A Limited Liability Company (LLC) is a type of business structure that incorporates the features of corporations, partnerships, and sole proprietorships, providing its owners with limited liability protection, adaptable management setup, and some tax benefits. An Operating Agreement is one of the essential components that need to be in place when creating an LLC. It is not a requirement by law in New Hampshire; however, an LLC should have an Operating Agreement to avoid any future complications.
A New Hampshire LLC Operating Agreement is an internal legal document that lays out the terms of operation of an LLC. It helps to protect personal assets by legally separating members of an LLC from the business.
In addition, an LLC Operating Agreement establishes the rights and responsibilities of all members of the LLC, specifies in detail its management structure, and sets out the company’s mode of operations. In the absence of an internal operating agreement in a New Hampshire LLC, the state LLC law automatically governs the operations of the LLC.
The New Hampshire state laws that govern LLCs are available in Chapter 304-C of the New Hampshire Statutes. Therein, provisions are laid out for what constitutes Operating Agreements (§ 304-C:16) and their binding effect (§ 304-C:41).
Types of Operating Agreement
There are two types of New Hampshire LLC Operating Agreement, based on the ownership structure of the LLC. They are:
Single-Member LLC Operating Agreement
The single-member LLC Operating Agreement is applicable when one person owns the LLC. Operating Agreement. It does not require specific provisions like the allocation of duties and authority to members which are required in the multi-member agreement.
Download: Microsoft Word (.docx)
Multi-Member LLC Operating Agreement
When the ownership of the LLC involves two or more individuals, the multi-member LLC Operating Agreement comes into play. A multi-member LLC Operating Agreement is more complicated than a single-member LLC
Download: Microsoft Word (.docx)
Benefits of the Agreement
New Hampshire’s LLC act automatically governs a company that has no Operating Agreement in place. This is usually not desirable for LLCs, as it takes away the opportunity to have company-tailored policies and procedures. In addition, to avoid that, Operating Agreements also help LLCs in other ways that are described below.
Legitimize the business
An LLC Operating Agreement gives a sense of legitimacy to a business. A third party gives the assurance that the business has a well-established structure and is being run with a level of professionalism.
Recommended by state
The creation and implementation of an Operating Agreement by members of an LLC in New Hampshire are suggested in Section 304-C:16 of the New Hampshire state code. According to the statute, it is recommended as a tool for the management of the internal affairs of a company.
Protection to LL status
An LLC Operating Agreement serves to preserve and protect a company’s limited liability status. It helps to separate a business entity from its owner while ensuring that all legal claims are limited to the extent of the company’s assets and do not extend to the owner’s assets.
Written verbal agreements
Oral agreements are often prone to misunderstandings and incorrect recollections. That is why written agreements like LLC Operating Agreements are essential. It records all terms of operation of the business and allows for easy reference when the need arises.
An LLC Operating Agreement lays out the roles, obligations, and entitlements of each member of the LLC. This helps to prevent any future dispute that might arise regarding the standing of any member.
Information to be Included
The details required in New Hampshire LLC Operating Agreements vary per business due to differences like companies. However, the details described below are generally present:
Identity of LLC
A company’s basic information should be present in its LLC Operating Agreement. Information required in this section includes the legal name of the business, any other name that the business is known by, the address of the company, and the name and address of the agent who accepts legal service of process on the company’s behalf.
Type of LLC
An LLC Operating Agreement should also feature information about the type of LLC in question. For example, an LLC may be a single-member LLC or a multi-member LLC.
For multi-member LLC, this section of the operating agreement should specify the type of management structure that the LLC employs, i.e., if the members are in charge of running the daily operations of the business (member-managed), or if a manager or management team is appointed to that effect (manager-managed).
This section of the agreement lays out the ownership structure of the company. For single-member LLC, this part should specify that a sole owner owns the LLC and that such person has all the voting rights. For multi-member LLC, information about the percentage owned by each member should be present. This helps to establish a clear foundation for business partnerships.
A business’s purpose is also featured in its LLC Operating Agreement. A business purpose has to do with the primary product or service that the business intends to trade in to constitute the primary source of its revenue. This part of the agreement can also establish an allowance for the business to engage in any other lawful dealings later on.
Member and manager duties
As mentioned earlier, an LLC can be member-managed or manager-managed. An LLC Operating Agreement should clarify this. It should allocate and specify the authority the members and manager possess and the accompanying expectations i.e., the limits of what they can and cannot do in the company.
Having a clear definition of each person’s role and capacity will contribute to the company’s progress and help avoid unnecessary frictions.
Information about the value of each member’s contributions to the company should be present in an LLC Operating Agreement. Contributions can come in different forms, including monetary, labor, skills, intellectual property, etc. The Operating Agreement should also include in its provisions the procedure to employ for future fundraisings.
Information about how the company will share its profits among members should also feature on the LLC Operating Agreement. The sharing proportion should be a fixed rate that all members have jointly agreed.
