If you are one the board of a nonprofit that has ceased operations or desires to end its existence, do not stick your head in the sand. It is part of your fiduciary duty to ensure that the nonprofit dissolves correctly in accordance with state law. Why not just let it administratively dissolve when it stops filing annual reports? Because directors owe fiducairy duties to follow the law and to protect the assets of the nonprofit from inappropriate distribution or use. If you breach a duty, you can be personally liable.
Dissolving in Tennessee is not hard and can be accomplished in 6 steps:
- The secretary sends out notice to the board of a meeting to discuss dissolution, which complies with the notice requirements of the bylaws;
- a majority of the directors must vote to dissolve (unless the articles or bylaws require more) and drafts articles of dissolution;
- the board adopts a “plan of dissolution” stating how the assets will be distributed after all creditors are paid;
- the board provides notice of intent to dissolve with the Attorney General along with the plan of dissolution (and no asset transfers may occur until 45 days’ after notice, unless the AG approves sooner);
- the corporation transfers its assets according to the plan and provides a listing to the AG of who received the assets;
- the board files the articles of dissolution along with a tax clearance for termination.
Resist the urge to postpone the inevitable or ignore the obvious demise of an organization. Take the last step and dissolve. You will be abiding by the law and, most importantly, avoiding personal liability as a director.
Todd McKee is an attorney focusing on employment, general business and nonprofit law. He can be reached at firstname.lastname@example.org and 615.916.3224.