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Dissolving an Illinois Not-for-Profit Organization

Written by Sorin Leahu on February 12, 2021 Category: Nonprofits

“All good things must come to an end” is a proverb originating with Geoffrey Chaucer dating back to 1374. Simply put, certain things do not last and the same is true of not-for-profit organizations. But the reasons why a not-for-profit may dissolve can vary. On the one hand, a not-for-profit may merge with another not-for-profit requiring the merged entity to dissolve.  On the other hand, another not-for-profit may find that it is no longer able to garner enough support to keep its doors open requiring that entity to shut down. Regardless of the reason, the process of dissolving an Illinois not-for-profit is governed by Section 112.20 of the Illinois Not-for-Profit Corporations Act. Below are some important items that every not-for-profit entity should consider in dissolving their organizations.

  • Proper Authority- A decision to dissolve a not-for-profit must be properly authorized. This can be done by the unanimous written consent of the organization’s members, by resolution of the board of directors followed by the consent of the members, or if members are not entitled to vote, by vote or consent of the directors. Determining the proper method to authorize a dissolution will require a review of the organization’s bylaws which typically state which parties are entitled to vote on specific matters and what notice requirements are in play.
  • Plan of Distribution- After properly authorizing a dissolution, an entity also needs to determine what assets and liabilities it possesses. After all creditors have been paid, the remaining assets must be distributed pursuant to a written plan of distribution and in accordance with tax exempt regulations governing how not-for-profit assets may be distributed. In addition, a not-for-profit entity should be careful to determine whether any assets it received were donated with specific conditions that may require such assets to be returned.
  • Articles of Dissolution- Just like a not-for-profit files Articles of Incorporation with the state, a dissolving nonprofit must file Articles of Dissolution with the state. The State of Illinois has a blank form that organizations can file out for this purpose.
  • Notices- A dissolving nonprofit should also be aware of certain notices that may need to be provided. It is likely that a dissolving not-for-profit would need to file with the IRS, for federal tax purposes, a 990 form along with a Schedule N. In addition, a nonprofit which registered with the Illinois Attorney General’s office may also need to notify that office as well. Moreover, notice to creditors may also be advised in order to ensure that the organization’s debts are fully paid.
  • Other Matters- There are a host of other matters which, depending on the specific organization, could be at issue. Some dissolving entities may have employment issues that need to be resolved pursuant to employment contracts or regulations governing pensions. An organization may also need to contact existing contractors and suppliers such as landscaping services or cable providers and inform them of the dissolution. Still other issues that arise relate to record keeping and preservation of important documents. The list can go on and on. Each organization will have its own unique circumstances.

The above information is meant to be only a brief overview of some of the important considerations in the dissolution process. If you have any questions about the dissolution of your not-for-profit organization, please contact the attorneys at Dalton & Tomich to speak further about your specific matter.

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