Nonprofits decide to dissolve for various reasons – perhaps the mission is accomplished or no longer makes sense, or the organization has decided to pursue a different strategy or form. When a nonprofit decides the best way forward is to close up shop, no one wants to drag things out. In New York, unfortunately, the multi-step dissolution requirements can leave nonprofit staff or board members stuck in confusing rounds of paperwork. In our years of experience assisting nonprofits, we’ve learned quick ways through the maze. These common questions and clear answers about settling affairs in New York can help smooth the dissolution process, so you can focus on finishing with grace and celebrating all your organization has accomplished over its lifespan.
1. How much in assets or liabilities can we have to qualify for a “no-asset” dissolution?
New York offers nonprofits two alternative forms of voluntary dissolution: asset and no-asset. A no-asset dissolution is markedly simpler, requiring fewer approvals than an asset dissolution. While the letter of the law states that organizations with $25,000 or less in assets may dissolve using the no-asset form, in our experience, the New York Attorney General’s office will not approve a no-asset dissolution petition (see Question 6) until the requesting organization first winds down all the way to zero.
2. What does it mean to wind down “all the way to zero”?
“All the way to zero” means the organization has no remaining assets or liabilities, as measured by what is reported on the organization’s final Form 990.
3. Can our organization simply give away all our assets before we dissolve?
Possibly, with this caveat: an organization approaching dissolution should only make grants within its normal grant making range. An organization that has never made grants should not suddenly grant away several hundred thousand dollars prior to dissolving, for example.
Nonprofits with substantial assets may choose to delay formally dissolving by granting or otherwise distributing their assets over a period of time, while refraining from soliciting new funds, in order to use the simpler no-asset process.
4. If we have more than $25,000 in remaining assets or liabilities, what do we do?
You must follow the asset dissolution process, seeking Attorney General or court approval before making final grants or distributions. After making the approved distributions, a nonprofit using the asset dissolution process must still wind down to zero to complete the dissolution.
5. How are we supposed to get to zero assets before dissolving when we still have to pay for a final accounting, final utilities, final salaries, etc.?
This is the surprisingly complicated part of dissolving in New York. Unlike Delaware, which provides a period of time post-dissolution to wind up corporate affairs, in New York nonprofits must wind up corporate affairs simultaneous with dissolving.
To resolve this predicament, you may have to get creative. You may seek an affiliated for-profit corporation or sympathetic board member to assume final liabilities, or negotiate pre-payment of bills. We have assisted organizations in devising other creative solutions to facilitate getting to zero while ensuring that any outstanding obligations are met. Ultimately, each dissolving nonprofit must find a way to overcome this logistical challenge in a way that suits to its own unique circumstances.
6. Which dissolution documents require a signature? Which require notarization?
There are two petitions required in an asset dissolution. The first is the Petition to Approve the Plan of Dissolution. This document requests the court or the Attorney General to approve the organization’s plan for distributing assets and paying off liabilities. After the Plan is approved and executed, the organization must submit a Petition to Approve the Certificate of Dissolution. A no-asset dissolution requires only the Petition to Approve the Certificate of Dissolution. These Petitions must all be notarized.
An authorized officer should sign the Petitions, as well as the Plan of Dissolution and Certificate of Dissolution. You’ll also need a Board resolution, and possibly a Member resolution, authorizing the dissolution. If the Board meets in person or by phone, the Secretary can sign the board resolution. Alternately, the organization can use a unanimous written consent signed by all Board members. In each case, original signatures are required.
7. Are there any filing fees associated with the dissolution process?
Yes, there is a $30 filing fee, payable to the New York State Department of State.
8. Does the final Form 990 have to cover the entire fiscal year? What if we’re ready to dissolve mid-way through the year?
The organization can submit a “stub-990” covering only the portion of the final fiscal year in which it was still operational or continued to have assets or liabilities.
9. When should a dissolving organization file its final Form 990 and CHAR 500 (the New York State financial report and registration form)? Should it wait until the dissolution is complete?
The final CHAR 500 may be filed when dissolution is complete. A copy of the final Form 990 will be submitted with the dissolution as evidence that the organization has no remaining assets or liabilities (either because it dissolved via no-asset dissolution, or because, in the case of an asset dissolution, it has made all approved distributions). When the dissolution is finalized, the final 990 should be submitted to the IRS.
10. How long will dissolution take?
Unfortunately, it is a fairly time-consuming process that is dependent on several factors, including the efficiency of the nonprofit’s staff and board as well as several bureaucratic offices. To be safe, you should plan on a minimum of six months for a no-asset dissolution and 12 to 18 months for an asset-dissolution.