Jan. 1 – a big day for New Hampshire LLCs
Starting with the new year, the state’s revised act will govern all N.H. LLCs, including the 40,000 formed under the previous law
The New Hampshire Revised Limited Liability Company Act, which became law on June 18, 2012, contained many major changes of New Hampshire LLC law. Since Jan. 1, 2013, the act has governed all New Hampshire LLCs formed after that date. New Hampshire businesspeople have so far formed about 4,500 LLCs under the revised act.
However, on Jan. 1, 2014, the act will govern all New Hampshire LLCs, including the roughly 40,000 formed before Jan. 1, 2013. What, if anything, should the members of these 40,000 “old” LLCs do to adapt their LLCs to the revised act?
The answer to this question is, for better or for worse, all about legal fees. To explain:
• If your LLC — like most New Hampshire LLCs — is relatively small, you probably won’t want to pay a lawyer to advise you about how to respond to the act. And you probably won’t need to. This is because, for most small New Hampshire LLCs, the revised act bring lots of new legal benefits but very few, if any, legal disadvantages.
Indeed, the Revised Act was written expressly for small New Hampshire LLCs. For example, the revised act, unlike the old act, contains – in the form of default provisions that will apply unless your LLC operating agreement provides to the contrary – comprehensive new rules governing LLC fiduciary duties. For virtually all New Hampshire LLCs, both large and small, these new provisions will be an unmitigated blessing.
• However, there is one new provision of the revised act that – although, in my view, a very appropriate one – may also cause serious problems for some New Hampshire LLCs. This is Section 40, which provides that not only written New Hampshire LLC operating agreements but also oral and implied ones are legally valid. Most smaller New Hampshire LLCs don’t have written operating agreements, but many of them do have oral or implied agreements. The Legislature felt that New Hampshire LLC statutory law should respect these unwritten agreements, even though it was aware that Section 40 may result in disputes among New Hampshire LLC members about the terms of their LLC deals that couldn’t have arisen under the old act.
If your LLC doesn’t have a written operating agreement, how should your LLC respond to Section 40, given that serious many problems can arise for New Hampshire LLCs under it?
The answer is that you and your co-members should enter into at least a very brief written agreement, and this agreement should specifically state that oral or implied amendments of it will be invalid. You don’t need a lawyer to write this agreement; you can write it yourself. And if you do, it could save you a world of trouble if you and your co-members find yourselves someday in a serious disagreement about your LLC.
• How should you respond to the revised act if your LLC already has a written agreement, but you don’t want to pay a lawyer to review this agreement under the revised act? First, you should be aware that the revised act expressly validates the operating agreements not only of new LLCs but also of old ones. So you can be confident that your “old” LLC deal will very probably still be fully in place under the Revised Act. Secondly, however, if your operating agreement doesn’t already provide that oral and implied amendments of it are invalid, you need to add this provision to it.
• Finally, if you’re a member of a New Hampshire LLC that has a written operating agreement that, because of its business success or otherwise, involves high financial stakes for its members, you should consider paying an LLC lawyer to specifically review your agreement under the revised act and to advise you about its impact on your LLC. This is because it’s possible that at least a few of the revised act’s mandatory, default and permissive provisions are inconsistent with your agreement and need to be overridden in your agreement.
But such a review can be expensive. So you may want to hire a lawyer to make the review but to limit his or her work on it to, at least initially, no more than an hour. That may well be all the review you really need.
Attorney John Cunningham, of counsel to the Manchester-based law firm of McLane, Graf, Raulerson & Middleton, is author of “John Cunningham on New Hampshire’s New LLC Act,” available at www.cunninghamonnhllcs.com.