Are you interested in starting your own business? A limited liability company (LLC) is a popular business format that is easy to create and offers substantial benefits.
What Is an LLC?
When starting a business, one of the first choices you must make is which business structure you will use. There are many types of business structures, and the one that you choose will affect how your business is taxed, how much government regulation you must adhere to, and how protected your personal assets are. Let’s look at the four most popular business structures and the strengths and weaknesses of each.
- Sole proprietorship—A sole proprietorship is the simplest business structure and can be created without filing any legal documents in the state of New Hampshire. In a sole proprietorship, you are the business–it is not a separate legal entity–which means that you as the owner are personally responsible for any business debts. This means that if your business is sued or faces debts that you cannot pay, then your personal assets (such as your personal bank account, your car, or your house) are fair game for those seeking compensation from your business.
- General Partnership—A general partnership is similar to a sole proprietorship except that it is owned by two or more people. Similar to sole proprietorships, general partnerships do not require registration with the state and offer a simple pass-through tax structure. They are also similar to sole proprietorships in that the personal property of the owners is not protected from any business debts, therefore this structure still carries a certain amount of risk.
- Corporation—A corporation structure establishes the business as a separate legal entity from its owner, thereby offering protection of your personal assets. That being said, corporations are more complicated business structures with more government regulation and more involved tax codes. There are a couple different types of corporation structures (c-corps and s-corps) with unique regulations and tax laws for each.
- Limited Liability Company (LLC)—An LLC is the newest form of business structure and is a blend of the best parts of the other three structures. An LLC provides the personal asset protection of a corporation (that’s the “limited liability” part) with the lower regulations and pass-through tax structure of a sole proprietorship or a partnership. LLCs even offer the ability to gift shares and declare distributions, similar to a corporation.
Registering Your LLC in New Hampshire
Though many articles will list anywhere from five to seven steps to forming your LLC in New Hampshire, in reality there is only one step: submitting your Certificate of Formation. The Certificate of Formation is a simple 2-page document that summarizes your business information. The link to the form (found here) also includes instructions on how to fill it out. It may be a simple document, but making sure it is filled out correctly is essential to getting your LLC approved.
Let’s look at the parts of the Certificate of Formation.
The name of your business (which MUST include the letters LLC) must be unique. You cannot use a name that has already been registered in New Hampshire. In deciding on a name, check the state database here to search for available names. And don’t forget to check website addresses and social media accounts. You don’t want to set up your business only to be regularly confused with a similarly named entity.
2. Business Information
The instructions actually state that the Principal Business Information is optional. Further on you will have to supply a name and address of your registered agent (more about that later), so the agent’s contact info will be used if you choose to leave the Principal Business Information blank.
3. The Primary Nature of Your Business
Here the state wants a brief description of what your business plans to do. Things like “website design and internet advertising” or “sale of food products.” You can’t be as broad as saying “any legal activity,” but you also don’t want to paint yourself into a corner. If you say that your business “sells local honey,” but then you want to expand into locally grown fruits and vegetables or homemade baked goods, you may run into some issues.
4. Your Registered Agent
An LLC in New Hampshire requires a “registered agent,” which is simply someone with a New Hampshire street address who will be responsible for any legal correspondence, specifically to be served papers in the event of a lawsuit. Most LLC owners are their own registered agent, but it is possible to hire a company to be your agent for you. You might hire a registered agent if you live in another state or if you prefer for your personal address to not be on public record.
5. LLC Management
The fourth article on the form states that “The management of the limited liability company _____ vested in a manger or managers.” You need to fill in that blank with the words “is” or “is not.” But what does that mean? What it’s really asking is if you are creating a “manger-managed LLC” or a “member-managed LLC.” If this is a large LLC with many owners, some of which are not involved in the day-to-day operations of the company, then it would make more sense to hire a manager to oversee the daily operations. That would be a “manager-managed LLC.” If your LLC is a small business that you are personally running, then a manager is not necessary and you would have what is considered a “member-managed LLC.”
6. Manager/Member Information
The last section to be filled out lists the managers and members names, addresses, and titles. Members are owners in an LLC where managers are non-owners hired to run the daily business.
If you have a hired manager, then that manager must be the one to sign the Certificate of Formation. Otherwise, any owner (“member”) can sign.
8. Don’t forget the check!
Be sure to include a $100 check made out to the State of New Hampshire. The mailing address for the Corporate Division of the NH Department of State is listed on the instruction page as well as the second page of the form.
I’ve Set Up My LLC. Now What?
Congratulations! You’ve officially set up your LLC. What should you do now?
Now that you have a legal business, the next steps are to continue to set up your business structure. Some of those next steps might include:
- Creating an Operating Agreement. While an operating agreement is not required, it’s always a good idea to document your ownership roles and operating procedures. There are many online tools to help you with this, or a business lawyer is also a good resource.
- Obtaining Business Licenses and Permits. Depending on what your business is, you may need state or local licensing or permits to operate legally.
- Getting an Employer Identification Number (EIN). If you have any employees or want to open a bank account for your business, you will need an EIN from the IRS. The link can be found here, and the process is free.
- Opening a Business Bank Account. Opening a business bank account keeps the business finances separate from your own and makes record keeping much easier. Banks have different requirements for opening business accounts, but they typically will need proof of your state-approved LLC and your Employer Identification Number (EIN) from the IRS.
- Purchasing Business Insurance. Even though your personal finances are protected from your business, it is still a good idea to research insurance options. Whether it’s a disgruntled employee or a case of food poisoning after ingesting your product, insurance can be a small price to pay to keep your business alive and protected.
- Filing your annual report. The one requirement of maintaining your LLC in New Hampshire is to file an annual report with the state by April 1st of each year. The annual report can be filed online here and is simply a confirmation of your business information as well as a $100 fee.
The Role of a Business Lawyer in Your Success
Once your new business is up and running, don’t forget the value of having a relationship with a good lawyer. Successful business owners rely on a team of professionals—bankers, trade professionals, legal advisors, and more. Whether it’s a skilled set of eyes to review a contract or an injury lawyer to help with a Workers’ Comp case, we at Ward Law Group, PLLC would love to help you succeed. Give us a call.