There are many choices for the type of legal entity for your business in New Hampshire. There are pluses and minuses to each one, so the right one depends on many things, including your type of business, your desire to limit personal liability, ease of management, tax considerations and your long term plans regarding exit or succession. Below are some basic considerations about sole proprietorships, corporations and limited liability companies (“LLC’s”). Partnerships are not covered in this article.
This form of doing business is the simplest, but it can have the most risk for the sole owner. The owner has personal control over running the business but is also personally responsible for all obligations and liabilities of the business. There are no legal formalities required to start a sole proprietorship, but to protect your trade name, you must register it with the NH Secretary of State.
There are two kinds of corporations: “C” corporations and “S” corporations, referring to subchapters of the Internal Revenue Code. Both are formed by filing Articles of Incorporation with the NH Secretary of State. Both are separate from their owners (the shareholders) and provide them with protection from liability and from responsibility for debts and contracts of the corporation. Management is handled by an elected Board of Directors and Officers. The C corporation pays tax on its income, and the shareholders pay tax on any dividend income received, resulting in two bites by Uncle Sam. The S corporation files an “election” to be taxed under subchapter S of the Internal Revenue Code and becomes exempt from federal income tax, so only the shareholders pay tax on the S corporation’s income, eliminating the double tax bite with a C corporation.
Limited Liability Companies:
These are a hybrid, which combine the corporate and partnership forms of doing business, providing the members of the LLC with both protection from personal liability for the company’s debts and obligations (like a corporation) and flexibility (like a partnership). Members do remain liable for any of their own acts of negligence or crimes, however. LLC’s are created by filing a Certificate of Formation with the NH Secretary of State. LLCs can be as small as one person (“single member LLCs”). The members of the LLC execute an Operating Agreement to govern the management of the LLC. There is a great deal of flexibility with LLC’s to allow the members to run the company as they choose. This flexibility has made LLCs very popular in New Hampshire. The members can choose either to be taxed at the corporate level or, like S corporations and partnerships, have income “passed through” to the members to be taxed to them individually.