What Is An LLC Operating Agreement?
An LLC Operating Agreement is a legal contract among the owners, or members, of an LLC. It outlines the business’s operation and governance. As such, it clarifies member roles and expresses the ownership structure. You can also use it to establish procedures for resolving disputes.
Does NH require all LLCs to have an Operating Agreement?
New Hampshire state law doesn’t require an Operating Agreement for LLCs. Nonetheless, we highly advise your business to have one for smooth operations. Having a well-drafted Operating Agreement in place lets you prevent disputes among members. It also helps you protect the LLC’s limited liability status. Ultimately, it helps you control your business’s future.
What Are The Advantages Of An Operating Agreement In New Hampshire?
An Operating Agreement in New Hampshire offers several advantages:
Clear definition of roles
The agreement clarifies the roles, responsibilities, and power of all members in an LLC. When members know their exact duties and authorities, it eliminates confusion and helps the LLC function smoothly.
For instance, you may specify who has the authority to make major decisions, such as purchasing property and hiring or firing key staff. They will also be the ones who can enter into significant contracts on the company’s behalf. This clarity reduces potential disagreements over role boundaries and responsibilities.
Prevents internal conflicts
In your Operating Agreement, you can set out clear policies for dispute resolution. While disagreements are inevitable, especially with multiple members, having a predetermined resolution process can prevent minor issues from escalating into major conflicts.
For example, the agreement might specify how members will vote on issues and what constitutes a majority. You can include mediation, arbitration, or even litigation provisions if necessary. With these conflict resolution procedures defined, handling disputes professionally and promptly will be easier.
This advance planning can keep business operations running smoothly during periods of disagreement, ensuring that the business’s long-term stability and success are not jeopardized.
Protects limited liability status
Having an Operating Agreement emphasizes the separation between the LLC and its members’ personal affairs. This distinction is crucial in maintaining the LLC’s limited liability status, which protects members from personal liability for the business’s debts and obligations. Without an Operating Agreement, the legal protection offered by the LLC structure can become vulnerable.
Let’s say there’s a lawsuit or bankruptcy situation. The Operating Agreement can help ensure that members’ personal assets are not used to satisfy the LLC’s debts. This helps maintain members’ confidence and willingness to invest in the LLC.
Flexibility in management and operations
One of the main advantages of an Operating Agreement is the flexibility it offers in management and operational procedures. Unlike corporations, LLCs are not bound by strict laws regarding their structure and management. This allows members to define their own rules and procedures for decision-making, financial management, and other key aspects of business operations.
The Operating Agreement can outline how profits and losses are distributed among members. Also, it may stipulate the procedure for adding or removing members.
The agreement can even spell out circumstances that may lead to the dissolution of the LLC. This flexibility allows the LLC to adapt its operations to its members’ unique needs and goals.
Control over the business’s future
Lastly, an Operating Agreement empowers an LLC’s members with the ability to control the future direction of the business. It can specify conditions under which the business can be sold or transferred. It also can outline a succession plan in the event that a member leaves or passes away.
This control can be crucial in an LLC with several owners, as it can help avoid a potential deadlock in decision-making. It also provides a roadmap for continuity, ensuring the LLC can continue doing business even in times of unexpected changes.
Create a customized operating
What Are The Limitations Of An Operating Agreement In New Hampshire?
Although an Operating Agreement provides many benefits, there are also certain limitations that you should be aware of:
Might not cover all scenarios
No matter how comprehensive your Operating Agreement is, it’s nearly impossible to anticipate all potential business situations or conflicts. The agreement may not provide guidance or solutions for every possible dispute or situation that may arise. In such cases, members would need to negotiate a solution or seek legal counsel.
Demands time and effort
Creating an Operating Agreement demands time and commitment from all members. It involves thoughtful discussion and negotiation about the structure and operations of the business.
It takes time to draft, review, and revise the agreement to ensure it reflects the interests of all members and aligns with the business goals. And while this process can foster greater understanding and consensus among members, it could potentially delay the start of business operations if not managed efficiently.
Requires regular updates
An Operating Agreement is not a static document. As your business grows and evolves, so too should the agreement. It requires regular reviews and updates to ensure it stays relevant and effective. This means additional time and effort, but ensuring that the agreement remains an effective tool for managing your business is crucial.
What Should You Include In An NH LLC Operating Agreement?
When drafting an Operating Agreement for your New Hampshire LLC, you should be keen to include several key provisions:
This includes information about the structure of your company such as the name and purpose of your LLC, its principal place of business, and its duration.
Member contributions and ownership interest
Define what each member will contribute towards the LLC, whether it be cash, property, services, or a promise to contribute such things. Additionally, specify each member’s ownership percentage in the LLC.
Management and voting
Detail how your LLC will be managed, whether it will be managed by members or managers and how voting decisions will be made. This could include details about how often meetings will be held and what constitutes a quorum for decision-making.
Describe how profits and losses will be distributed among members. This does not necessarily have to be in proportion to ownership interest.
Establish procedures for adding or removing members, selling membership interests, or handling the death or disability of a member.
How To Form An Operating Agreement
Forming an operating agreement for your New Hampshire LLC involves several steps:
Hold a member meeting
The first step in the creation of an Operating Agreement is holding a meeting with all the members of your LLC. This meeting is an opportunity for you and your partners to discuss and agree on the key issues that will be included in the Operating Agreement.
Discuss and decide on critical elements
During the meeting, discuss and decide on the critical elements that will be included in the Operating Agreement, such as company structure, member contributions, management and voting procedures, distributions, and procedures for membership changes.
Draft the Operating Agreement
Once you have decided on the provisions, it’s time to draft the Operating Agreement. Templates are available online, but it is advisable to consult with an attorney to ensure the agreement aligns with New Hampshire law and suits your specific needs.
Review and revise the Operating Agreement
After the initial draft, review the document and make necessary revisions. All members should be involved in this process to ensure that their interests and concerns are addressed.
Sign and store the Operating Agreement
Lastly, all members should sign the Operating Agreement. While not required, it’s a good idea to have it notarized. Store the document in a safe place and consider giving copies to all members for their records.
Why is an operating agreement needed?
Enforceable in Court
The terms outlined in a written LLC operating agreement is usually enforceable in a court of Law.
Opening Bank account
Certain financial institutions require you to produce an operating agreement to verify whether you have “signing power” for the LLC.
If the terms of compensation, roles, and responsibilities are mentioned in the operating agreement, it avoids disputes among LLC members in the future.
Preserve limited liability status
Especially if you are a single-member LLC, having an operating agreement helps ensure your liability status is upheld in court.
Create a customized operating
How Much Is A New Hampshire LLC Operating Agreement?
If you decide to create the Operating Agreement yourself using online resources, the cost may be relatively low or even free, aside from any printing or notary fees. However, if you choose to hire an attorney to draft your Operating Agreement, the costs could range from $500 to $2,000. It largely depends on your LLC structure and the specific terms you wish to include in the agreement.
Frequently asked questions
Yes, you can draft your own Operating Agreement. However, consulting with an attorney is advisable to ensure that it aligns with your state’s laws and suits your business needs.
Without an Operating Agreement, your LLC is governed by the default rules set by New Hampshire state law. This means you may not have the flexibility to structure your LLC to align with your business goals and interests.
Yes, the Operating Agreement is legally binding for all members of the LLC. It establishes the members’ rights, powers, duties, and obligations.