What Do You Do When You’ve Accomplished Your Mission?
Does the dissolution of a non-profit mean that in some way the organization has failed, or can it mean
the organization has completed its mission? The work the organization had originally set out to
accomplish may no longer be relevant, the issues the community once faced may no longer be
pertinent, or the organization may have successfully completed the task it set out to achieve. For
example, cures have been found for diseases, new immigrants migrating from farms to the city in the
late 1800s have now been replaced by different immigrants with different needs.
As the world and our communities continue to change, this can be a time for the organization as a whole
to consider termination or dissolution, merging with an organization who works toward a similar
mission, or expanding and reinventing the mission. In this Topic of the Month we will discuss the
possible reasoning why the non-profit may contemplate dissolution, in addition to possible access points
for the organization to continue in new forms.
Ask Hard Questions
Even though most nonprofits will not want to consider a merger or dissolution, it is important for every
nonprofit to ask hard questions about their relevance and sustainability. Outlined below are key
questions the leaders of non-profit organizations should consider.
1. Can the non-profit support itself financially?
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Are unpaid debts growing?
Are contributions scarce?
Are fundraising possibilities slim?
2. Is competition increasing?
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Does the organization have a similar mission to other organizations?
Is joining forces with similar organizations not a viable option?
3. Has the nonprofit organization's reputation been tainted in some way?
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Has the organization had any internal or external issues or PR that have somehow harmed its
image?
4. Is the organization still helping your intended audience?
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Is the nonprofit continuing to work toward the same mission it was founded on?
Is the organization still relevant?
It may be troubling to consider dissolving an organization that has taken an abundance of time and
effort to initiate and run. However, dissolving the nonprofit may be the best option for the community it
serves as well as its staff and donors. All whom are invested, and future investors to an organization,
want to be reassured that their investments are a small contribution for the greater good of an
organization: execution of the mission.
Dissolving a non-profit organization.
If an organization has achieved its purpose, the Board of Directors may suggest dissolving the
organization. If this is the case, then the nonprofit must follow official procedures. Following the proper
channels when dissolving an organization is extremely important for multiple reasons: to ensure
directors are not personally liable for outstanding taxes, all assets including but not limited to cash,
mailing/e-mail lists and property are properly distributed, and the allowance of time for creditors to file
claims for any outstanding debts owed by the non-profit. Dependent on headquarter location, the
organization may be required to publish a copy of Notice of Intent to Dissolve and Notice to Creditors in
a general circulation newspaper.
Outline below are the necessary steps to follow when dissolving a non-profit organization.
Step 1- Notice of Intent to Dissolve: The dissolution process begins with the Board of Directors adopting
a resolution to dissolve, and preparing a Notice of Intent to Dissolve. This resolution should be dated
and kept with the organization’s minutes.
Step 2- Notice to Creditors: Drafting a Notice to Creditors of the organizations intent to dissolve, which
should be sent to all of the organization’s creditors. Dissolution cannot be finalized until after the
deadline for any creditors to file claims for debts that may be owed by the nonprofit.
Step 3- Winding-Up Affairs: This process involves paying creditors and following IRS regulations for
dissolution of a nonprofit. Failure to comply with tax laws could subject directors and/or officers to
substantial penalties: accrued interest on unpaid taxes, and personal liability for outstanding taxes. The
IRS also requires the organization to file a final tax return: obtain IRS Publication 4779. Final tax returns
must be filed 4 months and 15 days after termination of the organization.
Step 4- Distribution of Assets: Any cash, property or other assets held by a non-profit organization must
be transferred to another tax-exempt non-profit upon dissolution of the organization.
Information the Organization Must Disclose.
Form 990 Filers: Termination box must be checked (header page 1)
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Line 31 of Part IV: Answer “YES” to question- organization was liquidated, terminated, or
dissolved.
Line 32 of Part IV: Answer “YES” if applicable to question- organization engaged in a significant
disposition of net assets.
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Form 990-EZ Filers: Termination box must be checked (header page 1)
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Line 36 of Part V: Answer “YES” to question- organization was liquidated, terminated, or
dissolved.
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Next Steps:
File for Schedule N- Liquidation, Termination, Dissolution, or Significant Disposition of Assets.
Schedule N requires information such as description of the assets and any transaction fees, the date of
distribution, the fair market value of the assets and information on the recipients of the assets.
Attachments: When filing 990, or 990-EZ the organization must attach certified copies of the following
documents.
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Articles of dissolution or merger.
Resolutions or plans of liquidation or merger.
Revising or Creating a New Mission
A Mission Statement is the organization's reason for existence. The organization may be at a point in its
lifecycle where its existence is unclear: this may be an ideal time for the organization to change or
amend its mission to meet new or evolving needs. Mission change can be a viable option when the
effectiveness of the organization is fading. It is important for the Board of Directors and senior staff to
review the mission statement periodically to allow the organization to identify if it is on the correct path
to fulfilling its core purpose. If any changes to the official mission statement are made, they must be
disclosed to the IRS on the Form 990 or 990-EZ along with the amended organizational document. If the
organization is not required to file an annual return, it may report the change to the EO (Exempt
Organizations) Determinations Office.
Merging With Other Non-profit Organizations.
Another option to consider when a nonprofit finds that it is has completed its mission is to merge with
another organization to share access to resources, services and facilities. Leaders and board members of
non-profit organizations may be hesitant when considering merging with other nonprofits simply
because they have many demanding questions pertaining to organizational structure, location, and most
importantly programing. Such questions may include:
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What programs will survive?
Who will end up in the leadership?
What will happen to about employees and volunteers?
What will the name be?
Where will the headquarters be located?
What will happen to the “culture” of the group?
Recent studies have indicated that while mergers typically do result in the provision of better or
expanded service, they do not necessarily result in increased efficiencies, and fundraising gains are only
seen after short-term losses. As a result, mergers should not be a response to crisis but rather part of a
strategic plan.
Additional information on options for mergers and collaboration can be found in previous Topics of the
Month.
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Even though the majority of nonprofits will not be dissolved in the near future, it is good practice to
ensure that the organization’s mission and program areas are still relevant and effective, particularly in
the midst of our changing economies, communities, and funding opportunities.
Articles for further reading:
1. Termination of an Exempt Organization- This article describes in detail the necessary steps
required by the IRS when terminating a tax-exempt organization. http://www.irs.gov/Charities&-Non-Profits/Termination-of-an-Exempt-Organization
2. Facts about Terminating or Merging Your Exempt Organization- This article describes in detail
Publication 4779: informing the IRS of terminating or merging of an organization.
http://www.irs.gov/pub/irs-pdf/p4779.pdf
3. The Winding-down Checklist- This article navigates through the winding-down process of a
non-profit organization. http://www.nonprofitrisk.org/library/factsheets/Checklist_for_Winding_Down.pdf
Kimberly Reeve a Managing Director, Elisabetta Ficili is an Associate in the New York Office at Cathedral
Consulting Group, LLC.
For more information, please visit Cathedral Consulting Group, LLC online at
www.cathedralconsulting.com or contact us at info@cathedralconsulting.com.
Cathedral Consulting Group, LLC
Cathedralconsulting.com | info@cathedralconsulting.com
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