Dissolving a nonprofit can be complex, complicated and emotional. There can be many reasons for the choice to dissolve. It may be the organization fulfilled its mission, or insurmountable challenges making it difficult for the organization to sustain its existence. Perhaps your nonprofit is merging with another nonprofit to have a larger impact on those they are serving. No matter what the reason for a dissolution, there are several steps involved in the process.
Two Types of Dissolutions
When an organization makes the difficult decision to close, it’s typically for one of two reasons:
· Involuntary reasons include shutdowns required by the Illinois state Attorney General’s office or by the Office of the Secretary of State.
· Voluntary reasons may include achieving the goals, an unexpected financial crisis occurred, the board and staff exhausted ideas and energy, or internal disputes make it impossible to continue.
Resolution to Dissolve
To dissolve a nonprofit in Illinois, you’ll need a resolution to dissolve. Once this document is drafted, a voluntary dissolution is provided by Illinois law as follows:
· If there is a unanimous written consent from all eligible voting members.
· If the directors take action and it is followed by a consent or vote of members.
· If there are no members to vote on a dissolution, it can proceed as long as there are no unpaid debts, as long as the directors all consent.
Requirements for Dissolving Chicago Nonprofits
Before dissolution, the board or an attorney should draft a formal comprehensive plan for dissolving. The document should include numerous sections and it should be strategic, detailed and tactical to cover the process in its entirety. Most legal experts recommend these steps be taken:
· Notify all employees about the organization’s shutdown.
· Make sure all customers are cared for. This might mean referring them to other nonprofits or helping them find other resources. Members or subscribers should be given refunds.
· Let all the donors know what is going on. It’s important to be the first to tell them about the shutdown before they hear it on the news or by other means. Explain how any remaining funds may be used and how remaining debts are to be paid. Explain if the funds are going to be distributed to other nonprofits and how refunds of recent donations may be handled.
· Pay off outstanding debts or settle with suppliers. In some instances, debts can outstrip remaining funds. In this case, bankruptcy may be a consideration. Work with an attorney who can help you file. Creditors cannot force nonprofits into a bankruptcy, but the board can vote to declare a chapter 11.
· Hold a board meeting in which the dissolution is officially voted on. Be sure to include the decision in the board minutes.
· Submit a form 990 tax return to the IRS. This must be completed within four months and 15 days of the date the organization is terminated.
The process of closing a Chicago nonprofit can be time-consuming. It can take months to complete a dissolution. The board or those implementing it should be prepared for the time it will take. They should also be prepared to respond to questions the community may ask about the process.
If your nonprofit is closing its doors, enlist the help of an experienced non-profit organization lawyer. Their expertise and knowledge of the legal aspects of dissolving a Chicago nonprofit can be an advantage and help prevent legal mishaps along the way. Contact James Provenza today to schedule an appointment.
