Legal Question in Business Law in California

Leaving a NonProfit Corporation

I was a member/manager of an LLC.

The LLC converted to a nonprofit

public benefit corporation on 1/1/08.

I am now on the board of directors

and serve as the Executive director

for the business. As an LLC, we have

a business loan to which each person

(there are 4 of us) is listed as a

guarantor. The nonprofit assumed

this debt. I am considering leaving

the business for personal reasons and

was wondering what my financial

obligations are. I have no problem

paying 1/4 of the loan even if I am

no longer part of the business.


Asked on 4/25/08, 2:50 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Leaving a NonProfit Corporation

Answering your question with any degree of certainty would require looking at all the papers that are part of the guarantee. However, my guess is that if the guarantee were written by a competent professional using the strict protective rules and concepts that are usually employed by banks, SBA lenders, etc., the guarantee is joint and several, "continuing," etc. Thus, neither paying 1/4 nor leaving the organization will relieve you of personal obligation, without more. I recommend approaching the creditor, preferably with your lawyer, to explain your circumstances and negotiate a release. It's entirely possible that the other three co-guarantors may have to consent to your release, as they may be third-party beneficiaries of your participation in the guarantee. Another possibility would be to completely re-write the loan, replacing the current loan with a smaller loan, using your pay-off of 1/4 of the amount due, and securing the new loan with a three-party guarantee, leaving you out.

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Answered on 4/25/08, 3:54 pm


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