Single-owner businesses and LLC formation
Even if you have a single employee or other person that you work closely with, forming one to conduct your business is a smart idea
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 cunninghamonnhllcs.com.
There are currently about 48,000 New Hampshire LLCs, and it’s a safe bet that well over half of them are single-member LLCs whose members are individuals. So if you own a single-owner New Hampshire business, should you conduct it through a New Hampshire single-member LLC?
Let’s say you run a single-owner New Hampshire business with no employees and no individuals or companies that you work with regularly (and who could thus be mistaken for partners in your business). In this situation, conducting your business through a single-member LLC probably won’t get you much, since any suit against your business will also be a suit against you individually.
However, if you have even a single employee or other person that you work closely with, using a New Hampshire single-member LLC to conduct your business will be a very smart idea. This is because your single-member LLC will provide your personal assets with strong legal protection if an employee of yours or another person with whom you work engages in misconduct that results in a claim against you.
In drafting New Hampshire’s new LLC act, the drafting committee was very aware that the main beneficiaries of the act — indeed, well over half of them — would be individuals running single-owner businesses. These individuals were our most important customers.
So we racked our brains to identify every possible legal protection we could give these customers in the new act. I don’t know of any other U.S. LLC act that is as user-friendly for individuals with single-owner businesses as the new New Hampshire act.
‘Continuity of management’
There is one fundamental problem with single-member LLCs under the old act for which the committee couldn’t devise a solution under the new one — namely, that under the default rules of New Hampshire LLC statutory law, serious legal problems can arise for individuals who own single-member LLCs if, because of their absence, illness or otherwise, they are unavailable to manage their LLCs.
Under both acts, the default rule is that in this situation, a New Hampshire single-member LLC effectively has no manager and thus no one to legally operate it until the member is back in the saddle. In legal terms, the single-member LLC lacks “continuity of management.” Legally, it’s frozen in its tracks.
If you’re currently the member of a New Hampshire single-member LLC, the only arrangement currently available to you to solve this problem is:
• To provide in your LLC certificate of formation as filed with the Secretary of State that your LLC’s management is “vested in a manager” (or to amend your certificate if it doesn’t contain this language)
• To give your spouse or another trusted person written authorization to act as your LLC’s assistant manager if you’re unable to manage.
You won’t need to hire a lawyer to draft this writing -- you can write it yourself on the back of an envelope. But be sure you sign it, and be sure that if something ever happens to you, the person you appoint as your assistant manager knows where to find it.
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 cunninghamonnhllcs.com.Edit ModuleShow Tags