Pastor, Church & Law

Loans to Directors

§ 06.07.10

Key point 6-07.10. Church board members may be personally liable, under state nonprofit corporation law, for loans they authorize for any officer or director of the church.

The Model Nonprofit Corporations Act, as well as various other laws under which some churches are incorporated, prohibit the board from making loans (out of corporate funds) to other directors or officers. Directors who vote in favor of such loans can be liable for them in the event that the loan is unauthorized or otherwise impermissible. Church boards must check the state law under which they are incorporated before considering any loans to a minister.

Case study. A District of Columbia appeals court ruled that it was prohibited by the from resolving a lawsuit brought by members of a church claiming that the board of trustees breached its fiduciary duties by authorizing an interest-free loan to the pastor and by failing to provide the congregation with adequate information regarding the church’s finances. A church employed a new pastor, and the church board authorized a loan to enable the pastor to purchase a new home. Though the pastor was a member of the board by virtue of office, he did not participate in the vote. At a specially called business meeting of the church membership, the board recommended approval of the loan. One church member suggested that the loan be interest-free, commenting “the church should not profit from this loan to the pastor.” The membership approved a no-interest loan at the meeting and eventually loaned the pastor some $256,000 for the purchase. A few years later, certain members of the church asked for more details from the church board regarding the loan, and other financial transactions involving the pastor. When their request was ignored, they filed a lawsuit in which they asked a court to declare that the board had breached its fiduciary duties by authorizing the interest-free loan, and that the members “have a right to receive, review and inspect information and documents that will inform the members regarding the church’s finances, compliance or non-compliance with federal and local laws, and other liabilities.” A trial court agreed to resolve the case, but an appeals court intervened and dismissed the members’ claims. It concluded: “A church’s financial regime … necessarily reflects an array of decisions about a member’s obligation to pledge funds, and about the leaders’ corresponding responsibility to account for those funds, that a civil court cannot arbitrate without entangling itself in doctrinal interpretations. … Accounting is an area riddled with major subjective decisions. When the entity in question is a religious society, those subjective decisions raise questions of internal church governance which are often themselves based on the application of church doctrine.”217 Kelsey v. Ray, 719 A.2d 1248 (D.C. App. 1998).

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay
caret-downclosefacebook-squarehamburgerinstagram-squarelinkedin-squarepauseplaytwitter-square