Dan P. asked:


Can a tax-exempt 501c3 corporation ONLY disburse funds for the following 2 reasons :
1)To pay legitimate liabilities of the corporation. i.e. business expenses or purchases of fixed assets.
2)To donate monies to another tax-exempt organization
(ie once monies enter a 501c3, they stay with that organization or go to another tax-exempt 501csorganization).

So is it legal for a tax-exempt 501c3 corporation to loan out monies to another corporation that is NOT tax-exempt?

If so, what happens if the 2nd corporation dissolves before paying back the loan?

Here’s what going on: The 2nd corporation is working on their tax-exempt application, but has not submitted yet. Needs some seed money to get started. Will use the monies for CPA and filing the IRS and Calif tax-exempt applications. But if the application is not approved, the 2nd corporation will dissolve. Therefore it won’t be paying the loan back to the 501c3.

Any input or website references would be great. thanks
Both parties are aware the loan may not be repaid. They are ok with that. But from a legal aspect, can it be done? Or are there different laws for a 501c3?