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Texas Business Organizations Code - BUS ORG § 2.104. Power to Make Guaranties

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(a)?In this section, ?guaranty? means a guaranty, mortgage, pledge, security agreement, or other agreement making the domestic entity or its assets liable for another person's contract, security, or other obligation.

(b)?Unless otherwise provided by its governing documents or this code, a domestic entity may:

(1)?make a guaranty on behalf of a parent, subsidiary, or affiliate of the entity; ?or

(2)?make a guaranty of the indebtedness of another person if the guaranty may reasonably be expected directly or indirectly to benefit the entity.

(c)?For purposes of Subsection (b)(2), a decision by the governing authority of the domestic entity that a guaranty may reasonably be expected to benefit the entity is conclusive and not subject to attack by any person, except:

(1)?a guaranty may not be enforced by a person who participated in a fraud on the domestic entity resulting in the making of the guaranty or by a person who had notice of that fraud at the time the person acquired rights under the guaranty;

(2)?a proposed guaranty may be enjoined at the request of an owner of the domestic entity on the ground that the guaranty cannot reasonably be expected to benefit the domestic entity; ?or

(3)?the domestic entity, whether acting directly or through a receiver, trustee, or other legal representative, or through an owner on behalf of the domestic entity, may bring suit for damages against the managerial officials, owners, or members who authorized the guaranty on the ground that the guaranty could not reasonably be expected to benefit the domestic entity.

(d)?This section does not:

(1)?apply to a domestic entity governed by the Insurance Code; ?or

(2)?authorize a domestic entity that is not governed by the Insurance Code to engage in a business or transaction regulated by the Insurance Code.

Cite this article: FindLaw.com - Texas Business Organizations Code - BUS ORG § 2.104. Power to Make Guaranties - last updated April 14, 2021 | https://codes.findlaw.com/tx/business-organizations-code/bus-org-sect-2-104/


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