Ending A Non-Profit Corporation
Last week we started talking about non-profit corporations. Today we discuss closing them. Non-profit Corporations can be terminated for many reasons. If they were formed for a specific goal and that goal is achieved, the corporation has no further purpose and should be dissolved. Similarly, if the goal becomes unattainable, the corporation should be dissolved. Non-profit Corporations can also be dissolved for failure to follow administrative rules, or when the members or directors feel that it is in the corporation’s best interest to dissolve.
There are three methods of dissolution of a Non-profit Corporation. The first is voluntary dissolution. This occurs when the corporation or its members and directors determine that the corporation has reached its goals or cannot reach its goals, and decide to simply close the corporation. If this decision is made before the corporation actually begins operations, it may be dissolved by the incorporator or directors. If the corporation has begun operations, and the bylaws allow for members to vote, then the decision to dissolve must be voted on by the members, at a duly noticed meeting.
Before the corporation has begun operations, dissolution is basically an administrative process. The corporation must file Articles of Dissolution with the Department of State, listing the corporation name and date of incorporation, stating that the corporation has not yet begun conducting business, that there are no unpaid debts, and that the dissolution was approved by the incorporator or a majority of the directors. The Articles of Dissolution must be signed by the incorporator, or the chairman of the Board of Directors.
After the corporation has started operating, dissolution becomes a little more difficult. The decision to dissolve must be made by a majority of the Board of Directors, or if members are allowed to vote, by a majority of all the members. Next, the corporation must file with the Department of State a Plan of Distribution of all the corporations’ assets. This is not required for profit corporations, as their assets are divided among the various shareholders after paying all debts. With Non-profit Corporations, the members cannot receive any assets. The Plan of Distribution must provide for the payment of all the corporations liabilities and obligations. Second, it must allow for the return of any assets held under a contractual agreement, such as a lease. Third, the plan must provide for a disposition of those assets held for charitable, religious, eleemosynary (related to giving of alms), benevolent, educational or similar purposes. These assets must be given to organizations that are engaged in activities that will further these purposes. Next, the plan must allow for the distribution of assets that are specifically set out in the Articles of Incorporation or Bylaws. Finally, the plan must allow for distribution of all other assets.
Once the plan is completed, Articles of Dissolution must also be filed with the Department of State, showing if a membership vote was necessary, that the number of votes cast for dissolution was sufficient. If no membership meeting is necessary, the Articles of Dissolution must state how many directors the company has and specify the vote tally of the directors.
Aside from voluntary termination, Non-profit Corporations can also be terminated administratively by the Department of State if they fail to file their annual Uniform Business Report (UBR), fail to have a registered agent or office for more than 30 days, or a number of other grounds. The corporation may be reinstated upon application if it corrects any deficiencies.
A Non-profit Corporation may also be dissolved by Order of Court. The Circuit Court for the county where the corporation has its primary office has jurisdiction to dissolve corporations for various reasons. The Department of Legal Affairs can request the Court to dissolve a corporation if the corporation obtained their Articles of Incorporation by fraud. A member of a corporation may request dissolution if there is a deadlock in the management of the company that cannot be broken. A judgment creditor may request the corporation to be dissolved if the corporation is insolvent.
Upon dissolution, the name of the corporation shall be reserved for a period of one year. In other words, no other corporation may adopt the name until one year has passed from the date of dissolution. This allows the corporation to file for reinstatement within one year without the risk of losing their corporate name or identity.
A dissolved corporation may not transact any business or activity except those necessary for the winding up of the corporations business and adopting a plan for distribution of assets. The directors, officers and agents may be held personally liable for any debt or obligation the corporation incurs while dissolved, due to an act of that director, officer or agent. This personal liability may be discharged by reinstatement of the corporation.
Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.
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