Non-profit organization: How to exit

Nonprofit organizations, like all other businesses, can face the end of their life cycle. What can the people who run them do when that happens? Generally, if you’re a nonprofit leader facing the end of your organization, you have a few options. You can wind down your organization’s activities, transfer your assets to another nonprofit, or merge with another nonprofit. This article discusses these options in more detail.

Sale

You cannot sell what is not yours and non-profit organizations do not have owners. The organization’s assets are not owned by any of its members or directors. Therefore, it is not salable.

Conversion to a for-profit organization.

This is somewhat like selling. It cannot do so because, among other things, the non-profit organization does not have a shareholder or members that would control the new entity and would be transferring public assets to a private entity.

Create a new company and sell it the assets of the non-profit company

You can create a company as a limited liability company, social benefit corporation and social purpose limited liability company. If you are going to sell the assets it has to be a fair sale otherwise the operators of the company would have trouble justify the cost. The profit received by the non-profit organization would have to use the funds for the purposes for which it was incorporated.

Restructure

If it’s a money issue, the organization can explore other options such as reorganizing their structure and filing for bankruptcy.

Closing.

You can dissolve the organization, but the assets are neither yours  nor employees or volunteers.. They will be available for public purposes in compliance with the regulations set forth for it. No one operating the organization can benefit from its assets. To shut down permanently the decision makers must develop a dissolution  plan that considers the IRS and  state filing requirements  and  stakeholders such as volunteers, community, and employees. If it’s a tax-exempt organization, remaining assets  must  distributed  to other tax-exempt entities.

Resign

Resign from the Board and appoint replacements who are interested in continuing with the organization.

Summary

If the founders of the non-profit organization are not interested in continuing to operate it, they can appoint new directors who are interested in continuing its mission. If the interest is not to continue operating and not to have replacements, then you can dissolve the operation but not sell it. If you are interested in continuing the line of work, but operating as a for-profit business, you can create a new company and purchase the assets of the non-profit business at a reasonable price and use them for your new business. The amount received by the non-profit would be used for public purposes and thus delivered in the dissolution process. Unless you bring new people to the non-profit organization, ending your relationship will result in final dissolution.