When a nonprofit corporation decides to close its doors, there are steps that the organization must follow to legally terminate its operations or dissolve. Similarly, to for-profit corporations, nonprofit corporations must file Articles of Dissolution with the Florida Department of State. But that is not the final step. Nonprofit organizations must follow state law requirements for dissolution, as well as, the requirements provided by the Internal Revenue Service (IRS).
What are Articles of Dissolution?
Articles of Dissolution is the necessary form that a nonprofit organization must submit to the Department of State to properly cease its activities. Florida Statute 617.1403 explains what the articles of dissolution must include when filing with the Department of State. A non-profit corporation is dissolved upon the effective date of its articles of dissolution.
What is the Effect of Dissolution?
Under Florida law, “a dissolved corporation continues its corporate existence but may not conduct its affairs except to the extent appropriate to wind up and liquidate its affairs.” Winding up a nonprofit organization’s affairs include: collecting its assets; disposing of its properties; discharging or making provision for discharging its liabilities; and distributing its remaining property in accordance with the plan of distribution of assets adopted under Florida Statute 617.1406.
What is a plan of Distribution of Assets?
A plan of distribution of assets is a plan explaining how the nonprofit organization’s assets will be distributed upon dissolution. Many corporations include a plan within their articles of incorporation. If not, Florida law provides some guidance on how a nonprofit should distribute its assets under Florida Statute 617.1406. Additionally, a copy of the plan of distribution of assets, authenticated by an officer of the corporation and containing the officer’s certificate of compliance must be filed with the Department of State.
How does a 501(c)(3) Properly Distribute its Assets?
Many nonprofit organizations qualify as a 501(c)(3) and receive tax exempt status from the government. The Internal Revenue Service (IRS) provides guidance on how to properly dissolve these nonprofit organizations.
A 501(c)(3) organization may not transfer any of its assets to shareholders or board members of the organization. If a nonprofit organization is classified as a 501(c)(3), the organization’s assets must be permanently dedicated to an exempt purpose. Therefore, if a 501(c)(3) organization dissolves, its assets must be distributed for an exempt purpose described in section 501(c)(3), or to the federal government or to a state or local government for a public purpose.
How Should a Nonprofit Organization Inform the IRS that it is Terminating?
Many nonprofit organizations file an annual return or notice to the IRS. Nonprofit’s can use the final return or notice to tell the IRS about the termination of its business activities. A nonprofit’s annual return is usually filed using Form 990 and the nonprofit would use the same form to indicate its termination. If the nonprofit organization is required to file an annual return, the final return will be due by the 15th day of the 5th month after the termination date.