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Overview
Organizations undergo a life cycle akin to that of individuals. There's a season of inception, one of growth, and another for deliberate deceleration or closure. Demonstrating wisdom and strength involves recognizing the appropriate juncture to scale back operations, undergo a comprehensive rebranding with a new vision, or make the decision to cease operations entirely. Such significant choices should be made after thoughtful contemplation, prayer, and thorough discussions among stakeholders.
How do you know when it’s time to close? Nonprofit dissolution is never the first step an organization needs to take when navigating unexpected hardship. It’s a last resort when restructuring or reorganizing aren’t viable options. There are 3 signs that it’s time to consider closing your nonprofit. From https://charitableallies.org/nonprofit-dissolution/
- Mission accomplished! In the best-case scenario, your nonprofit met a need and continuing operation is unnecessary.
- Insolvency or when fundraising and development efforts cannot create a path to sustainable recovery.
- No incoming revenue. It's normal for there to be ups and downs, but a lack of revenue is a sign that it's time to dissolve
Leader’s Wisdom
- Leaders should not let an organization flounder for months or years without taking action. Leadership needs to realize when the work has moved past innovation to survival.
- For Liquidation, Termination, Dissolution or Significant Disposition of Assets – Complete Schedule N (Form 990 or 990-EZ).
- Per the IRS – A dissolution clause should be created, which is a statement that explains what the organization will do with its assets when the organization dissolves. This clause is particularly important given that the assets of a nonprofit are not owned by any person or group. Assets cannot be given to an individual. They must be given to another nonprofit.
- Per the IRS – Governance responsibility is vested in the board of directors or trustees. These individuals are accountable to state and federal authorities to ensure the organization operates in a legally compliant manner and for the purposes outlined at formation. A nonprofit cannot be sold.
Resources
Websites
- Termination of an Exempt Organization – Internal Revenue Code Section 6043(b) and Treasury Regulations Section 1.6043-3 establish rules for when a tax-exempt organization must notify the IRS that it has undergone a liquidation, dissolution, termination, or substantial contraction. Generally, most organizations must notify the IRS when they terminate. Among other things, notice to the IRS of a termination will close the organization’s account in IRS records. https://www.irs.gov/charities-non-profits/termination-of-an-exempt-organization
- City Square is a positive example of revamping a nonprofit in Dallas, TX. https://www.citysquare.org/
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