Can you use an accountant to form an LLC in N.H.?
You can, but there are several risks to be aware of
You’ve decided to form a new business in New Hampshire. Your first stop is Mary Jones, your accountant. Mary tells you about the financial and tax accounting structures your business will need. She also tells you that LLCs are much simpler than corporations, that an LLC could help you save taxes, and she offers to help you complete and file a LLC “certificate of formation,” the document you need in order to create a New Hampshire LLC.
However, she also tells you that she’s not a lawyer, and she tells you that if you want to make sure an LLC is right for you legally, you need to hire a lawyer.
Should you accept Mary’s advice that the entity you use in your new business should be an LLC, and should you accept her assistance in forming an LLC? Obviously, Mary’s LLC advice and help will be much less costly for you than a lawyer’s.
Before I answer this question, I want to say a word about New Hampshire’s revised LLC Act. As I’ve written before in these pages, a key goal of the committee that drafted the revised act was to replace all of the legalese in the old act with plain English. The committee wanted, to the extent possible, to enable non-lawyers in general and LLC members in particular to interpret New Hampshire statutory LLC law and apply it without the help of lawyers.
So you’d think the answer to the above question should be a resounding yes. If the revised act is written in plain English, anyone, including Mary Jones, should be able to understand and apply it, and anyone should be able to form an LLC under it without a lawyer’s help.
But the answer is actually no. Here’s why:
• The first thing you have to do when you form a new business is to choose the kind of entity you should use to conduct it. Under New Hampshire law, there are five main choices: sole proprietorships, general partnerships, limited partnerships, corporations and LLCs. The financial, tax and legal stakes in the choice can be major.
As to your choice, Mary can advise you about the financial and tax stakes. But as she herself has made clear to you, she can’t advise you about the legal stakes. Only a lawyer can.
• Even assuming that, not only on financial and tax grounds but also on legal grounds, Mary is correct in advising you that you should operate your business as an LLC, you also need to decide whether your LLC should be a single-member LLC or a multi-member LLC. This issue is important because multi-member LLCs will normally provide you with much better asset protection than single-member LLCs.
However, multi-member LLCs can also have significant legal downsides as compared with single-member LLCs. Mary can’t help you sort out the relevant legal advantages and disadvantages. Only a lawyer can.
• As I’ve indicated above, in order to form an LLC, you need to complete a certificate of formation and file it with the Secretary of State. You also need to complete and file a related document, called a “Form SRA.” Both of these documents can involve tricky legal issues. Mary can’t resolve these issues for you. Only a lawyer can.
• For many New Hampshire businesspeople, the main legal benefit of an LLC is the statutory “liability shield” that it provides to its members. This shield is intended to protect the personal assets of LLC members from claims by third parties against their LLC. However, you can’t get full liability protection from the shield alone. This is because, under a New Hampshire judicial procedure called “veil-piercing,” merely forming and operating an LLC won’t give you full protection; you also need to take various additional steps. Mary can’t advise you about these steps or help you implement them. Only a lawyer can.
• Finally, whether you form it as a single-member or a multi-member LLC, your LLC will need a written operating agreement. For single-member LLCs, these agreements are important as LLC users’ manuals but even more important in resisting veil-piercing claims. For multi-member LLCs, they’re important as user’s manuals but even more important in defining the deal among the members and in resolving the disputes that will inevitably arise among them. Mary can’t draft operating agreements. Only a lawyer can.
In the end, business is about money. So if you just don’t want to pay a lawyer to help you with your LLC or can’t afford to, you should accept Mary’s LLC advice and services. But if you do, you should know the risks.
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.johncunninghamonnhllcs.com/blog and www.llcsforaccountants.com.