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From renting skis to selling souvenirs at the Motor Speedway, New Hampshire businesses can protect their owners from business liabilities by forming an LLC.
STARTING A NEW HAMPSHIRE LLC FOR YOUR SMALL BUSINESS
- Naming Your LLC
The name of a New Hampshire LLC must be distinguishable from any entity formed or authorized to do business in New Hampshire. A corporate designator must be in the name, and the options are “limited liability company,” “L.L.C.” or “LLC.” Additionally, the name cannot suggest that the LLC is organized for any purpose that is not legally permitted.
- Filing a Certificate of Formation
To officially form your New Hampshire LLC, you must deliver a certificate of formation to the Secretary of State for filing. This certificate of formation must include the name of the LLC, the address of the registered office, the name and address of the registered agent, whether the LLC will be managed by the members or managers, and what the primary purpose of the LLC is. The filing fee for this certificate of formation is $50.
- Drafting an Operating Agreement
New Hampshire operating agreements are written, verbal, or implied, and will bind the members of an LLC even if they do not explicitly consent to it or it is not called an operating agreement. For this reason, we recommend that all LLCs have written operating agreements that have been executed by all of the members.
- Keeping Your Business Active
EIN: The I.R.S. can give Employer Identification Numbers (EIN or FEINs) to LLCs with multiple members or employees. This can also be done through an incorporation service.
Annual Report: To maintain adequate standing with the Secretary of State, New Hampshire LLCs must file an annual report with the Secretary of State and pay a $100 yearly fee. This report must contain the LLC name, the address of the registered office, the name and address of the registered agent, the address of the LLC’s principal office, a description of the character of the LLC’s business, and the names and addresses of managers or at least one member (if there are no managers).
WHY FORM AN LLC IN NEW HAMPSHIRE?
The Benefits and Advantages of Creating a New Hampshire LLC
New Hampshire Has a Growing Economy
Each year, New Hampshire forms over 7,000 new LLCs. New Hampshire has over 40,000 active LLCs. The U.S. Chamber of Commerce ranks New Hampshire fourth for high-tech share of all business, sixth for business tax climate, seventh for export intensity growth, and ninth for academic research and development intensity.
- Advantages of Forming a New Hampshire LLC
The New Hampshire LLC Act expressly states its purpose is to give “maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.”
The Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses. Section 304-C:90 allows members to specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than their portion of capital contributions. This gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.
In addition, an LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests. Under section 304-C:54, an “operating agreement may provide for classes or groups of members having such relative rights, powers, and duties as the operating agreement may provide,” including the creation of new classes in the future. This facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.
The New Hampshire LLC Act provides for an LLC’s unlimited life. Section 304-C:19 states the “existence of a limited liability company as a separate legal entity shall continue until cancellation of the limited liability company’s certificate of formation.” An LLC’s existence can therefore outlive its members’ lifetimes.
Dealing with Business Partners
The New Hampshire LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Sections 304-C:108 and 304-C:110 have default rules that, unless an LLC agreement provides otherwise, managers owe limited fiduciary duties of good faith, care, and loyalty. The duty of care requires managers to “discharge their management duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances.” The duty of loyalty requires managers to “act in a manner that they reasonably believe to be in the best interest of the limited liability company,” which includes not competing with the LLC, engaging in self-interested transactions with the LLC, or usurping any of the LLC’s business opportunities.
But the Act gives members and managers contractual freedom to “opt out” of most of the default rules. Section 304-C:107 provides that with only one exception, a “person’s duties may be expanded or restricted or eliminated by provisions in the operating agreement.” In addition, section 304-C:115 provides that with only one exception, an LLC agreement may limit or eliminate “any and all liabilities for breach of contract and breach of duties, including fiduciary duties.” This gives majority and minority owners the greatest flexibility to bargain for the particular duties they want.
Preventing Unwanted Business Partners
The New Hampshire LLC Act allows members to protect their control of an LLC. Under sections 304-C:121, 304-C:123, and 304-C:124, an LLC agreement may prohibit members from transferring their membership interests. But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC or entitle the transferee to participate in management or to become a member. Instead, the transferee may receive only the distributions and allocations of profit and loss to which the transferor would have been entitled, and the non-transferring members must unanimously consent to the transferee becoming a member.
Creditors Only Get Passive Rights, Not Control Rights
Section 304-C:126 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, the charging order is only a lien on the membership interest. The judgment creditor has only the right to receive distributions which would otherwise be paid to the member. The judgment creditor does not have a right to participate in management. In addition, the judgment creditor cannot foreclose on a member’s membership interest in a multi-member LLC, and section 304-C:126 is the judgment creditor’s sole and exclusive remedy.
Furthermore, section 304-C:100 states that unless an LLC agreement provides otherwise or all members give unanimous consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief. These events are considered “events of dissociation.”
- New Hampshire Registered Agent
A New Hampshire LLC must continuously maintain an agent for service of process in the state. A commercial registered agent service may act as a New Hampshire registered agent.
Because of the advantages of forming an LLC in New Hampshire, over 7,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in New Hampshire. What are the advantages of a Delaware LLC? (Delaware LLC Advantages). We can then help you file an application for registration to do business in New Hampshire with your Delaware LLC (Form Delaware LLC).
- New Hampshire LLC Act Statutory References
§ 304-C:2 “The Policy of this Act” § 304-C:17 “Person” § 304-C:19 “Legal Status of Limited Liability Company as Entity; Duration of Entity Status” § 304-C:31 “Certificate of Formation” § 304-C:36 “Limited Liability Company Registered Offices and Registered Agents” § 304-C:53 “Admissions of Members” § 304-C:54 “Classes of Members” § 304-C:65 “Members’ Voting Power” § 304-C:76 “Classes of Managers” § 304-C:90 “Formula for Allocations of Profits and Losses” § 304-C:95 “Allocations of Distributions” § 304-C:100 “Statutory Events of Dissociation Applicable to All Members” § 304-C:107 “Expansion, Restriction and Elimination of Duties” § 304-C:108 “Duty and Standard of Care” § 304-C:110 “Duty of Loyalty—in General” § 304-C:115 “Exculpations—in General” § 304-C:121 “Transfers of Membership Rights” § 304-C:123 “Transfers or Pledges of Limited Liability Company Interests” § 304-C:124 “Right of Transferee of Limited Liability Company Interest or Other Membership Rights To Become a Member” § 304-C:126 “Charging Orders” § 304-C:172 “Procedures Relating to Transferees of Limited Liability Company Interests” § 304-C:175 “Requirement of Registration by Foreign Limited Liability Companies; Applications for Registration”
New Hampshire vs. Delaware LLC's: Which State Is Better?
|LLC Filing Fee
|Required to Name Members or Managers
|Reduce Fiduciary Duties?
|Charging Order as Exclusive Remedy
|Maximum Freedom of Contract
|Separate Equity Court?
|At least 1