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Nonprofit Law/Thanks and one more question


QUESTION: We are starting a nonprofit of which I will be the Executive Director at very low starting compensation ($20k).  
I will work on contract instead of being an employee (I pass the IRS tests for contractor).
The 4 questions are:
1)Can I make a no-interest loan to the 501c3 ?
2)Can I be a voting member on the board of directors?
3)Since the landlord of the prospective rental property will not rent to a nonprofit, can I sublease the rental space to the 501c3?
4)Can the board approve a 10 year contract for me?

ANSWER: 1. Yes. There is no restriction on giving a no-interest loan to the 501(c)(3) organization.
2. If your organization is a California Nonprofit Public Benefit Corporation, section 5227 of California Nonprofit Public Benefit Law provides:
---Start of Excerpt--
 (a) Any other provision of this part notwithstanding, not
more than 49 percent of the persons serving on the board of any
corporation may be interested persons.

  (b) For the purpose of this section, "interested persons" means

  (1) Any person currently being compensated by the corporation
for services rendered to it within the previous 12 months, whether
as a full- or part-time employee, independent contractor, or
otherwise, excluding any reasonable compensation paid to a director
as director;

  (2) Any brother, sister, ancestor, descendant, spouse,
brother-in-law, sister-in-law, son-in-law, daughter-in-law,
mother-in-law, or father-in-law of any such person.
---End of Excerpt--

3. Yes. I am assuming that you would not be making any money or realize other compensation in the transaction.

4. Yes. The Board can approve a 10 year contract for you.  If you are on the Board then you should not be voting on that resolution. See section 5233 provides "a self-dealing transaction means a transaction to which the corporation is a party and in which one or more of its
directors has a material financial interest..." and further down in that section, the Attorney General would be concerned if the following was not evident, "Prior to consummating the transaction or any part thereof the board authorized or approved the transaction in good faith by a vote of a majority of the directors then in office without counting the vote of the interested director or directors, and with knowledge of the material facts concerning the transaction and the director's interest in the transaction."

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    

---------- FOLLOW-UP ----------

QUESTION: Your response time was incredible: about 5 minutes!
One more question: is there a limit or any restrictions to the amount that an Executive Director for a 501c3 can write a check for?

The only limitation would be in pursuance to the bank corporate resolution, if such a limit is indicated there.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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