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When you launch a new business, having a New Hampshire Operating Agreement can be an essential tool, helping to clarify how your business will be set up and run and providing an invaluable reference for resolving conflicts about the business. And if you need to apply for funding for your New Hampshire limited liability company (LLC), the document becomes an essential way to show potential lenders that you are a serious, well-organized company.

What is a New Hampshire LLC Operating Agreement?

The U.S. Small Business Administration (SBA) points out that an “Operating Agreement is a key document used by LLCs because it outlines the business’ financial and functional decisions including rules, regulations, and provisions.” It is designed to manage the internal operations of the business in a way that is tailored to the specific requirements of the business owners. Once the document is signed by the members (owners) of the LLC, it becomes an official contract that binds them to its terms.

In some states, Operating Agreements are optional, and in others, they are mandatory. While New Hampshire doesn’t legally require new businesses to have one, it’s highly recommended for all LLCs.

A new limited liability act came into effect Jan. 1, 2013, and has some provisions that are mandatory and some that are not. If some of the nonmandatory provisions are not covered by a New Hampshire LLC Operating Agreement, the company defaults to the terms of the act. Local legal firms advise LLCs to “evaluate their Operating Agreements in light of the new act to determine whether they wish to modify or opt out of the act’s default provisions, including the duties of care and loyalty.”

While the timing for when you draft and adopt your New Hampshire LLC Operating Agreement isn’t set, it’s a good idea to have it done before you complete the Certificate of Formation and file it with the New Hampshire Secretary of State. For a $100 fee, you can do this online or by mail. To complete the Certificate of Formation form, you need to know:

• The final name, address, phone number, and email address of your LLC
• The name and address of the company’s registered agent
• Whether the LLC will be manager-managed or member-managed
• The names, titles, and addresses of the managers and/or members

It’s also worth noting that some financial institutions insist that you draft and accept a New Hampshire Operating Agreement before you can open a business bank account.

Why do I need an LLC Operating Agreement in New Hampshire?

While New Hampshire LLCs are not required to have an Operating Agreement, authorities such as the SBA suggest it is a very good idea. Not only does a well-crafted Operating Agreement ensure that your company isn’t solely governed by the default rules of the state’s limited liability company act, but it also helps in other ways. The benefits of creating a New Hampshire Operating Agreement during the LLC formation process include:

• Additional protection of your limited liability status: The LLC structure alone is supposed to establish that the LLC is a business entity legally apart from the members. But if someone takes you to court to try to “pierce the corporate veil” by claiming that you are indistinguishable from your business in order to go after your personal assets (your house, savings, etc.), having an operating agreement in place helps further demonstrate to the courts that you and the LLC are indeed separate entities. 
• Put verbal agreements into writing: A verbal agreement can be misunderstood or improperly remembered. It’s important to have the operational conditions and other business arrangements handled in writing, so they can act as an authoritative reference if any conflict arises.
• Legitimize your business: An Operating Agreement makes it clear to others that your business is legitimate and conducted in a professional manner. For example, most financial institutions will ask to see an Operating Agreement before they will open a business bank account for you. 

Without a strong New Hampshire Operating Agreement, an LLC might run a greater risk of a court overturning their liability protection and holding members responsible for debts, injuries, fraud, or mismanagement issues. 

Your New Hampshire Operating Agreement should be kept confidential and stored with your key business documents, with a copy also filed with your business lawyer.

What do I include in my New Hampshire LLC Operating Agreement?

Every business is as unique as a person or their fingerprint. So, a New Hampshire LLC Operating Agreement must be tailored to the particular needs of a given company. That said, there are provisions that are common to most LLCs, ranging from the company name and the ownership structure to how profits are distributed.

Items you may want to include in your New Hampshire Operating Agreement are:

1. Name of Your New Hampshire LLC

The business name you use in your New Hampshire Operating Agreement should be the same as on your Certificate of Formation, filed with the Secretary of State. Be sure to use the full legal name, including the designator (e.g., LLC).

2. Type of LLC

An LLC may be owned by one individual (a single-member LLC) or by two or more owners (a multi-member LLC). Drafting an Operating Agreement for the former is a simpler process than doing one for a multi-member agreement. 

A multi-member LLC can be organized so that all members are authorized to run the daily operations of the business (member-managed) or so that a manager or management committee is given the responsibility to run the business (manager-managed).

Your Operating Agreement should specify the management structure and how it may be changed.

