There are presently about 80,000 active New Hampshire LLCs. About 60,000 of them have only a single member. Of the remaining 20,000 LLCs, about 15,000 have only two members.
My experience suggests that the members of most these two-member LLCs within a few years, like spousal couples, will want a divorce. If you are forming or operating a two-member LLC, what should you and your lawyers know about LLC divorces?
The New Hampshire LLC Act provides in effect that a two-member LLC can be dissolved and liquidated only if (i) the members comply with the dissolution provisions in their operating agreement if they have such an agreement, and if their agreement contains dissolution provisions; (ii) the LLC is dissolved by the New Hampshire Secretary of State or by a court; or (iii) the members of the two-member LLC have no operating agreement that addresses LLC divorces but the members themselves dissolve their LLC by majority vote.
If you are forming a two-member New Hampshire LLC, it’s critically important that, on your own or with the help of an LLC lawyer, you plan, draft and sign write up an operating agreement that will address the possibility that eventually, you will need an LLC divorce.
It is true that the New Hampshire LLC Act permits LLC members to cause their LLC’s dissolution by the New Hampshire Secretary of State by simply not filing their annual New Hampshire registration fees for two straight years.
However, the New Hampshire LLC Act provides that LLCs dissolved by the Secretary of State may not continue their business; rather, they must wind it up and liquidate it. But the members of many two-member LLCs that need an LLC divorce but lack an operating agreement with good divorce provisions will not want the Secretary of State to dissolve their LLC’s business and thus effectively kill its business. Rather, they will want to continue it as a single-member LLC, of which each member will want to be the only member.
Sadly, members of a two-member LLCs who want an LLC divorce but lack a good operating agreement but who want to continue it as a single-member LLCs will have no alternative to achieve the LLC divorce they want unless they jointly sue for a judicial divorce under New Hampshire LLC Act section 134, I(b). In this suit, they must prove that their deadlock is preventing the LLC from operating “to its advantage.”
However, filing and litigating this suit will cost the members thousands of dollars; resolving it may take many months; and the judge who decides it may well order allocations of its assets and operations between the members that will dismay both members.
In short, like divorces between spouses, divorces between the members of a two-member LLC who lack a good operating agreement won’t be fun.