Staying Legal MI - Dissolving a Charity

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Introduction

There are four agencies that most charities must deal with when they decide to dissolve. The steps described below are, in general, in chronological order; however, certain circumstances may dictate a slightly different order of events. Consulation with an attorney or a consultant who is familiar with charity dissolutions and Michigan's oversight of charities may be wise to ensure that all issues are considered.

Making a Decision to Dissolve

The decision to dissolve a charity lies with either the board of directors if it is a directorship corporation or with the members if it is a membership corporation. The articles of incorporation may provide for specific conditions for approval of dissolution. If no other conditions are specified, then a vote of a majority of directors or members is required to pass a resolution to dissolve the corporation. If a nonprofit corporation wishes to dissolve before they have undertaken any business or acquired assets, then either the incorporators or the board of directors may make the decision to dissolve the corporation. The Nonprofit Corporation Act contains provisions for the dissolution of corporations in Chapter 8 of that Act, although other chapters of the Act may contain provisions that are also relevant.

Unincorporated associations should include in their consitution or bylaws provisions for the method to dissolve or wind up affairs of the association.

IRS Oversight

If the charity has obtained tax exempt status from the IRS, then they need to notify the IRS of the dissolution. The IRS website has a discussion of dissolution and what the organization must do to terminate a tax exempt organization. If the charity files a 990 or 990-EZ, then page 37 of the Instructions for Form 990 describes the process. Go to the page for Forms on the IRS website. In the heading of Form 990 there is a box to check indicating that it is the final return. The final return must show the disbursement of all assets, so that the balance sheet will indicate a �0� balance.

Michigan Attorney General Approval

The Michigan Attorney General has authority to oversee the use and distributions of charitable assets under Michigan's Supervision of Trustees for Charitable Purposes Act. Under the Dissolution of Charitable Purposes Corporations Act, the Attorney General all nonprofit corporations in Michigan must obtain the approval of the attorney general before filing a Certificate of Dissolution with the Michigan Department of Labor and Economic Growth, Corporation Division. Upon request and filing of the requested information, the attorney general's Charitable Trust Section will issue a letter to the charity approving the dissolution. To obtain the Attorney General's approval, the organization must submit a Dissolution Questionnaire, along with required attachments. The Dissolution Questionnaire can be printed from the Attorney General's website.

The purpose of this form is to show that all charitable assets have been properly disbursed to other similar charities and charitable purposes, or that the assets have been properly expended to carry out the purpose of the dissolving charity. Read the information on Procedures and Requirements on the Attorney General's Charities page for a more thorough explanation of the Attorney General's authority and procedures. To talk with someone at the Charitable Trust Section, call 517-373-1152.

Corporation Division -- Certificate of Dissolution

The final step in actually dissolving the corporation is to file a Certificate of Dissolution, along with the Attorney General's approval letter, with the Michigan Department of Labor and Economic Growth, Corporation Division. To obtain the Certificate of Dissolution form, go to the Corporation Division Forms and choose Form #531. Note the filing fee and filing instructions on the last page of the form.

Unincorporated Associations

While unincorporated associations will not need to file a document with the Corporation Division to terminate operations, the charitable assets they hold are still under the authority of the Michigan Attorney General. When the association first acquired assets and held them in trust for a charitable purpose, under Michigan's Superivision of Trustees for Charitable Purposes Act, those assets were subject to registration as a charitable trust with the Attorney General's Charitable Trust Section. If that registration was completed, then the final accountings should be made to the Charitable Trust Section to allow termination of that trust file.

Also, the Attorney General has the authority to oversee the distribution of those assets upon termination of the trust. The association must submit a Dissolution Questionnaire, along with required attachments. The Dissolution Questionnaire can be printed from the Attorney General's website. The purpose of this form is to show that all charitable assets have been properly disbursed to other similar charities and charitable purposes, or that the assets have been properly expended to carry out the purpose of the dissolving charity. Read the information on Procedures and Requirements on the Attorney General's Charities page for a more thorough explanation of the Attorney General's authority and procedures. To talk with someone at the Charitable Trust Section, call 517-373-1152.

Michigan Tax Clearance

Another filing that is not an absolute requirement any longer is with the Michigan Department of Treasury. At one time, corporations were required to obtain a tax clearance from the Department of Treasury prior to filing the Certificate of Dissolution. Even though it is no longer a requirement, it is wise to get a certification that there are no taxes owed to the State of Michigan. The form is found at Department of Treasury website. A copy of the articles of incorporaiton showing that the organization is a nonprofit and the determination letter from the IRS should accompany the form.