If you’re starting a business and forming a limited liability company (LLC) in New Hampshire, you’re not required to have an operating agreement, but it’s a good idea to have one in your records.
An operating agreement is significant if your LLC has more than one owner, or member, as it establishes ownership shares, profit and loss distributions, and member roles and responsibilities.
Why You Need an Operating Agreement
A smartly drafted operating agreement can help you in many situations, such as when your LLC merges with another business or a member is no longer capable of working.
The operating agreement establishes each member’s ownership share in the LLC, profit and loss distribution percentages, and how proceeds will be divided if the business is sold. An operating agreement also defines how decisions and member disputes will be resolved.
It also defines each member’s role and responsibilities and how the LLC is managed, clarifying who oversees which aspects of LLC operations.
Without an operating agreement, New Hampshire laws will apply by default, and disputes may have to be settled in court, which can have serious negative consequences for the business.
What Should the New Hampshire Operating Agreement Include?
The New Hampshire Operating Agreement sets the guidelines for the inner dynamics of an LLC within the state. It’s crucial to discern its chief components for streamlined management and to preempt possible challenges.
- Each member’s rights and responsibilities: Clearly outline each member’s duties and obligations within the context of New Hampshire’s regulations and norms.
- Capital contribution requirements for each member: Specify any monetary or asset-based contributions expected from each member and potential consequences for not meeting these requirements.
- Procedures for adding and removing members: Ensure compliance with New Hampshire laws when detailing how new members can join or how existing members can be removed.
- What happens when a member sells their interest, becomes disabled, or dies: Consider buyout clauses, transfer restrictions, and the potential involvement of heirs.
- Conditions under which a member might become bankrupt or insolvent: Detail the implications for the member’s stake in the LLC, ensuring alignment with New Hampshire insolvency and bankruptcy regulations.
Management and Voting:
- Management structure and roles of members: Determine if your New Hampshire LLC will be member-managed or manager-managed. Outline roles and responsibilities accordingly.
- Voting rights of each member: Typically based on capital contributions, but this can be adjusted based on different criteria. Ensure equity and fairness.
- Rules for meetings and voting: Detail how often meetings occur, what constitutes a quorum, and the protocol for special meetings.
- Rules for managing potential conflicts of interest among members: Highlight procedures for members to disclose conflicts and recuse themselves from related decisions.
- Allocation of profits, losses, and distributions: Describe the formula, whether based on capital contributions, agreed percentages, or another method.
- Provision for periodic financial audits or reviews: Especially if there are many members or complex transactions, periodic audits can ensure transparency.
- Tax treatment of the LLC: By default, an LLC in New Hampshire is a pass-through entity, but members can opt for different tax statuses. Consider consultation with a tax professional.
Changes and Amendments:
- Process for amending the operating agreement: Clarify how changes can be proposed, discussed, and ratified. Specify any necessary supermajority requirements.
- Guidelines for company management during transition events: Address management continuity in events like the departure or addition of members.
- Conditions under which the LLC might be sold or merged: Provide specifics on how such decisions will be made and what approvals are necessary.
Disputes, Legalities, and Policies:
- Clauses for dispute resolution or mediation: Given the potential cost of litigation, many LLCs in New Hampshire opt for mediation or arbitration clauses for internal disputes.
- Guidelines for non-compete and confidentiality agreements: These should align with New Hampshire laws regarding enforceability and reasonableness.
- Provision for indemnification and limitation of liability: Specify protections for members in accordance with New Hampshire laws, especially concerning business decisions made in good faith.
Record Keeping and Communication:
- Details about record keeping requirements: New Hampshire mandates the maintenance of certain records. Define where these will be kept and members’ rights to access them.
- Guidelines for how company-related decisions will be documented or communicated: Ensure consistent, clear communication, perhaps detailing any required notifications or platforms to be used.
Company Information and Dissolution:
- Description of the business’s purpose and activities: While New Hampshire doesn’t strictly require an LLC to declare a specific purpose, clarity can be beneficial.
- Identification of the registered agent and office: New Hampshire requires the naming of a registered agent for service of process.
- Procedures for dissolving the LLC: Align with New Hampshire’s dissolution requirements, covering all necessary notifications and filings.
- Procedures for winding down or liquidating the company’s assets: Clearly state the steps for distributing assets and settling debts in case of dissolution.
How to Draft a New Hampshire Operating Agreement
You can find operating agreement templates online from services like ZenBusiness, which will ensure the standard legal language and allow you to fill in the blanks. You’ll probably be able to find free templates online as well, but it’s advisable not to use those as they may include errors.
Consider having an attorney draw up your operating agreement if your business has multiple members. An attorney will ensure that all bases are covered, and all members’ rights are protected. They can also include language that is specific to New Hampshire laws.
This could cost anywhere from $500 to $2,500, but it could save you much more.
Certificate of Formation vs. Operating Agreement
The operating agreement should not be confused with your LLC’s certificate of formation. The certificate of formation officially forms your LLC with the state and includes no information about member roles or financial interests.
Also, the certificate of formation is filed with the state and is part of the public record, while an operating agreement is kept in your LLC’s records and referred to as needed.
Keep Your New Hampshire Operating Agreement Up to Date
It’s a good idea to review your operating agreement periodically. Circumstances change, and the safest approach is to ensure your operating agreement is entirely up to date. Generally, your operating agreement will state that members have to vote to approve amendments to the operating agreement.
Don’t Skip the Operating Agreement
You’re not required to have an operating agreement in New Hampshire, but the wise entrepreneur would never do business without one. It’s a document that could be critical to the future of your business. You may think a dispute will never arise, but times and people change.
You don’t want to end up in a bitter court battle because you pushed off creating an operating agreement. It’s a document that will protect the rights and interests of your LLC members and ensure smooth, continued operations in the event of any unexpected hurdles or pitfalls.
Does an LLC operating agreement need to be notarized in New Hampshire?
No, operating agreements do not have to be notarized. They are not filed with the state, just kept in your records.
What happens if a New Hampshire LLC does not have an operating agreement?
New Hampshire default rules for LLCs will apply, but in cases of dispute, the law may be vague, and your members could end up in court.