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Should My Nonprofit Organization Dissolve?

 In Board of Directors, Management, Organizational Structure

To be, or not to be. That is the question.

Are you asking: Should my organization dissolve? The next questions are: What is dissolution? And: What are our options? Clients sometimes come into the office with a story that goes something like this: “I’m a board member at XYZ nonprofit. The organization is really struggling because… Maybe we should dissolve.” No, they aren’t planning a science experiment. They’re wondering if they should shut down the organization. Wrap it up and call it a day.

The answer, as usual is: it depends. Nonprofits don’t last forever. Sometimes an organization should dissolve. Sometimes dissolution is the right answer, but since board members are responsible to the community at large and not private shareholders, they must consider all the options. Nonprofit life cycles often necessitate a merger, consolidation, assignment/assumption, or dissolution. But what’s the difference?

A merger happens when two organizations join forces and a totally new organization is born (A + B = C). Yes, just like the old Gladlock commercials (yellow and blue make green!). A consolidation occurs when one nonprofit combines with another and takes on the identity of one (A + B = A). Think: Star Trek’s Borg assimilation, or the all-of-us-is-stronger-than-one-of-us “Care Bear stare.” An assignment/assumption occurs when one nonprofit, instead of combining with another nonprofit, transfers its assets and liabilities to the other nonprofit, then dissolves its empty corporate shell. A dissolution occurs when the nonprofit determines that it can no longer achieve (or has already achieved) its charitable mission, or has too much debt to survive, and winds down its corporate structure. In that case, like the image above, the organization disappears into the mix. The assets are liquidated, debts paid to the extent possible, and operations wound up. All four (4) options require a considerable amount of time, work, compliance, and process management.

Before the board decides anything they need to analyze the nonprofit community. Why? Because the Board of Directors has fiduciary duties. It has a duty to protect and manage the property and assets of the organization. And, it has a duty to act in the best interests of the organization – so the Board must consider all the options and not just call it quits.

So, whether you’ve got major problems or major reasons to celebrate a mission accomplished… If you think it’s time for one of these options, it’s time to seek professional guidance!

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