Exit Agreements for Nonprofit Organizations: Best Practices and Considerations

Nonprofit organizations operate in a unique environment where their mission and purpose are typically guided by a board of directors and they serve the public good. While it is not an easy decision to consider winding down operations, nonprofits may reach a point where it is necessary for various reasons, including financial constraints or a shift in priorities.

When it comes to exiting a nonprofit organization, it is important to have a well-planned exit strategy in place. An exit agreement is a legal document that outlines how a nonprofit will terminate its operations in an orderly manner. It is a critical step to ensure that the organization’s assets are distributed responsibly, and there is no legal or financial liability after closure. Here are some best practices and considerations for nonprofit organizations to consider when creating an exit agreement.

Create a Plan Early in the Process

An exit agreement should be created as soon as the nonprofit realizes that it may be closing its operations. It is essential to create a plan early in the process to avoid any potential legal or financial issues down the line. The plan should involve all key stakeholders in the organization, including the board of directors, executive staff, and legal counsel.

Identify and Address all Key Issues

An exit agreement should address all major issues related to the closure of the nonprofit. These issues may include how assets will be distributed, how to handle remaining finances, how to pay off debts and liabilities, how to resolve any legal issues, and how to terminate any employee contracts. By identifying key issues early in the process, the nonprofit can develop a plan for addressing them. Additionally, this can help avoid conflicts between stakeholders.

Consider the Impact

Before drafting an exit agreement, it is important to consider the potential impact on the community and any other stakeholders involved. A nonprofit may want to provide a service to the community during its winding-down period or transfer its assets to another nonprofit organization with a similar mission. The agreement should consider the interest of all parties involved and any responsibilities the nonprofit has to its stakeholders.

Drafting the Agreement

When drafting the exit agreement, it is important to work with legal counsel to ensure that all legal requirements are met. The agreement should be clear and concise, outlining the key provisions discussed with stakeholders. It should also include detailed timelines for the completion of all activities and have provisions for amending the agreement if necessary.

Implementation

The implementation of the agreement will be critical to the nonprofit’s successful completion of its mission. The nonprofit should establish a timeline for its completion and communicate it to all stakeholders in a timely and transparent manner. All activities should be adequately documented for transparency and accountability.

In conclusion, an exit agreement is a necessary step for nonprofit organizations that are winding down their operations. The agreement should be created early in the process, address all key issues, consider the impact on the community, be well-drafted by legal counsel, and have a clear and transparent implementation plan. By following these best practices, nonprofits can ensure a responsible and orderly winding down of the organization.