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DISSOLVING A NOT-FOR-PROFIT CORPORATION

Many not-for-profit corporations struggle.  Often these organizations rely on volunteer time and donations in order to stay afloat.  Sometimes the resources just simply aren’t sufficient to continue on with the mission of the organization, and the organization faces shutting down.  When faced with this situation, the leadership of the not-for-profit needs to be aware of the legal process that is necessary to properly dissolve the not-for-profit corporation. 

In Indiana, the first step is for the dissolution to be approved by a majority of the board of directors of the organization, unless the bylaws of the organization specify a different procedure.  The meeting where the vote is taken must be properly noticed in accordance with the meeting procedures in the organization’s bylaws, or if not specified, in accordance with Indiana law.  Once the dissolution has been approved by the board of directors, then a series of filings must be made with the Indiana Secretary of State, the Indiana Department of Revenue, the Indiana Department of Workforce Development, the Indiana Attorney General’s office, and the Internal Revenue Service. 

Next, the organization must give notice to any creditors that might have a claim for money due from the not-for-profit corporation. If the bylaws of the organization do not set out the process that must be used, then Indiana law describes how the notice should be given, what information the notice should contain, and what deadlines must be given to potential claimants. 

Once the articles of dissolution have been filed with the Indiana Secretary of State, then the not-for-profit can continue to operate, but solely for the purpose of winding up and liquidating its assets.  This could include collecting any final invoices due the organization, paying final bills to vendors, creditors and employees, and following any provisions in the company’s articles or bylaws regarding disposition of the not-for-profit corporation’s remaining assets following dissolution.  If the organization is a 501(c)(3) entity, then the organization will be required to transfer its assets to another 501(c)(3) organization. 

When facing the harsh realities of dissolution, the directors of a struggling not-for-profit corporation need to be aware that there is a proper process that must be followed in order to terminate a not-for-profit corporation legally.