Bar News - May 15, 2009
Corporate Law - Five Tables You Need in Order to Form New Hampshire LLCs Completely
By: By John M. Cunningham
The asset that you need most in order to form NH Limited Liability Companies (LLCs) competently is your knowledge of the provisions of the NH Limited Liability Company Act (the Act) that are relevant to these formations. These comprise, in general, all provisions of the Act addressing issues that can arise in doing LLCs deals, including, for example, issues concerning contributions, allocations, distributions, dissociations, transfers of membership rights, member and manager voting, fiduciary duties, dissolutions and dispute resolution. They do not include merger and conversion provisions, most secretary of state housekeeping provisions, and provisions concerning foreign LLCs.
However, it is not enough for you merely to identify and to be aware of these provisions; you must also categorize each of them as definitional, mandatory, default or permissive. Otherwise, even the most comprehensive list of provisions will be useless to you as a practice tool.
- Definitional provisions are those that contain statutory definitions of terms employed in the Act. (See RSA 304-C:1,VII, which defines the key financial term “limited liability company interest” as used in the Act.) You must be aware of all of these definitional provisions in order to refer properly to the statutory concepts with which you are dealing in LLC formation and in drafting LLC agreements.
- Mandatory provisions are those which the Act does not permit LLC members to alter in their LLC agreement. Mandatory provisions trump any conflicting provisions in an LLC agreement. An example of a key mandatory provision of the Act is set forth in RSA 304-C:37, I, which provides that promises to make contributions to LLCs are binding only if they are writing. Obviously, if you are ignorant of this rule in assisting your client in the formation of a NH LLC, this ignorance can result in disaster if a member of your client’s LLC breaches a merely oral promise to contribute to the LLC.
- Default provisions are those that the Act does permit LLC members to alter in their LLC agreements. A key default provision is contained in RSA 304-C:40, which provides, in effect, that members can receive interim distributions from their LLC only if their LLC agreement provides for them. Obviously, if your client anticipates that she will need interim distributions from her LLC to cover federal and NH taxes on her share of LLC profits, she will want to alter this rule in her LLC agreement. She will also want to alter all other default provisions in the Act that are inconsistent with her needs and interests in the LLC deal in question.
- Permissive provisions are those that authorize and validate arrangements in LLC agreements but do not require them. A key permissive provision in the Act is contained in RSA 304-C: 7, II (j), which permits LLCs to appoint officers and agents. If you are unfamiliar with the permissive provisions of the Act, you may overlook many arrangements that can be useful to your client in an LLC deal.
However, although it is necessary for you in forming NH LLCs to know all of the provisions of the Act relevant to LLC formations and to know in which of the above four categories each provision belongs, it is the rare lawyer or accountant who can commit all of this knowledge to memory and to have all of it immediately available in handling an LLC deal. Rather, most of us can make practical use of this knowledge in planning and negotiating LLC deals and in drafting LLC agreements only if it is contained in clearly organized tables to which we can refer as checklists.
Some months ago, I spent many hours compiling a master table of the provisions of the Act relevant to NH LLC formations, and I did my best to characterize each of the provisions in this table as definitional, mandatory, default or permissive. Once I completed this table, I used it as the basis for creating four subtables—namely, subtables containing, respectively, all of the provisions in each of the above categories. I use these tables religiously in assisting my clients to form NH LLCs. The master table identifies 227 separate provisions of the NH Act as provisions relevant to NH LLC formation practice; 13 of these provisions are definitional, 91 are mandatory, 54 are default and 69 are permissive.
If you are engaged in forming NH LLCs, I invite you to download the above five tables from my website, www.llcformations.com, and if you think they are accurate, to use the four subtables as checklists in your LLC formation practice. You can access the five tables by clicking on the “LLC Library” button on the navigation bar on the left-hand side of the home page of my website. I’ve made the master table available on my website in order to enable you, if you so choose, to check this table against the Act and thus to satisfy yourself that the subtables, too, are accurate. Obviously, subtables can only be as accurate as the master table from which they derive.
Needless to say, if you find what you believe are errors in my master table or in any subtables, please let me know. If I agree with you, I’ll fix the tables immediately and post revised ones on my website.
John Cunningham, of the Law Office of John M. Cunningham in Concord, joined the NH Bar in 1990. He is of counsel to McLane, Graf, Raulerson and Middleton in Manchester. He would like to note that his colleague Susan D. Bielski “was an invaluable ally in compiling these tables, although I alone am responsible for any errors in them.”