Like any legal entity, religious corporations can reach a point where they no longer have a purpose. A corporation can be formed for a church that ends up not going forward, or it can be formed for a limited purpose that runs its course. The organization’s management and members need to take several steps to wind it up.
Take stock of the corporation’s assets and liabilities.
Before diving into compliance with statutory rules for dissolving the organization, its board and managers should first conduct an audit of its financial assets, contracts, and other potential sources of liability. If the organization is insolvent (its debts are greater than its assets) it may need to take further steps before dissolving. An organization with employees will need to account for any outstanding payroll and benefits obligations. Evaluate whether lingering legal responsibilities, such as indemnification rights granted to a third party, could leave members or transferees of the organization’s assets exposed after the corporation dissolves. The organization also needs to be compliant with the Secretary of State before it can dissolve.
Take formal action to approve the dissolution.
The formal process of dissolving a nonprofit corporation begins with the vote of the organization’s board of directors or members to wind up and dissolve. In most circumstances either group can approve the dissolution. The vote can be handled in a meeting or by written consent.
File final tax returns and obtain a dissolution waiver.
Before any California entity can be dissolved it must resolve any outstanding debts it has with the California Franchise Tax Board (FTB). Religious nonprofit corporations also must obtain a dissolution waiver from the state Attorney General’s Registry of Charitable Trusts. The waiver application requires the corporation to disclose how its assets will be distributed after dissolution. The Attorney General evaluates whether the distribution is consistent with the corporation’s governance documents and whether the recipient of assets is also a qualified nonprofit entity. At the end of its review it will issue a formal waiver document.
The distribution of assets from a religious nonprofit can be trivial (i.e., it has no assets) or quite complicated (i.e., it owns land or other hard assets). Organizations with complex assets will need to plan for the distribution itself to take some time, as appropriate transferees must be found and, in some cases, legal and accounting paperwork must be prepared.
File the required statutory certificate.
The form filed with the state to effect the corporation’s dissolution will depend on a number of factors: how long the corporation has been around, whether it has liabilities, and who voted to dissolve are key questions. Organizations that have unanimously decided to dissolve will file a Nonprofit Certificate of Dissolution, California Form DISS NP (available on the last page of this packet). The form is filed with the Secretary of State in Sacramento along with the Attorney General’s dissolution waiver.
Submit a final notice to the Attorney General.
Once the certificate of dissolution is on file in Sacramento a file-stamped copy will be returned to the person handling the filing. A copy of the certificate gets submitted to the Attorney General along with a final financial report that shows that the corporation’s assets have been distributed in accordance with the request for dissolution waiver.
The Church Law Center of California can help
At the Church Law Center of California we specialize in serving California nonprofits at every stage, from inception and formation to dissolution. If you manage a California religious nonprofit and you have questions about how to best wind it up, we can help. Call us today at (949) 689-0437 or reach out to us through our contact page.