SOX's Prohibitions against Loans to Directors and Officers

Summary

This practice note discusses the amendments that Section 402 of the Sarbanes-Oxley Act of 2002 (SOX) (116 Stat. 745) made to the Securities Exchange Act of 1934 (as further amended, Exchange Act) to prohibit publicly held companies from making personal loans to its directors and executive officers. Section 402 makes it illegal for any company, “directly or indirectly, including through any subsidiary, to extend or maintain credit, to arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof) of the” company.