Cunningham on LLCs: four more key provisions of state law
John Cunningham
If you are a New Hampshire LLC member or manager or if you plan to form a New Hampshire LLC, you and your business advisers need to have a solid basic knowledge of LLC law and tax in order for your LLC to succeed. This is the sixth in a series of columns in this journal that will provide you with this knowledge.
As noted in my previous columns, the New Hampshire LLC Act contains hundreds of individual provisions, but there are only 24 provisions or related sets of provisions that LLC members and managers need to understand in detail. In this column, I’ll discuss Provisions 9 through 12.
- Section 64, III. Members of “manager-managed” multi-member LLCs—i.e., LLCs whose operating agreements expressly appoint managers—have the right to vote on any LLC matters not reserved to the managers.
Among the most challenging issues to decide with regard to any multi-member LLC is the management structure that will work best for the LLC. This means, in general, deciding which LLC matters should be reserved to the managers and which to the members. In the operating agreements of some manager-managed LLCs, most or even all LLC matters will be reserved to the managers; in others, the managers’ only rights will be to sign contracts approved in advance by the members. The variations in this spectrum are infinite.
- Sections 106 through 110. Members and managers of LLCs have fiduciary duties to one another. These include a duty to perform their responsibilities for their LLC carefully and to be loyal to the LLC and one another.
The duty of care of managers of multi-member LLCs means, in general, a duty of competence; the duty of loyalty means a duty to put the LLC first and the members and managers second. But the LLC Act permits infinite variations of these duties, and Section 107 permits their complete elimination.
- Sections 98 through 105(a). Under the New Hampshire LLC Act, members will be “dissociated” from their LLC—i.e., their memberships will terminate—if the members die, resign, become disabled or bankrupt, or are expelled from the LLC by the other members for serious misconduct.
Identifying which events of dissociation should apply to which specific members and whether there should be any other such events is sometimes difficult to decide. But it is often much more difficult to define buyouts and other consequences of these events. The best place to do so in an operating agreement is often in a two-column table attached to the agreement as an exhibit. One column of the table lists, row by row, all relevant dissociation events; the other column lists, row by row, the consequences of each event.
- Section 105, II – buyouts. Under Section 105, II, if a member is dissociated, the member won’t be entitled to a buyout by the other members or by the LLC unless the operating agreement expressly provides for a buyout.
In many multi-member LLC operating agreements, the lengthiest and most complex provisions are those providing for member buyouts and specifying buyout terms. In the same operating agreement, these terms may vary extensively among the members.
John Cunningham is an attorney of counsel to the law firm of McLane Middleton whose practice is focused on LLC law and tax. He can be contacted at lawjmc@comcast.net, 603-856-7172 or llc199A.com.
