Forming an LLC in New Hampshire can provide a number of legal benefits.
Freedom of Contract
The Rhode Island LLC Act gives LLC members contractual freedom to customize their contributions, rights, duties, and distributions of profits and losses. In addition, it gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties, and it allows members to protect their control of an LLC.
The Rhode Island LLC Act gives members contractual freedom to create voting and non-voting classes of membership and customize their capital contributions and shares of profits and losses. Section 7-16-21 provides that the articles of organization or an LLC agreement may govern the voting relationship among members, and section 7-16-26 provides that they may govern the allocation of profits and losses. Members can use this flexibility to tailor their income streams and risks of loss and facilitate everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-voting interests.
Privacy for Owners
The Act does not require filing of members’ names. A “person” may form an LLC by filing its articles of organization with the Rhode Island Secretary of State. The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s articles of organization. For example, although section 7-16-6 requires disclosure of the name and address of the person who signs the articles, if the members use a commercial formation service, they will not have to disclose their names and addresses.
Perpetual Duration
The Act provides for an LLC’s unlimited life. Section 7-16-3 states that every limited liability company has perpetual duration unless its articles of organization provide otherwise. An LLC’s existence can therefore outlive its members’ lifetimes.
Benefits for Business Partners
The Rhode Island LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Sections 7-16-14 and 7-16-17 have a default rule that members in member-managed LLCs and managers in manager-managed LLCs “shall discharge his or her managerial duties in good faith, with the care that an ordinarily prudent person in a similar position would use under the circumstances, and in the manner the manager reasonably believes to be in the best interests of the limited liability company.” In addition, the Act provides that members and managers act as trustees of the LLC’s property.
The Act gives members and managers contractual freedom to “opt out” of most of the default rules, however, by including provisions in the articles of organization or an LLC agreement that modify the duties. Section 7-16-18 provides “the articles of organization or operating agreement may eliminate or limit the personal liability of a manager to the limited liability company or to its members for monetary damages for breach of any duty provided for in § 7-16-17,” except: (1) breach of the manager’s duty of loyalty; (2) acts or omissions not in good faith, or involving intentional misconduct or a knowing violation of law; and (3) any transaction from which the manager derived an improper personal benefit, unless the transaction was with the informed consent of the members or a majority of the disinterested managers. The “informed consent” portion of the last element is a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers.
The result is the Act protects both majority and minority members. It protects minority members because an LLC agreement may not completely eliminate fiduciary duties, even though it may limit them. These provisions make minority interests safer investments and therefore more valuable.
The Act protects majority members because it provides a “safe harbor” to facilitate contracts and transactions between an LLC and one or more of its managers or members, or an entity in which they own an interest, if the contracts or transactions receive the informed consent of the members or a majority of the disinterested managers. These rules give majority members and the LLC certainty in business planning and the ability to take advantage of mutually beneficial opportunities.
Protections Against Unwanted Parties
The Rhode Island LLC Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from assigning their membership interests. But if an LLC agreement does not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to participate in management or to become a member. Instead, the assignee may receive only the distributions to which the assignor would have been entitled, and all the other members must consent to the assignee becoming a member. If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee of the membership interest.”
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