Know The Law: Forming a Board of Managers for a New Hampshire LLC

Dennis J. Haley, Jr.
Director, Corporate Department
Published: Union Leader
October 1, 2013

Q: Our small family-owned business has operated successfully, and rather informally, as a limited liability company (an “LLC”) for a number of years. Given the growth of the business over the past few years, it has become increasingly difficult to manage the business on our own. We are considering establishing a more formal Board of Managers to oversee the business. The Board of Managers would be made up of a mix of family-member owners, a trusted long-time employee, and an outside business advisor who has particular experience and expertise in a new product line we are developing. If we move forward with forming a Board of Managers, what would their duties be to us as the owners of the Company?”

A. The Managers of an LLC have general responsibility for the management of the Company. In carrying out their responsibilities, Managers are charged with a duty of care to the LLC and to the owners or “Members” of the LLC. This means that the Managers must act in good faith, in a manner believed to be in the best interest of the LLC (rather than in the best interest of the particular Manager), and with a level of care that is reasonable under the circumstances.

Managers of an LLC also owe a duty of loyalty to the LLC and to the Members of the LLC. This means that the Managers must act in a manner reasonably believed to be in the best interest of the LLC. The duty of loyalty specifically includes, among other duties, a duty not to compete against the LLC, a duty not to engage in self-dealing transactions, a duty not to take a business opportunity that properly belongs to the LLC for the Manager’s own personal benefit, a duty to maintain confidential information of the LLC, and a duty to use Company property only for the benefit of the Company and not the Manager’s own benefit.

However, it is important to note that under the New Hampshire Revised Limited Liability Company Act, the Members of an LLC, by written agreement, are permitted to expand, limit, or even eliminate the duties of care and loyalty described above. If you decide to move forward with establishing a Board of managers, I would recommend that you adopt an Operating Agreement tailored to your particular facts and circumstances that clearly defines the rights and responsibilities of the Board of Managers.