Meetings and voting
Unlike corporations required by law to hold meetings for their shareholders and directors, New Hampshire state laws do not require LLCs to hold meetings in that same manner. However, LLC Operating Agreements specify conditions that require the meeting of all stakeholders.
One of such conditions is when there is the need to vote on important matters. The operating agreement should provide details about the time and venues of such meetings and the allowed mode of attendance (physical or virtual).
In addition to meeting provisions, voting provisions should be present in an LLC Operating Agreement. It should clearly state the voting power allocated to each member. Furthermore, it should specify whether a simple majority is enough to settle a vote or if a unanimous vote is required.
Changes to the membership structure
Provisions that govern the admission of new members, the withdrawal of existing members, and the justification and procedure for expulsion of a member should be present in an LLC Operating Agreement.
Buy-out and buy-sell rules
An LLC Operating Agreement may feature a “right of first refusal” clause for when a member wishes to sell their part of the company. In the event of a member’s withdrawal, this clause gives buy-out precedence to other members ahead of other third parties as long as they can match the terms offered by a third-party buyer.
The agreement should also outline other buy-sell rules like members’ rights to sell or transfer their stake, what will happen if they sell the company, etc.
A succession plan should be in place to manage the aftermath of a member’s demise. This provision will specify what happens to a member’s interest if they die. For example, it may allow for the takeover of the dead member’s interest by certain persons, like the spouse or child, or the purchase of the interest by the remaining members.
On the other hand, the provision may also bequeath only the right to profits to the recipient(s), leaving the right to make business decisions.
Finally, the LLC Operating Agreement should feature procedures for dissolving the business. This usually involves voting by members to initiate dissolution proceedings. This dissolution process can be a complex one, usually requiring the filing of certain forms with the state, selling off assets, settling creditors, and so on.
Creating a New Hampshire LLC Operating Agreement requires a lot of input, and even more, an effort is required to effect a modification once the agreement becomes active. That is why all parties should carefully consider all elements of the agreement before they commit to it.
To facilitate the drafting of a New Hampshire LLC Operating Agreement, we have provided free templates for download. Our templates serve as guides, ensuring that no essential component of the Operating Agreement is left out. However, since a New Hampshire Operating Agreement is a complex legal document, we recommend the usage of the template under professional guidance:
How to Form an LLC?
The steps involved in the formation of an LLC in New Hampshire are described below.
Find registered agent
New Hampshire law requires that every LLC have a registered agent for service of process in the state. This agent is a person or business entity willing to accept legal documents and state filings on the LLC’s behalf. The agent must be based in New Hampshire and possess authorization to do business in the state. The New Hampshire Secretary of State website has a directory of registered agents in the state.
Type of LLC
The category of LLC that needs to be created will inform the type of filing to submit to the state. The filings for an LLC can fall under Domestic LLC or Foreign LLC. A Domestic LLC is an LLC formed within the state, while a Foreign LLC is a pre-existing one trying to expand into New Hampshire.
More information on LLC categories can be found in the links provided below:
- Domestic Professional – For companies under 304-D-1
- Foreign Professional
Complete the application
The New Hampshire Articles of Organization is a significant requirement that a business file with the Secretary of State when forming an LLC in New Hampshire. It must state the name and address of the LLC, the name and address of each member of the LLC, and the name and address of the registered agent appointed by the LLC.
Application for a Certificate of Formation for a Domestic LLC can be done by Mail or Online, and an Application for Registration for a Foreign LLC can also be done by Mail or Online. The filing fee for each of the categories is $100, payable to the State of New Hampshire. Please note that a $2 handling fee is applicable to all electronic filings.
Submit the file
The application containing a check for $100, payable to the New Hampshire Secretary of State, and the Articles of Organization should be sent by mail to the address below.
Corporation Division, Department of State,107 North Main Street, Concord NH 03301-4989
After submitting the file, it is highly recommended that an LLC Operating Agreement be put in place to govern the internal affairs and management of the LLC. It helps to put things in order and lays out the provisions that will govern the operations of the LLC. Therefore, this document does not need filing.
The law requires a Multi-Member LLC in New Hampshire to obtain an IRS Employer Identification Number (EIN), whether the LLC has employees or not.
A Single-Member LLC only requires an EIN if it has employees or if the owner has elected to have it taxed as a corporation rather than as a sole proprietorship. Obtaining an EIN does not require a filing fee, and the application is available online on the IRS website.
Frequently Asked Questions
New Hampshire State’s LLC laws do not require operating agreements for LLCs; however, it is not against the law to have one. It is highly recommended that an LLC have an Operating Agreement because of the benefits attached to it. An LLC in New Hampshire with no Operating Agreement will be bound by the default LLC provisions set by the state.
New Hampshire does not require the filing of an LLC Operating Agreement. However, the LLC keeps the Operating Agreement as an internal document and may keep a copy with its lawyer.
An individual or business entity may draft their own LLC Operating Agreement in New Hampshire. We have templates available to assist with the drafting; however, given the document’s importance, we recommend the consultation of an attorney when using our templates