3. Ownership

Besides giving the full names of the members (owners), you must provide a breakdown of the percentage of each member’s ownership. 

There are different ways to decide what is called “degrees of ownership.” Many businesses decide to allot ownership according to the size of each member’s capital investment. For example, if you put $10,000 worth of your personal money into the business, and your partner contributes $20,000, you would be entitled to one-third ownership as opposed to two-thirds for your partner. Of course, as a single-member LLC, you own 100% of the business.

4. Business Purpose

This statement would talk about the nature of your business. You might also want to include words to the effect of “and for any other lawful business purpose,” in case you want to make changes to the business later.

5. Member and Manager Duties

To run your New Hampshire LLC, you need to spell out the different duties, obligations, and rights of members and managers, who all need to play a well-defined role. What are they allowed to do and not allowed to do to help the business? 

Even members who aren’t involved in the day-to-day operations will have tasks they need to take care of, such as attending regular member meetings and participating in votes.

6. Distributions

Because money can be a big bone of contention in a business, it is important to spell out how profits are distributed among members. Perhaps they will be distributed evenly among all members or according to percentages of capital investment (for example, if you invested 50% of the funds in starting the business, you would in the latter arrangement receive 50% of the profits).

7. Meetings and Voting

You need to work out when member meetings will be held and include any rules governing how, when, and where votes will be taken, how many members must be present for a quorum, and so on. For example, will each member get one vote, or will they be given a number of votes equal to their percentage of interest in the company? Will a majority or a unanimous vote be required? 

An LLC isn’t legally obliged, in the way that corporations are, to hold shareholder or similar meetings. That said, it’s still a good idea to have regular meetings of members and managers to talk about business affairs and possible amendments.

8. Buyout and Buy-Sell Rules

A New Hampshire LLC needs a  process for buying out and/or replacing a member, spelled out in the LLC’s Operating Agreement. What steps need to be followed to bring a new member in? How will roles and ownership be transferred if a member leaves the company? What happens to a leaving member’s ownership percentage? The Operating Agreement will likely need to be modified if these things happen, so it should also have steps about how to make amendments to it.

9. Succession Planning

What happens if a member dies? Who does their interest go to? Sample provisions might include allowing remaining members to buy the interest, passing it to an heir of the deceased (a spouse or child, for example), or giving members the right of first refusal before the interest goes to an heir.

10. Dissolution

If members decide they want to stop operating the business, the LLC must be dissolved. The conditions and procedures for dissolution must be listed here.

11. Single-Member Statute

Single-member LLCs might think that many of the above points don’t apply to them. For example, voting might seem like a nonissue since a single person — i.e., the sole owner — will make all of the decisions for the LLC. 

From a legal standpoint, this still needs to be spelled out in the Operating Agreement. There should be a clause clearly noting that the person is the sole owner, with 100% ownership rights, and that this person has the full authority to act on behalf of the LLC.

Partner With ZenBusiness for Professional Assistance

Because an Operating Agreement can be complex and an important legal document — used for funding or a reference to settle legal disputes — it’s a good idea to consult a business lawyer familiar with New Hampshire laws to ensure that it covers everything it needs to.

You can also turn to ZenBusiness for help, utilizing our Operating Agreement template. It can help you outline the rules and plans that govern your LLC and provide the structure and framework needed to grow your business. Without an Operating Agreement, your LLC will default to the standard rules and guidelines set by New Hampshire. 

ZenBusiness is a trusted partner for business owners who want a solution to the challenges of starting, running, and growing their companies.

Updating and Revising Your New Hampshire LLC Operating Agreement

A New Hampshire Operating Agreement needs to be a dynamic document, changing and evolving as your LLC does. Nothing is written in stone. The Operating Agreement can be amended regularly, following the amendment procedure that you included in it. Members may come and go, financial issues could crop up, your business focus could shift elsewhere, and other changes may need to be addressed. 

These changes need to be reflected in the Operating Agreement, especially in the event of a legal dispute. Also, an up-to-date New Hampshire Operating Agreement will help keep your LLC legally compliant with state and federal business laws.

Keep in mind that some amendments to the Operating Agreement might also have to be reflected in an amendment to your Certificate of Formation filed with the New Hampshire Secretary of State. These could include a change to your company’s name or business address. Form LLC-3 Certificate of Amendment can be filed online or via a mailed-in form for $35.