Why should a New Hampshire LLC have an operating agreement?
A New Hampshire LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
New Hampshire’s LLC Statutes cover the groundwork for operating agreements, but they don’t explicitly state you must have an one. However, you will need an operating agreement to maintain your LLC. Here’s why:
1. Your operating agreement proves you own your LLC.
When filing your New Hampshire Certificate of Formation, you don’t have to include the names of any members of your LLC. While this is great for maintaining privacy, it doesn’t help you show proof of ownership. This is where your operating agreement comes into play.
Because your operating agreement includes the names of all members, you can use it to show that you own your business. This is necessary for important tasks like opening a bank account and renting office space—both banks and landlords will ask to see proof of ownership.
2. An operating agreement can help reinforce your limited liability status.
To benefit from limited liability status, business owners must show that their LLC is its own legal entity separate from its members. One way to do this is to open a separate bank account for your LLC. Another way is to create (and follow) an operating agreement.
3. An operating agreement can help head off misunderstandings.
Misunderstandings are probably inevitable in any business. But with an operating agreement to establish agreed-upon rules and procedures for your LLC, you can help prevent minor issues from developing into major problems.
4. An operating agreement can override New Hampshire’s default laws.
If you don’t have an operating agreement, your LLC will automatically be governed by New Hampshire’s LLC statutes. The problem is that those default laws might not fit your company. By writing your own operating agreement, you ensure that you’re able to run your LLC in a way that suits your business.
New Hampshire Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of McDonough v McDonough, where a dispute among the members (who were all brothers) led to litigation where one member sought to force the dissolution of the LLC over the objections of the other two members. To the credit of the one member, the LLC’s Articles of Organization did state a date certain for dissolution. The Supreme Court of New Hampshire, however, pointed to the statutes and the operating agreement as providing options to the LLC members to ignore the termination date listed in the Articles and to continue the LLC’s operations.
“The McDonough case is an excellent example of why it is important to adopt and maintain an operating agreement. Had the members failed to do so, the courts would have likely ordered dissolution of the company over the objections of a majority of the LLC members. For these reasons (and more), a reasonably prudent business owner would (and should) adopt and maintain an operating agreement.”
What is included in a New Hampshire operating agreement?
According to NH Rev Stat § 304-C:40 (2019), an operating agreement can be “written, oral or implied.” But a spoken agreement is flimsy and won’t hold up in court. A written operating agreement is essential, and should include information about:
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
