Bar News - December 16, 2015
Business Law & Business Litigation: Recent Developments in NH Small Business Laws
By: Emily Bolton and Matthew Benson
Sweeping changes are improving the landscape for entrepreneurs
Several recent changes to New Hampshire’s laws are creating an improved landscape for businesses within the state, particularly for entrepreneurs, startups and small businesses. Along with being a wonderful place to live that offers a high quality of life to its residents, New Hampshire continues its efforts to become the ideal place for entrepreneurs to start, launch and grow their businesses.
The modernization of the state’s business laws brings New Hampshire in line with other states that have passed startup-friendly legislation and will help ensure the prosperity of New Hampshire’s businesses and economy. These changes are part of an ongoing effort to strengthen the state’s entrepreneurial system and improve the business landscape.
In just the past three years, New Hampshire has overhauled its business corporation laws, its limited liability company (LLC) laws, and, most recently, its securities laws, as well as authorizing the formation of benefit corporations (so-called “B corporations”). These modernized laws reflect many of the current best practices and acknowledge the technological advances that have changed the way we do business.
Below is a run-down of recent changes to the state’s business laws.
Selecting a name for a new business is an important part of the business formation process. Besides appealing to the company’s founder(s), the name may become closely tied to the company’s business and service and product offerings. That said, due to the existing naming standard, selecting a permissible company name was becoming a difficult task in some cases.
Under New Hampshire’s existing (through the end of 2015) trade name statute (RSA 349), a trade name could not be used if it was likely to be confused with or mistaken for the name of any other entity that was formed or registered to do business in the state. The rules pertaining to the names of corporations, LLCs, partnerships, and other business entities applied the same standard. This somewhat subjective standard was making it increasingly difficult for a new business to determine whether its name would be permitted.
Beginning in January 2016, it will become easier for New Hampshire businesses to select and use the name of their choosing. Senate Bill 223, which was signed into law by Governor Maggie Hassan in July 2015 and will be codified in various sections of state law, including RSA 349 (tradenames), RSA 293-A (corporations), and RSA 304-C (limited liability companies), creates a more objective standard for determining whether a business name is considered available. Under the new framework, a business name must be distinguishable and not the same as a name that is already being used. If the names are similar but distinguishable, the new business is not precluded from using its chosen name. This should make it easier for entrepreneurs to select a company name, streamlining the company formation and organization process.
Business Corporations Act Updates
Two years ago, the New Hampshire Business Corporations Act (NHBCA) (RSA 293-A) received its first major update in two decades. Overall, the modernized NHBCA ensures that New Hampshire is an advantageous place for businesses to incorporate and makes the state a more desirable place for out-of-state companies to expand or relocate.
The update, which was based on the fourth edition of the Model Business Corporation Act, reflects the major technological advances that have occurred since the early 1990s. The NHBCA now allows for the electronic delivery of documents to the Secretary of State’s Office, allows shareholders to attend meetings remotely via phone or online (using Skype, for example), and authorizes the use of electronic communications for the delivery of notices and other communications.
In addition to those changes, the update simplified and clarified several aspects of the law, including the process for filing documents and the process through which foreign corporations become domiciled in the state.
More recently, the NH Legislature adopted a sweeping rewrite of New Hampshire’s securities laws, which modernized such laws and brought them in line with other states (see related article). These updated laws, which become effective Jan. 1, 2016, have several implications for New Hampshire’s corporations and the NHBCA. For example, incorporators and business owners who are looking to expand into New Hampshire benefit from a reduction in certain regulatory hurdles without sacrificing important investor protections.
Collectively, these changes to the NHBCA and New Hampshire’s securities laws are both startup-friendly and investor-friendly, and they make New Hampshire an advantageous place to start and grow a business and to raise capital.
LLC Act Overhaul
As a prelude to the NHBCA re-write, in 2012, the New Hampshire LLC Act (RSA 304-C) was overhauled. The revised NH LLC Act provides New Hampshire businesses with a comprehensive set of rules and requirements for forming and maintaining an LLC. It brings clarity and certainty to LLC members and managers and is more “user-friendly” for the business community.
The revised act is also more small-business friendly. For businesses that lack an operating agreement, the act contains substantially fleshed-out default rules. For example, if the owners of an LLC do not provide for certain situations in the LLC’s operating agreement, the new rules will govern elements of dissolution, member removals, fiduciary duty obligations and distributions. Another significant change is that operating agreements no longer need to be in writing, and oral agreements or the course of dealings can be used to form the basis of the obligations among members and managers. The revised act also imposes comprehensive fiduciary obligations on LLC members and managers, where the former act did not.
Last year, the New Hampshire Benefit Corporation Act (RSA 293-C) was enacted, authorizing local businesses with social goals to more readily pursue their non-financial missions. The new statute permits for-profit entities that meet certain legal requirements to pursue societal and environmental purposes, in addition to profits.
More than 30 other states have adopted legislation that addresses this accelerating trend, building on the momentum generated by a popular view that so-called B corporations combine the best of the nonprofit and for-profit worlds. By joining these states, New Hampshire has created a new option for socially conscious businesses and entrepreneurs.
Collectively, these changes to the laws governing New Hampshire’s corporations, LLCs, securities and business names create a significantly improved landscape for entrepreneurs, startups and other companies to launch and grow their businesses. The revisions reflect the current best practices with regard to the formation, governance and growth of businesses within the state. New Hampshire’s business laws now accommodate the technological changes that have altered the way business is conducted, while maintaining the important protections and idiosyncrasies of New Hampshire’s longstanding rules. These modernizations represent a major step forward for the New Hampshire business community, making New Hampshire an even better place for entrepreneurs and startups.
Emily Bolton is a corporate attorney at Cook, Little, Rosenblatt & Manson. She advises entrepreneurial clients on a variety of business matters, including mergers and acquisitions, equity and debt offerings, trademarks, and corporate governance.
Matthew Benson is a partner at Cook, Little, Rosenblatt & Manson, where he advises business clients on a variety of issues and represents entrepreneurs of all types and at all stages of their businesses, from start-up to exit.