Cunningham on LLCs: More key provisions of New Hampshire law

A closer look at Sections 21 to 24 of the LLC Act
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John Cunningham

Note: 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 another in a series of columns to provide you with this knowledge.

Here’s a discussion of provisions 21 to 24 in the New Hampshire LLC Act:

  1. Manager voting: Section 78 provides that unless the operating agreement provides otherwise, each manager of an LLC shall have one vote on each matter that the managers may decide by vote.

Comment:  Most New Hampshire multi-member LLCs that have any managers at all have only one manager.  For these LLCs, Section 78 is obviously irrelevant. However, if an LLC has two or more managers, it will sometimes be appropriate for one or more of the managers — for example, the managers appointed by the major investor — to have more votes than one or more other managers.  Section 78 so permits.

  1. Mergers: New Hampshire LLCs may participate in mergers with other New Hampshire or foreign (i.e., non-New Hampshire) LLCs and with any type of domestic or foreign non-LLC. Under Section 159, the “surviving entity” in any such merger will have all of the rights and duties of the other entity or entities participating in the merger. However, Sections 156 through 158 contain numerous and somewhat complex rules governing these mergers.

Comments: When an LLC wants to acquire one or more other entities, it will sometimes obtain otherwise unavailable legal and tax benefits if it makes the acquisition through a merger with these entities rather than by purchasing them.

  1. Dissenters’ rights: Sections 160 through 172 permit LLC members to dissent and receive the current value of their memberships:
  2. If the other members of the LLC are parties to a completed plan of merger to which the LLC is a party;
  3. If the other members are parties to a plan of statutory conversion of the LLC
  4. If the other members amend an operating agreement that causes or may cause any of three specified types of injury to the dissenting member.

Comments: The substantive and procedural rules in the above sections are numerous and complex.  Thus, if members plan to dissent from the above types of actions under these sections, they should generally hire an LLC lawyer to advise and assist them in planning their dissent before they actually make it; and If an LLC believes that one of its members may make such a dissent, the LLC, too, should generally hire a lawyer to represent it if it believes it may want to challenge the dissenter’s claim for a buyout.

  1. LLC liquidations: Under Section 128, III, the liquidation of an LLC means “the sale or other disposition of its assets and the distribution of these assets, or of the proceeds of the sale or other disposition of them, to its creditors.” However, the fact that an LLC has been liquidated does not mean that it no longer exists as a legal entity; it will continue this existence until it files a certificate of cancellation of its certificate of formation under Section 142.  To reduce the risk of any future claim or lawsuit against it, prudence may require that it file this certificate.

Under Section 141, II, an LLC must distribute its assets in connection with its liquidation:

  1. First, to pay its creditors
  2. Second, unless the operating agreement provides otherwise, to members and former members to satisfy their distribution rights (i.e., to distributions to them of LLC income accrued to them)
  3. Third, unless the operating agreement provides otherwise, in return of their contributions to the LLC
  4. Fourth, in accordance with their “rights to LLC interests”—in effect, in such a manner as to reduce their respective capital accounts to zero.

Comment: In light of Section 141, II(c), it is critical that when the LLC is formed or as soon as possible afterward, the members agree in their operating agreement as to the amount of the contributions by each of them to the LLC, since this will significantly affect the liquidating distributions to which they are entitled.

Section 143 contains important liquidation provisions governing the payment of the LLC’s debts to its known creditors and to unknown creditors to ensure that if these creditors don’t provide timely claims to the LLC, they will lose any creditors’ rights they may possess with regard to the LLC.

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.

Categories: Law, Legal Advice, LLC