In recent years, we have received numerous requests for assistance from organizations that have decided to wind down their operations and legally dissolve. This decision is often influenced by several factors, including challenges in obtaining sufficient funding, an aging board of directors, and changes in the community’s needs or the organization’s original mission.
This article provides an overview of the process that charitable nonprofit corporations incorporated in New York must follow to legally dissolve.
Most charitable nonprofits in New York must petition the Attorney General’s office or the court for approval before dissolving, following one of two procedures.
Voluntary Dissolution with No Assets
This simplified dissolution procedure is used for charitable corporations that have no assets or liabilities at the time of dissolution. It requires filing a petition for approval of a certificate of dissolution with the Attorney General’s office. Under the New York Not-for-Profit Corporation Law (“N-PCL”), a dissolving corporation can use a simplified dissolution procedure if it has no more than $25,000 in a reserve fund to cover the costs of winding up its affairs (such as legal and accounting fees) and has liabilities that do not exceed $10,000. As a matter of practice, our firm generally waits until the corporation has no remaining assets or liabilities before filing a petition with the Attorney General’s office to approve a certificate of dissolution.
For additional information, see the Attorney General’s published guidance on this “no asset” dissolution process.
Voluntary Dissolution with Assets
An “asset dissolution” occurs when a corporation has remaining assets to distribute before it officially dissolves. This process involves two petitions. First, the Attorney General must approve a petition for approval of a plan for dissolution and distribution of assets—referred to as the “Plan of Dissolution.” Second, once the approved Plan of Dissolution has been fully executed, a petition for approval of a certificate of dissolution must be submitted.
For additional information, see the Attorney General’s published guidance on this “asset dissolution” process.
If you are unsure which procedures apply to your organization, consider consulting legal counsel to determine the appropriate process.
The Dissolution Process
- The Board of Directors must adopt a Plan of Dissolution.
The Board may adopt the plan at a board meeting or through unanimous written consent in lieu of a board meeting.
2. The Plan of Dissolution must be approved by the voting members, if any.
To approve the dissolution of the corporation, at least two-thirds of the members must vote in favor during a membership meeting where a quorum is present. If the corporation’s governing documents allow it, member approval can also be obtained through unanimous written consent. If the corporation does not have “members” as defined under the N-PCL, then this step is skipped.
3. Obtain governmental entity approval to dissolve, if required.
If government agency approval was required for the establishment of the corporation, the corporation must secure written approval for its dissolution from the same governmental entity.
4. Prepare a certificate of dissolution.
The New York Department of State provides a template certificate of dissolution.
5. Ensure that all registration and reporting requirements are up to date.
The corporation must be in compliance with the registration and reporting requirements outlined in section 8-1.4 of the Estates, Powers and Trusts Law (EPTL) and/or Article 7-A of the Executive Law before the Attorney General can approve the certificate of dissolution. If the organization has not complied, has been exempt from filing annual financial reports, or is not subject to the registration and reporting requirements, certain registration and financial reports will be necessary prior to dissolution.
6. File Petition(s) with the Attorney General.
As noted earlier, a simplified dissolution process for corporations without assets requires only one petition. By contrast, if an organization has assets, it must file two petitions with the Attorney General. Once approved, the Attorney General will issue an Order approving the Plan of Dissolution for the first step of an asset dissolution and/or return an endorsed copy of the Certificate of Dissolution indicating the Attorney General’s approval.
Additionally, the corporation has the option to file a petition in court (specifically, in the State Supreme Court of the appropriate county) on notice to the Attorney General. However, this court process may take longer due to the involvement of two regulatory bodies.
7. Obtain consent to the dissolution from the New York State Department of Taxation and Finance.
This tax consent is obtained by submitting Form CT-247. Based on our experience, it typically takes at least 4 to 6 weeks to receive the consent, and it can sometimes take longer. This step can be completed concurrently with the submission of the petition or petitions to the Attorney General, as the consent is not required until the Certificate of Dissolution has been approved and is ready to be filed.
8. File the approved Certificate of Dissolution with the New York Department of State.
The Certificate of Dissolution must be filed along with any applicable governmental agency approvals and the tax consent.
9. The Department of State will send the organization a filing receipt indicating that the certificate of dissolution has been filed.
10. The corporation must send a copy of the filing receipt to the Attorney General’s office.
Ensure that the corporation has complied with IRS requirements relating to the termination of an exempt organization.
Additional Issues for the Dissolution Process
Final Grant Agreements
The final wind-down process may include the disbursement of final assets to one or more grantees. This may require the drafting of grant agreements to ensure that the assets will be used for purposes aligned with the corporation’s purposes.
Tail Insurance
The corporation may want to consider obtaining tail insurance to provide its directors and officers with additional protection for an appropriate period (perhaps 1-3 years) following the dissolution. Consult with your insurance broker for options and pricing.
Timing
While there is no official time period published on how long the Attorney General review process takes, in our experience, the time required for petitions to be initially reviewed can range from several weeks to several months. Because an asset dissolution requires Attorney General approval of two petitions, asset dissolutions will take substantially longer to complete than the no-asset simplified dissolution process. With respect to any submission, the Attorney General often requires additional information, documentation, and edits to the petition, which can further lengthen the time required for approval of the dissolution.
Special Procedures for Certain Organizations
Non-Charitable Corporations
Generally, non-charitable corporations do not need court or Attorney General approval to dissolve, and the simplified dissolution procedure does not apply to them. However, trade associations that are dissolving must obtain approval from the Attorney General’s Antitrust Bureau. Additionally, if a non-charitable corporation holds assets for charitable purposes or has donor-restricted funds, it must follow the proper procedures for an asset dissolution.
Religious Corporations
Dissolution of religious corporations is governed exclusively by section 18 of the Religious Corporations Law. Court approval is necessary for the dissolution, but the Attorney General is not involved in the process. One of the notable requirements is publication of a notice in a local newspaper for four consecutive weeks regarding the planned filing of the court petition.
Grant-making Private Foundations
According to an FAQ from the Attorney General’s office, private foundations that grant funds are allowed to spend down their assets by making charitable donations to other tax-exempt organizations as part of their normal operations. However, if a grant-making private foundation wishes to transfer its assets to another private foundation, it must obtain court approval. This can be done either through an asset dissolution process or by filing a petition under N-PCL sections 510 or 511.
Organizations with liabilities that exceed their assets
If a dissolving corporation has liabilities that exceed its assets and is able to negotiate the reduction or forgiveness of any debts with its creditors, it may opt for a simplified dissolution. In this case, the corporation should attach copies of any relevant agreements as exhibits to its petition. However, insolvent corporations must follow the procedures for judicial dissolution outlined in Article 11 of the N-PCL. In certain situations, filing for bankruptcy may be more suitable. It is advisable to consult with bankruptcy counsel to determine whether a bankruptcy filing is preferable and appropriate.
