The Legal Steps to Properly Dissolve your Nonprofit Society

By Kristina Graburn (Roberts), Associate, Miller Thomson LLP and C. Yvonne Chenier KC, Legal Counsel, IntegralOrg.  

As noted in IntegralOrg’s previous blog, When It’s Time to Say Goodbye, part of the nonprofit lifecycle that is not often discussed is the ending. However, most nonprofits cease to exist at some point whether after a few years or many decades.

When it is time for a nonprofit to end, it is important to properly dissolve and end its legal life. Dissolving is when an organization goes through the legal process to wind down.  

However, every year, the status of many Alberta nonprofits is changed to “struck for failure to file annual returns” on the Register of Corporations (a list of incorporated entities in Alberta) instead of being intentionally and properly dissolved.

Some are struck because they are unaware of the requirement to file an annual return and some do not understand the consequences if they fail to file these required returns. The Corporate Registry (part of Service Alberta) will start the dissolution process when a nonprofit has failed to file an annual return under their incorporating legislation (e.g. the Societies Act or the Companies Act) for at least one year.

Ending the Right Way

But what happens if a nonprofit intentionally makes the difficult decision that it is time to close its doors for good? Can it simply stop with annual corporate maintenance and allow itself to be struck from the Register? While this will certainly happen eventually, failing to follow proper legal processes in dissolving a nonprofit creates loose ends and potential liabilities for the board, especially if the organization is a registered charity.

Prior to dissolving, a registered charity should follow the necessary steps to undergo a voluntary revocation of its charitable registration. For more information on the voluntary revocation process refer to the Canada Revenue Agency’s website or contact the Charities Directorate.

The steps for a nonprofit to voluntarily dissolve are governed by its incorporating legislation and its bylaws. Nonprofits operating in Alberta are most commonly incorporated under the Societies Act, the Companies Act, or the Canada Not-for-Profit Corporations Act. The dissolution process is different under each statute. Since most nonprofits in Alberta are incorporated under the Societies Act, this article will outline the steps required to properly dissolve (voluntarily) under the Societies Act.

Steps to Dissolve

First, the society should refer to their bylaws last filed with Alberta Corporate Registry to check if their society has adopted any special rules or processes relating to dissolution. The bylaws may contain specific provisions such as dealing with gaming proceeds or other charitable assets and whether or not the directors or the members of the society have to vote on certain matters in the dissolution process.  

Otherwise, the Societies Act provides that the voluntary dissolution process follows the rules and processes in the Business Corporations Act (Alberta) that applies to most other types of  corporations in the province.  

There are two possible processes. The first, for a society that has property and outstanding liabilities, is the voluntary liquidation and dissolution process, which might involve supervision of the Court of King’s Bench. The second is the simplified process which is intended for societies that have no property and no liabilities.

The simplified process is much less onerous for societies, so generally it is recommended that societies take steps to pay all liabilities and disburse all property prior to filing Articles of Dissolution.  

The steps required for the simplified process are as follows:  

Pay liabilities and distribute remaining assets

To ensure the dissolution process is as simple as possible, it is advisable for the society to collect all debts, pay all creditors, and eliminate all outstanding liabilities as soon as possible. If necessary, the society may sell its physical assets for fair market value to raise cash to pay off its liabilities.

Once all liabilities are paid, the society should distribute its remaining assets in accordance with provisions in its bylaws, if any.

Although not required under the Societies Act, a society’s bylaws may require the board and/or the members to pass a resolution authorizing the distribution of the society’s property. It may also be advisable to enter into a gift agreement with the recipient organization(s) relating to the transfer of the society’s remaining assets.

Pass a board resolution approving dissolution

Once a society has no property or liabilities remaining, its board of directors can pass a resolution approving the dissolution of the society. The society can then complete and sign Articles of Dissolution and follow the filing instructions on the form. The society must specify the name and address of a person who will be responsible for keeping the documents and records of the society for a period of at least 6 years from the date of dissolution.

Receive Certificate of Dissolution

After the Articles of Dissolution have been filed, a Certificate of Dissolution will be issued. The society ceases to exist on the date shown on the Certificate of Dissolution.  

Once the above process has been completed, the directors and other stakeholders of the society can rest assured that the society has been properly dissolved.  

If a society is unable to follow the process outlined above for some reason (e.g. it does not have a quorum of directors), but it has no assets or liabilities, the Societies Act provides that a society may be dissolved by surrendering its certificate of incorporation to the Registrar of Corporations. A special resolution of the members of the society and a statutory declaration stating the society has no debts or liabilities outstanding is required. 

It can be difficult to navigate the different options for winding-up and dissolving a nonprofit, but it is essential that proper steps are followed. If your organization requires assistance, please do not hesitate to reach out.