Beginning January 1, 2016, inactive nonprofit corporations, which are eligible for administrative dissolution under the recently enacted law under AB 557, can be automatically or voluntarily dissolved.
There is a significant problem with non-profit corporations filing incorporation papers with the Secretary of State, and then failing to launch or continue operations and remain up to date and filing and tax requirements. These inactive non-profits never go through the formal dissolution process and become a hindrance to the state. The Secretary of State (SOS), Franchise Tax Board (FTB), and Attorney General are responsible for regulating nonprofit corporations and spend a significant amount of resources and time attempting to register, tax, and audit nonprofits that no longer exist. The SOS and FTB estimate that there are close to 60,000 nonprofits currently in their systems that would be eligible for the administrative dissolution process established under AB 557.
AB 557 creates a streamlined administrative dissolution process for nonprofits that have been suspended for at least 48 continuous months after proper notice has been served.
There are three new ways a nonprofit corporation can be dissolved:
o Automatic dissolution – FTB may automatically administratively dissolve a corporation that is suspended or forfeited for a period of more than 48 continuous months and is no longer in business. AB 557 allows the FTB to waive delinquent taxes, penalties and interest under specified conditions. Due to the anticipated high number of nonprofit organizations that may meet the requirements, it is anticipated that it will take time for FTB to complete the automatic process.
o Short form dissolution – The California Secretary of State will allow a short form dissolution for eligible nonprofit corporations that file for dissolution within 24 months from the date the articles of incorporation were filed.
o Voluntary dissolution – The FTB will be developing a form that practitioners and/or nonprofit corporations can complete and submit to FTB to voluntarily request the administrative dissolution of nonprofit organizations that may be eligible. The FTB indicates that this form should be ready in early 2016.
For the text of AB 557, including Legislative Counsel’s Digest, see the following link.
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