Recent Developments in NH Small Business LawsSweeping changes are improving the landscape for entrepreneurs

By Emily Bolton and Matthew Benson

Several recent changes to NewHampshire's laws are creating an im-proved landscape for businesses withinthe state, particularly for entrepreneurs,startups and small businesses. Alongwith being a wonderful place to live thatoffers a high quality of life to its resi-dents, New Hampshire continues its ef-forts to become the ideal place for entre-preneurs to start, launch and grow theirbusinesses.

The modernization of the state'sbusiness laws brings New Hampshire inline with other states that have passedstartup-friendly legislation and will helpensure the prosperity of New Hamp-shire's businesses and economy. Thesechanges are part of an ongoing effortto strengthen the state's entrepreneurialsystem and improve the business land-scape..

In just the past three years, NewHampshire has overhauled its businesscorporation laws, its limited liabilitycompany (LLC) laws, and, most recently,its securities laws, as well as authorizingthe formation of benefit corporations (so-called "B corporations"). These modern-ized laws reflect many of the current best

practices and acknowledge the techno-logical advances that have changed theway we do business.

Below is a run-down of recentchanges to the state's business laws.

Business NamesSelecting a name for a new business

is an important part of the business for-mation process. Besides appealing to thecompany's founder(s), the name may be-

come closely tied to the company's busi-ness and service and product offerings.That said, due to the existing namingstandard, selecting a permissible com-pany name was becoming a difficult taskin some cases.

Under New Hampshire's existing(through the end of 2015) trade namestatute (RSA 349), a trade name couldnot be used if it was likely to be con-fused with or mistaken for the name ofany other entity that was formed or reg-istered to do business in the state. Therules pertaining to the names of corpo-rations, LLCs, partnerships, and otherbusiness entities applied the same stan-dard. This somewhat subjective standardwas making it increasingly difficult fora new business to determine whether itsname would be permitted.

Beginning in January 2016, it willbecome easier for New Hampshire busi-nesses to select and use the name of theirchoosing. Senate Bill 223, which wassigned into law by Governor MaggieHassan in July 2015 and will be codifiedin various sections of state law, includ-ing RSA 349 (tradenames), RSA 293-A(corporations), and RSA 304-C (limited

DEVELOPMENTS continued on page 34

New State Securities Law Overhauls Offering Practices in NHBy Michael Drooff

On July 27, New Hampshire Gov-ernor Maggie Hassan signed into law acomprehensive revision to New Hamp-shire's securities laws, which will takeeffect Jan. 1, 2016.

The new securities law repeals andreplaces the current securities law, RSA421-B, in its entirety and is based onthe 2002 Uniform Securities Act (2002RUSA) developed by the Uniform LawCommission. The new law brings NewHampshire generally into line with 18other jurisdictions in the US, includingMaine and Vermont, which have adopt-ed versions of 2002 RUSA. Althoughthe New Hampshire version of 2002RUSA contains a large number of vari-ances from the 2002 RUSA prototype,it promises to substantially change of-fering practices in New Hampshire andfacilitate capital-raising by small- andmedium-sized companies.

Many corporate practitioners believethat the current securities statute, whichis based on the 1956 Uniform SecuritiesAct, is seriously deficient. The structureof the statute is outdated, and variousprovisions were retrofitted into the stat-ute over the years following the growthin offering activity under federal Regula-tion D under the Securities Act of 1933,the federal preemption of state offeringrestrictions introduced with the National

Securities Markets Improvements Act of1996 (NSMIA), and many other innova-tions in the securities markets.

In perhaps the most important pro-visions of the exist-ing state law, theexemptions from thegeneral requirementto register the offerand sale of securi-ties, the current lawis arguably dysfunc-tional. The currentset of exemptionsinclude a pre-incor-poration subscrip-tions exemption,RSA 421-B:17,II,(k),which does notcover most found-ers' stock issuancesand an isolated salesexemption, RSA421-B:17,II(a)(2),which is far too limited to

Improvement Act (NSMIA) preemptionallowed corporate practitioners to bypassthe state statute by conducting offeringsunder federal Rule 506, for which a pre-

emption applies un-der Section 18(b)(4)(D) of the SecuritiesAct.

"Over time, it is likely

that many early-stagecompanies will learnto take advantage ofthe liberalized stateexemption rules andrely on the federalpreemption less thanthey currently do."

be of use todynamic early-stage companies. The cur-rent statute is widely perceived by out-of-state lawyers and influential invest-ment managers who provide capital toearly-stage companies as being odd anda significant deterrent to capital forma-tion in the Granite State.

One factor that delayed the repeal ofthe current statute was the way in whichthe federal National Securities Markets

Under theNSMIA preemptionrules, a company isnot required to securea state registrationexemption as longas the offering com-plies with the Rule506 requirementsand a preemptionclaim and short-formissuer-dealer licenseapplication is filedwith the Bureau ofSecurities Regulationwithin 15 days after

the first sale of securities in the offering.One significant disadvantage to claim-ing the federal preemption is that the re-quired filing fees in New Hampshire aregreater than $600, not including renewalfees.

To remedy the negative perceptionof New Hampshire's securities laws, thegovernor's Live Free and Start AdvisoryCouncil formed a committee of state offi-cials, private practitioners and academics

to adapt 2002 RUSA to New Hampshirepractice and prepare a bill for the legisla-ture.

