Closing a Nonprofit Organization: Five Key Steps for Leaders

Closing a nonprofit organization, also called dissolution, can be a difficult and emotional process. Whether the closure is voluntary or involuntary, nonprofit leaders need to plan for remaining obligations, asset distribution, agency notifications, and the impact on the people the organization employs and serves.

What Are the Key Steps for Closing a Nonprofit?

Closing a nonprofit well involves careful consideration. Dissolution generally involves five key steps:

1. Hold and Document a Board Vote

The organization’s board of directors should vote to dissolve the organization. This process should be conducted in accordance with the organization’s articles of incorporation and bylaws and documented in the official meeting minutes.

2. Develop and Implement a Formal Plan of Dissolution

A formal plan of dissolution is a written description of how the organization intends to distribute any remaining assets and address any remaining liabilities. It should document action steps and assignments and establish a timeline to help maintain accountability throughout the process.

3. Address Liabilities and Outstanding Commitments

The organization should address any liabilities, future contractual commitments, and tax payments. It also needs to determine whether it has donor-restricted funds that may need to be returned to the donor.

4. Distribute Remaining Assets

A nonprofit organization that is ceasing existence is legally required to transfer all remaining assets to another tax-exempt organization or to the government. It is unlawful to give any property away to individuals, including board members, volunteers, staff, and beneficiaries. It is acceptable to sell the organization’s assets only if they are sold at fair market value.

5. Notify Federal and State Agencies of the Dissolution

This step includes notifying the state agency that handles corporate registrations. The IRS also must be notified.

How Should Nonprofit Leaders Communicate and Support Stakeholders During Closure?

As an organization moves through the steps of dissolving the entity, it should consider the impact of its closure on its community, staff, and those served by the nonprofit organization’s mission. The nonprofit’s leaders should:

• Communicate consistently and clearly to staff, volunteers, and clients.
• Inform donors and other sponsors of the organization’s decision to close and let them know how the remaining funds will be used.
• When possible, refer the organization’s beneficiaries to other organizations that may be able to provide similar assistance.
• Document the organization’s history and mission.  

Perhaps most importantly, nonprofit leaders should consider how best to honor the staff, board, and volunteers for their hard work and dedication in helping fulfill the organization’s mission over the years.

Consult with CRI’s Nonprofit Professionals

Closing a nonprofit requires careful planning and attention to both financial responsibilities and the people affected. We can assist you through the process. Contact our nonprofit professionals for help planning for and navigating your organization’s closure.