New Hampshire Governor John Lynch signed into law a comprehensive revision to New Hampshire’s limited liability company statute on June 18, 2012. The new act, the New Hampshire Revised Limited Liability Company Act, will be effective January 1, 2013 for LLCs formed thereafter. It will not be effective until January 1, 2014 for LLCs formed under the current statute, although they can elect to be covered by the new act beginning January 1, 2013. The current statute is here.
One of the new act’s major changes is the shift away from requiring an LLC agreement to be in writing, and to now allow LLC agreements to be oral or implied as well as written. The significance of this is that the current LLC act provides a framework of LLC default provisions that can only be modified by a written LLC agreement.
The current act defines a limited liability company agreement as “a written agreement of the members or a document adopted by the sole member as to the affairs of a limited liability company and the conduct of its business.” N.H. Rev. Stat. § 304-C:1(VI).The new act uses the term “operating agreement,” and provides that it may be “written, oral, or implied by course of dealing or otherwise.” § 304-C:40. The new act thus allows the members’ oral agreement to override the statute’s default rules in almost all cases.
Allowing oral operating agreements provides more flexibility for the many organizers of LLCs that desire to avoid the expense of hiring a lawyer to prepare a written agreement. The downside is that if there is a dispute it may be more difficult to prove the terms of an oral agreement, which is why lawyers usually recommend putting the agreement in writing.
Another major change is that the new act comprehensively defines the members’ and managers’ fiduciary duties of loyalty and care. § 304-C:106. The current act, in contrast, has no fiduciary duty provisions. The new act’s description of members’ and managers’ fiduciary duties brings clarity to this important issue and is a big improvement.
The new act was drafted by an ad hoc committee of the New Hampshire Business and Industry Association that was chaired by John Cunningham. John is the co-author, with Vernon Proctor, of Drafting Delaware LLC Agreements, a treatise I have used frequently in creating Delaware LLCs. I note that the third edition is now available. John M. Cunningham, Drafting Limited Liability Company Operating Agreements (3d ed. 2012).
John has authored a June 30, 2012 article in the Union Leader on the practical significance of the new LLC act, here, and indicates that it is the first in a series on the practical significance of the new act. Stay tuned to the Union Leader for his subsequent articles. He has also written a more detailed article on the new act for the New Hampshire Business Review, here.