Following several months of draftingwork, the bill was introduced in the Sen-ate as SB 266 in February 2015, where itreceived broad bipartisan support. Broadsupport for the bill continued through itspassage in the House. The new law goesinto effect on Jan. 1, although offeringscommenced under the current statute willbe required to comply with the currentrules through the duration of the offer-ing.

The new offering rules, and in par-ticular the new registration exemptionsand the revised state licensure require-ments, will significantly change offeringprocedures for early-stage companies inNew Hampshire in several respects:

The current pre-incorporation sub-scriptions exemption will be repealedand effectively replaced with a muchmore user-friendly limited-offeringexemption, which appears in Section202(14) of the new law. An issuerof securities will have the ability tosell securities to up to 25 purchasersas part of the same offering in any12-month period, provided that theoffering does not involve a generalsolicitation of investors, no commis-sions are paid, and the issuer reason-

SECURITIES continued on page 35

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NEW HAMPSHIRE BAR NEWSwww.nhbar.org

I Innovation from page 29

programs that allow discounts on travelor credit on future purchases. Considertalking with your bank or another ven-dor about setting up credit card merchantprocessing services to accept paymentof invoices by credit card. By doing so,you are giving small business clients theability to better manage their cash flow.If your billing system can issue invoiceswith enabled payment features to acceptpayment by EFT or credit card, you mayfind efficiency in your own operations inthe manner of reduced staff time receivingand booking payments. You may also findthat payments come in a lot more quickly.

Streamline the Drafting ProcessNothing inflates legal bills more

quickly than excessive drafting cycles.Whether it is having several attorneyswork on a single document or drafting adocument littered with legalese that cli-ents can't decipher, innovative attorneysneeds to find ways to simplify the draftingprocess so that clients end up with workproduct that they can understand and use.One method is to systematically gothrough your forms library and weed outarchaic, redundant and ambiguous lan-guage and phrases from basic contracts.By having all drafters starting from thesame clean forms, drafting quality ismaintained across a number of draftersand reduces proofreading time of seniorattorneys.

Michael Pignatelli

If maintaining an internal forms li-brary is too labor intensive, consider anonline document assembly subscrip-tion, such as ContractExpress offered byThomson Reuters. By having a computer-generated first draft produced in minutes,drafters can get to the heart of draftingdeal terms more quickly and without riskthat extraneous or inapplicable client ref-erences or deal teams from previous dealsare carried over into new documents.

When you implement some of thesestrategies or others that you devise onyour own, although your startup clientsmay never see the innovation in yourpractice up-close, they will certainly ap-preciate the proactive, budget-friendly so-lutions that you are able to provide.

The result will be that you will havemore than a loyal client. You will have apartner who will give you repeat businessand sing your praises to their friends andassociates for many years to come.

Kristin Mendoza is the principal of Mil-lyard Tech Law, a boutique corporate lawfirm based in Nashua, NH, that works withhigh tech startups and small businesses inNew Hampshire and Massachusetts.

Sheriyn Burnett Young

Securities from page 28

ably believes that the investors arepurchasing for investment purposes. Ifa different offering takes place withinthe same 12-month period, involvingdifferent securities or to raise capitalfor different purposes, the new offer-ing may involve up to 25 additionalpurchasers.

* The current isolated issuer sales ex-emption will also be repealed and willbe effectively replaced with the muchmore user-friendly limited offeringexemption described above.

* Issuances of securities to certain sig-nificant institutional investors will beexempt under Section 202(13).

* Issuers will be able to take advantageof a new extraterritorial exemptionfrom the New Hampshire registrationrequirements under Section 202(20)of the new law, if the offers and salesare solely to out-of-state residents andthe offering complies with the rules ofthe states in which the investors arepresent.

* Issuers will need to make disclosuresto investors of certain "bad acts" byany partner, officer, director or simi-lar person in any offering relying ona New Hampshire registration exemp-tion. This requirement roughly paral-lels the "bad actor" disqualificationcontained in Rule 506(d) in federal-ly-preempted offerings. This new re-quirement will lead issuers to institute

Ken Bartholomew

additional procedures, such as circu-lating questionnaires to company in-siders, as part of offerings relying onstate law.

* The New Hampshire issuer-dealer li-cense requirements will be repealed,in favor of a much more limited reg-istration provision under Section 402of the new law for "agents." The newagent registration provisions will notapply to an offering conducted by theissuer through its officers and direc-tors, as long as the issuer is not payinga commission in connection with theoffering.

Under the new statute, issuers willstill be able to rely on the federal pre-emption for offerings conducted underRule 506, if they are prepared to makethe required preemption claim filing andpay the same filing fees. Over time, it islikely that many early-stage companieswill learn to take advantage of the lib-eralized state exemption rules and relyon the federal preemption less than theycurrently do.

Michael Drooff is a shareholder in Shee-han Phinney Bass + Green, practic-ing in the firm's Manchester office. Hispractice concentrates on private com-pany finance, general securities matters,mergers & acquisitions and investmentmanagement. He served on the Live Freeand Start Advisory Council's draftingcommittee for the new law. He can bereached at (603) 627-8167 or mdrooff@sheehan.com.

Adam Pignatelli

Rath,Young andPignatelli, PC.www.rathlaw.com

Concord (603) 226-2600 Nashua (603) 889-9952Boston (617) 523-8080 Alexandria Russell

NEW HAMPSHIRE BAR NEWS

Michael S. Lewis

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www.nhbar.org DECEMBER 16,2015