What if your organization needs to wind up operations?
It sometimes happens that an organization needs to wind down its operations and go out of business. This can happen for many reasons including running out of money or accomplishing its mission. If that is the case, there is a right way and a wrong way to wind down operations.
The apparently simpler way is to not file your annual report with the Illinois Secretary of State’s office. You don’t have to pay the filing fee and you will be involuntarily dissolved. This approach has a major drawback however. If you let your organization be involuntarily dissolved and there are creditors who have not been paid the officers and directors risk personal liability for those unpaid debts. This includes taxes as well as amounts paid to people like landlords or utilities. We naturally recommend against taking a chance on this.
The far better approach is to formally adopt a plan of dissolution. Here are the somewhat simplified steps you need to go through:
- Make a list of all assets;
- Make a list of all creditors, if any, and balances due. Be sure to hold back enough for creditors, including attorney’s fees and accountant’s fees for any final returns.
- Decide to which organization you want to distribute any remaining assets.
- Prepare and pass a plan of dissolution, outlining the steps listed here. Your Board of Directors needs to approve the plan.
- If there are no creditors, simply state none in the plan to dissolve.
- Pay any creditors.
- Contact the organization to which any remaining assets would be distributed, getting a receipt and evidence that they are tax exempt under section 501(c)(3).
- File final returns that need to be filed, and file the Articles of Dissolution with the Illinois Secretary of State.
Once the board has adopted the plan than it needs to begin processing the paperwork required by the Secretary of State and the Atty. Gen. as well as the IRS. Creditors will be paid tax returns would be filed and if there are creditors you would need to give notice to creditors. This will prevent personal liability and wind down operations smoothly.
If your organization is at a stage where it needs to wind down its operations give us a call for more direction on how to proceed.