Q. I’m a software engineer. Two colleagues of mine and I are starting a New Hampshire LLC to provide software consulting services. All of us reside in New Hampshire, and all of us will have equal rights and duties as LLC members. One of my colleagues has had his lawyer draft an LLC agreement for our LLC. I’m inclined to review the agreement on my own rather than pay money to have a lawyer review it. Do you agree with this plan? If I make the review myself, what issues should I consider?
A. Whether you yourself should review your LLC agreement or whether, instead, you should hire a lawyer to review it depends on your financial and personal stakes in the LLC deal and your financial wherewithal. A good LLC lawyer will probably charge you a few hundred dollars to review the agreement. If the lawyer tells you the agreement poses significant risks for you, he or she may charge you a few hundred additional dollars to try to get them fixed. If your stakes in the LLC deal are significant and you can afford the above fees, hire a lawyer.
If you want to review the agreement on your own, there are at least two dozen significant issues you should consider. Here are just three of them—all of which are often overlooked:
• What kind of dispute resolution provision does your LLC agreement provide? Mediation? Arbitration? Litigation?
•Is your agreement clear as to all significant financial terms in your deal? For example, what does it provide as to whether the LLC must make cash distributions to cover each member’s taxes on his or her share of LLC profits as they become due? And how about buy-sells?
• Does your agreement cover all relevant fiduciary issues? The two main fiduciary duties are the duties of care and loyalty. The duty of care is ill-defined under the New Hampshire Limited Liability Company Act. Your agreement should provide for a duty of “reasonableness.” The duty of loyalty—also ill-defined under that act—means the members’ duty to put the LLC first and themselves second in LLC matters. Your agreement should impose, at the very least, a general duty of loyalty. But the duty of loyalty has eight important subsidiary duties. Your LLC agreement should probably address all of them.