The main steps you need to take, under West Virginia law, to dissolve and wind up a 501(c)(3) nonprofit corporation in West Virginia.
Closing starts with dissolution, and to dissolve your nonprofit, you will need a resolution to dissolve. In addition, you’ll likely also need a plan of distribution that indicates how the nonprofit’s remaining assets will be distributed after all creditors have been paid. With a resolution and plan in hand, West Virginia law provides for voluntary dissolution as follows:
Under the first method, the board first must adopt 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. The procedure for approving a separate plan of distribution is essentially the same.
Under the second method, it is up to the board alone to approve the resolution to dissolve. Typically, the resolution must be approved by a majority of the directors. The procedure for approving a plan of distribution is the same.
Make sure to properly record the resolution to dissolve, the 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.
Articles of Dissolution
After your nonprofit has approved dissolution, 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 CD-6) is available for download from the SOS website. There is a $25 filing fee.
Before approving your filing and issuing a certificate of dissolution, the SOS will request clearances from the West Virginia State Tax Department, Employer Coverage Unit (Workers Compensation), and from the Department of Employment Security. If you are not current with all of your tax obligations, processing of your articles of dissolution will be delayed. The SOS states that, depending on the details, the delay could be substantial—up to two years.
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. 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, including requirements contained in your plan of distribution, may also apply. If you have any questions, you should consult with a lawyer.
Your nonprofit cannot make any final distributions of assets until it’s received current statements from the State Tax Department and the Department of Employment Security that all required state taxes have been paid. The SOS requests these statements when you submit your articles of dissolution.
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 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.
You can find additional information, such as forms, mailing addresses, phone numbers, and filing fees, on the SOS website.
Be aware that dissolution will not stop lawsuits started by or against your nonprofit before dissolution. Moreover, after dissolution, new legal actions can still be started by or against your nonprofit for claims or liability incurred prior to dissolution. (The length of time after dissolution during which new actions can be started could be as long as five years.)
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 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.