the main steps you will need to take to close down your Tennessee nonprofit corporation. This article only covers the most basic kind of voluntary dissolution of a typical Tennessee 501(c)(3) nonprofit corporation that is already doing business. There are different rules and procedures for other types of nonprofits, and for other situations such as an involuntary dissolution.

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, Tennessee law provides for voluntary dissolution as follows:

• if your nonprofit has members, by action of the directors followed by a vote or other consent of the members; or
• if your nonprofit doesn't have members, by a vote of the directors.

Under the first method, generally the board first must approve the resolution to dissolve including the plan of dissolution and then submit it to the members. The members then meet and vote to approve the dissolution. Alternatively, members may approve of dissolution by written consent.

Under the second method, it is up to the board alone to approve the resolution and plan. Typically, the resolution and plan must be approved by a majority of the directors in office at the time of approval.

Make sure to properly record the resolution and plan, the directors' votes, and, where necessary, the members' votes or consents. You'll need this information for filings with the state and the IRS.

Initial Notice to Attorney General

You'll need to file articles of dissolution for your nonprofit (see below), but on or before that date you must give notice regarding the dissolution to the Tennessee Attorney General and Reporter (AG). The notice must include a copy or summary of your plan of dissolution. You can't transfer any of your nonprofit's assets until 20 days after giving the AG notice, or until the AG indicates in writing that it will not take action regarding the transfer, whichever is earlier.

Articles of Dissolution

After your board (and, where applicable, voting members) have approved the dissolution, and after or on the same date you've filed notice with the AG, you'll need to file articles of dissolution with the Secretary of State (SOS). The articles of dissolution must contain:

• the name of your nonprofit
• the date dissolution was authorized
• if approval by members was required, a statement that the resolution to dissolve was duly adopted by the members
• if approval by members was not required, a statement that the resolution was duly adopted by a majority of the board of directors
• a copy of the resolution or the written consent authorizing the dissolution
• if approval of dissolution by one or more third persons other than the members or directors was required, a statement that such approval was obtained; and
• a statement that the nonprofit has given notice to the AG.

A blank form for the articles of dissolution (Form SS-4411) is available for download from the SOS website.

"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 have paid off all of your nonprofit's debts. 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.

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.

Final Notice to Attorney General

After "all or substantially all" of your nonprofit's assets have been transferred—in other words, after you have finished winding up your nonprofit—you must send the AG a notice indicating who, other than creditors, received assets. For each recipient of assets, the list must show an address and what assets were received.

State Tax Clearance

To finish closing your nonprofit, you must file articles of termination with the SOS. When the SOS receives the articles, its Division of Business Services will request verification from the Department of Revenue (DOR) that your nonprofit has filed all required reports and paid all required taxes and penalties. If the DOR cannot provide tax clearance verification, your articles of termination will be rejected.

Articles of Termination

After you've wound up your nonprofit, you must file articles of termination with the SOS. (In some cases, where very little is needed to wind up, a corporation may end up filing the articles of dissolution and articles of termination at the same time.) The articles of termination must include:

• the name of your nonprofit
• a statement that all the assets of the nonprofit have been distributed to its creditors and other parties authorized by the Tennessee Nonprofit Corporation Act; and
• a statement that the dissolution of the nonprofit has not been revoked.

An articles of termination form (Form SS-4412) is available for download from the SOS website. There is a $20 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 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 SOS website.

Be aware that dissolving your nonprofit will not stop lawsuits started by or against your organization 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 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 and/or director votes to approve dissolution
• possible required approval of dissolution by people other than directors and members
• how 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.

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.