What will new LLC Act mean for businesses?

On June 18, Governor Lynch signed into law a major revision of the New Hampshire Limited Liability Company Act. The new act will take effect on Jan. 1, 2013, for New Hampshire LLCs formed on and after that date. For the roughly 53,000 LLCs existing on or before Jan. 1, 2013, the new law will be effective on Jan. 1, 2014 — unless those LLCs elect to be subject to the new act before that date.

I'm an LLC junkie. I've been fascinated with LLCs since the early 1990s, when they first emerged on the U.S. legal scene. I wrote the two law journal articles that prompted the Business and Industry Association of New Hampshire to decide the current act needed reform. At the BIA's request, I formed and chaired the committee that wrote the new act. So if there are flaws in the new act (which, considering the massiveness of the revision, I'm sure there are), I'll be the main person to blame.

New business organization law statutes tend to be big news for New Hampshire business lawyers, but that doesn't necessarily mean they're big news for New Hampshire businesspeople themselves.

In fact, if I were John Doe, a hypothetical New Hampshire businessperson reading this article, I might be tempted at this point to make the following interjection: "Hey, Cunningham, tell someone who cares."

So the central question I want to address in this article, and in a series of articles to follow, is this: What is the practical importance of the new act, if any, for New Hampshire business?

I think there are five main answers to this question. When you first read them, you may not fully understand their importance, but I hope that as the series progresses, you'll understand them with crystal clarity:

• The New Hampshire Legislature originally enacted the current New Hampshire LLC act in 1993 and made major revisions of it in 1997, but it never stated its intent in doing so. This meant New Hampshire lawyers and businesspeople had no clear basis for interpreting its sometimes-obtuse provisions. By contrast, the new act states its intent loud and clear — to help New Hampshire small businesses. This intent informs every syllable of the new act.

• Believe it or not, there are at least 19 important LLC "statutory gap issues" in the 1993-1997 act — legal issues potentially important to New Hampshire businesspeople, but not addressed in the act. The new act addresses all 19 of these issues.

• The 1993-1997 act completely lacks fiduciary provisions. For example, not a word in it suggests that LLC members have to manage their LLCs carefully or that they have to be loyal to their fellow members. By contrast, the new act has comprehensive fiduciary provisions, and these provisions impose relatively strict duties on LLC members (but it also lets them waive these duties if there are good reasons for doing so.)

• A few of the provisions in the current act can reasonably be read to be, depending on your point of view, either simply crazy or downright scary. For example, one of these provisions suggests that New Hampshire LLC members can't fire bad managers. Another suggests that even if a majority of the members of a New Hampshire LLC vote to distribute LLC cash to help them pay their taxes on their shares of LLC profits, the LLC can't do so. In the new act, all of these crazy and scary rules are gone.

• The 1993-1997 act is written in legalese. The new act is written in English, or at least my drafting committee and I tried to write it in English. For lawyers, writing in English can be hard work.

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.

Categories: Opinion