For some nonprofit corporations, there comes a time to close it down. This could be for any number of reasons, which could include lack of available funding or leadership. Sometimes, the organization might have met its goal or a larger organization or government entity has stepped in to serve in the same capacity. Whatever the reason, when it is time for the nonprofit to end it will need to go through the process of dissolution.
Minnesota law sets out the specific procedures that must be followed for a nonprofit corporation to be dissolved properly and to impose a statute of limitations for claims. Dissolving the nonprofit properly will also ensure the nonprofit fulfills its legal obligations regarding distribution of any remaining assets. The procedures described in this post cover Minnesota nonprofit corporations that have voluntarily decided to dissolve and in which the organization has an active Board of Directors.
Resolution of Dissolution
First, the Board must adopt a resolution proposing dissolution of the organization by the affirmative vote of a majority of all directors. The resolution must include a plan of dissolution that states to whom the assets will be distributed after creditors are paid. If the organization has members they also have a right to vote. Members must also be given advance notice of the meeting where the vote will be held. As with all votes, the action should be recorded in the minutes of the meeting or with a signed written resolution.
Plan of Dissolution
As noted above, the resolution of proposed dissolution must include a plan of dissolution. The plan of dissolution provides the order in which the assets of the corporation are distributed. Under Minnesota law, the assets are distributed in the following order: (1) use of special use/purpose funds; (2) payment of costs of dissolution; (3) payment of debts, obligations, and liabilities; and (4) distribution pursuant to the Articles of Incorporation. Typically, the Articles will state where excess funds should be distributed. Often it is a nonprofit with which the organization has a close relationship. If no other organization is specifically named, it will generally state that the funds will be distributed to another 501(c)3 with a similar charitable purpose.
During this period, the nonprofit corporation will follow the plan of dissolution and "wind up" its affairs by collecting debts, paying its liabilities, and disposing of its assets. After the winding up has been completed and the proper notices have been given, the organization can distribute remaining assets according to the Articles.
File Notice of Intent to Dissolve
The nonprofit organization must file a Notice of Intent to Dissolve with the Minnesota Secretary of State after adopting the resolution to dissolve. The notice must contain: (1) the name of the corporation; (2) the date and place of the meeting at which the resolution was approved by the Board; and (3) a statement that the requisite approval of the directors was received.
The nonprofit organization must also file an intent to dissolve with the Minnesota Attorney General. The Attorney General's website provides a form that may be used for this purpose. The notice must contain: (1) the purpose of the corporation; (2) a list of assets owned or held by the corporation for charitable purposes; (3) a description of restricted assets and purposes for which the assets were received; (4) a description of debts, obligations, and liabilities of the corporation; (5) a description of tangible assets being converted to cash and the manner in which they will be sold; (6) anticipated expenses of the transaction, including attorney fees; (7) a list of persons to whom assets will be transferred, if known; (8) the purposes of persons receiving the assets; and (9) the terms, conditions, or restrictions, if any, to be imposed on the transferred assets. As part of giving notice, the organization may not transfer or convey assets for at least 45 days after giving notice to the Attorney General. This period may be extended by the Attorney General for up to 30 additional days.
Notice to Creditors and Claimants
After the Notice of Intent to Dissolve has been filed with the Secretary of State and the Attorney General, the nonprofit organization has the option of giving notice of the proposed dissolution filing to known creditors and potential claimants. If notice to creditors is given, it must be given by publishing the notice once each week for four successive weeks in a legal newspaper. The organization must also give written notice to known creditors and claimants. The advantage of giving notice to creditors is that claimants have a shorter window to respond to the notice (at least 90 days). If the organization chooses not to publish notice, claimants generally have two years to bring claims. However, any organization that is contemplating giving notice to creditors should consult with an attorney for assistance in understanding these rules.
File Notice of Transfer with Minnesota Attorney General
After expiration of the 45 day waiting period required after filing with the Attorney General (or longer, depending on the Attorney General's response), the nonprofit organization may transfer all or substantially all of its remaining assets. The Board must deliver to the Attorney General a list of persons and addresses to whom the assets have been transferred. There is no prescribed form for this filing.
File Articles of Dissolution with Minnesota Secretary of State
Finally, the nonprofit organization will file Articles of Dissolution with the Secretary of State after expiration of the 45 waiting period (or longer, depending on the Attorney General's response), the payment of known claims, and transfer of funds. The Articles of Dissolution must state: (a)(1) whether notice has been given to the creditors and, if notice has been given, the last date on which the notice was given and payment has been made or that the 90 day period has expired; or (2) if notice was not given, that the debts, obligations, and liabilities of the corporation have been paid and discharged or that adequate provisions have been made for them; (b) that the remaining assets of the corporation have been distributed according to the priorities set forth above or that; (c) that there are no pending legal, administrative, or arbitration proceedings by or against the corporation, or that adequate provision has been made for the satisfaction of a judgment, order, or decree that may be entered against it in a pending proceeding; and (d) that notice to the Attorney General has been given and the waiting period has expired or has been waived by the Attorney General. The Secretary of State has not provided a form for this filing, so nonprofits should consult with an attorney for assistance in drafting Articles of Dissolution.
At long last, within 30 days of filing the Articles of Dissolution, the Secretary of State will issue a Certificate of Dissolution to the now-dissolved organization.
Along with the state filing requirements outlined in this post, nonprofit organizations should work with their tax adviser for properly completing a final Form 990. Other issues that any business or nonprofit organization that is closing may face include, sale or lease of office space, termination of employment relationships, effectively marketing inventory, closing bank accounts, among others. Throughout the process of dissolution, the organization should consider these issues and seek advice as needed.
For more information, or to schedule an appointment to discuss your nonprofit organization call (507) 288-5567 or send an email to one of our attorneys.