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Can a Texas nonprofit organization make a loan to a director?

I was recently asked this question and need to preface the answer by saying any organzation should consult legal counsel in each instance, as this us a highly sensitive and complex area.  The facts and circumstances must be carefully considered in each individual situation to ensure everything is properly documented, approved and within the limits of the law.

According to the Texas Bar, absolutely not.  Under Texas law, a nonprofit may not make a loan to members, officers, or directors. A director or officer who approves a prohibited loan is personally liable for the total amount of the loan until it is repaid. However, the law does permit loans to employees and officers to finance the officer’s principal residence up to 100% of the officer’s salary, if the loan is made during the first year of employment, or 50% of the salary if made later. The bylaws must not prohibit such a loan.

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