Most churches in the state of Arizona are incorporated as nonprofit corporations. From time to time a church or religious nonprofit will cease to be necessary, for whatever reason. In that case, the nonprofit will need to be dissolved so that the legal entity ceases to exist and that all its responsibilities are discharged.
The first step is an official “proposal to dissolve.” This must include a plan for the dissolution, which should indicate in detail how any and all assets belonging to the religious nonprofit will be discharged—first by paying debts to creditors and then by disseminating whatever remains in an orderly fashion. If the organization has members, the board of directors may adopt the plan to dissolve, and then the members may vote on it or provide written consent. If there are no members, it only takes action by the majority of the board of directors to approve a plan for dissolution. Naturally, every step of this proposal process, including the votes, must be carefully recorded for handing to the IRS and the state.
Once dissolution is approved, the organization must file articles of dissolution with the Arizona Corporation Commission, preferably using or mimicking the official form (CO22). Within 60 days of the Commission approving dissolution, a copy of the articles of dissolution must be published. Dissolution only becomes official once the Commission receives notice that the nonprofit is not required to pay state income tax from the Arizona Department of Revenue.
Then comes the winding up process. The debts must be paid first, then the remaining assets may be distributed following particular rules: that items loaned to the nonprofit must be returned; that further assets owned by the organization must be disseminated for tax-exempt purposes—usually by distributing them to other 501(c)(3) organizations; and so forth. Once the winding-down process is complete, the organization is considered dissolved.
Provident Law’s church and nonprofit attorneys are here to help. We recognize how essential churches and nonprofit organizations are to society as well as how important tax-exempt status is to their ongoing existence, and we stand ready to counsel and serve them by providing broad transactional and general counsel services. Contact us to learn more.