Non-profit organizations are not privately owned, and because of this, they cannot be sold. When the executive board of a non-profit decides to dissolve the organization, they must pay off all obligations and debts and then transfer all assets to a tax-exempt non-profit establishment. Sometimes, the executive board decides to dissolve the organization because the company fulfilled its mission. At this point, the organization might merge with other non-profits or redistribute its resources.
Because the board is responsible for the funds and operations of the organization, members must be aware of their ethical and legal duties during this precarious time and work together to move through it smoothly.
The board is responsible for the planning, growth, and the eventual conclusion of the organization. Unlike in a sole proprietorship, the owners of a non-profit cannot close the organization without permission. Because of this dependency, it is imperative that the owner communicates regularly with the board about any and all issues within the organization that may have an impact on its overall health. It’s also important that board members remain updated on the financial and operational status of the organization so that they can foresee and prevent an involuntary dissolution. If the board and owner establish strong communication practices early on, it will be much easier to navigate complex challenges, including those at the end of the organization’s life.
For more tips on best communication practices see: [link to How to Improve Communication Within Your Board].
When a non-profit organization is incorporated, it forms bylaws that are filed with the state. These bylaws act as the organization’s operating manual and should be the board’s first reference when it is time to dissolve the company. The bylaws give instructions for closing down operations and list what level of a majority is required to vote for the dissolution (commonly two-thirds majority), among other items. Because these documents are so critical at the end, it is imperative that they are initially well written, securely stored, and easily accessible.
State laws outline exactly how a non-profit organization should dissolve, and may differ significantly from state to state. As soon as the dissolution is decided, the executive director should research these laws and seek out the advice of an attorney.
Contributors to non-profit organizations are usually motivated by a shared vision or personal stake in the organization’s mission. It can be tumultuous to dissolve an organization to which one feels deeply committed, and sometimes members can bring these frustrations to the table. For example, members who have been involved longer may feel that their voice is more important, because they have invested more, etc. It’s important for leadership on the board to set the tone for neutrality and help guide discussions to a more objective and practical place.