Can Your Business Partner Legally Start a Competing Company in New Hampshire?
In New Hampshire, whether your business partner can start a competing company depends heavily on your Operating Agreement and their fiduciary duties under state law. Unless expressly prohibited by contract, a partner who legally withdraws from an LLC might be allowed to compete, as recently confirmed by the New Hampshire Supreme Court.
Understanding Fiduciary Duties in New Hampshire
When you start a business in cities like Manchester, Nashua, or Concord, you expect your partners to work toward the company's success. Under New Hampshire law, business partners in limited liability companies (LLCs) and corporations owe specific fiduciary duties to the business and to one another. The most critical is the duty of loyalty, which generally prohibits a partner from secretly competing with the business or taking opportunities for themselves.
For LLCs, these duties are outlined in the New Hampshire Limited Liability Company Act, specifically N.H. Rev. Stat. Ann. § 304-C:110, which addresses the duty of loyalty. For corporations, the New Hampshire Business Corporation Act, such as N.H. Rev. Stat. Ann. § 293-A:8.30, sets the standards of conduct for directors. However, state law allows LLC members to modify or even eliminate certain fiduciary duties through a written Operating Agreement, as long as they do not eliminate the implied covenant of good faith and fair dealing under N.H. Rev. Stat. Ann. § 304-C:107.
Step-by-Step Process to Handle a Competing Partner in New Hampshire
If you discover that your partner in a New Hampshire business is secretly funneling clients to a side hustle or setting up a competing company in New Hampshire, you must act quickly to protect your company's assets. Whether your company operates in Hillsborough County, Rockingham County, or Merrimack County, the legal framework to enforce your rights remains consistent across the state.
Step 1: Review the Operating Agreement or Bylaws
The first and most critical step is to read your company's governing documents. New Hampshire courts rely heavily on the exact language of these contracts. You need to look for non-compete clauses, non-solicitation clauses, and any language regarding the duty of loyalty. If your agreement explicitly waives the duty of loyalty, your partner might legally be allowed to compete unless they steal trade secrets.
Step 2: Determine if a Fiduciary Duty Was Breached
If the partner has not officially withdrawn from the business, their active competition usually constitutes a breach of the duty of loyalty. In a landmark case, Peregrine Interests LLC v. Todd, 2025 N.H. 54 (NH Supreme Court 2025), the New Hampshire Supreme Court ruled that a member's voluntary withdrawal from an LLC is not inherently a transfer of interest, and simply withdrawing to compete later is not wrongful conduct unless the Operating Agreement specifically prohibits post-withdrawal competition. Timing of the competition is everything.
Step 3: Gather Evidence of Usurping Corporate Opportunities
You must prove that your partner engaged in self-dealing. Collect emails, financial records, and client communications that show the partner diverting business. Under New Hampshire law, usurping a corporate opportunity means the partner took a business prospect that rightfully belonged to your company without offering it to the company first.
Step 4: Seek a Preliminary Injunction
To stop the bleeding immediately, you can file a lawsuit and request a Preliminary Injunction. This requires filing a Form NHJB-2688-Se, New Hampshire, Superior Court, Civil Complaint in a local court, such as the Hillsborough County Superior Court Northern District, Manchester, the Hillsborough County Superior Court Southern District, Nashua, or the Merrimack County Superior Court, Concord. An injunction is a court order demanding the partner immediately cease their competing activities pending a full trial.
Step 5: File a Civil Lawsuit for Damages
Once the injunction is in place, you pursue monetary damages. You can file formal claims for breach of fiduciary duty, breach of contract, and tortious interference with business relations. You may be entitled to recover lost profits and force the partner to disgorge any ill-gotten gains.
How This Affects Common Industries in New Hampshire
Different industries face unique risks when a partner decides to go rogue and compete.
Tech Startups
In software and tech companies, the primary concern is intellectual property theft. A partner leaving to start a competing tech firm often takes proprietary code, algorithms, or a client list. This triggers not only state fiduciary duty claims but potentially violations of the state's trade secret laws.
Construction Contractors
For builders and contractors, competing partners often siphon off active bids, steal skilled labor, or leverage the original company's vendor discounts. Usurping a lucrative construction bid that was intended for the joint company is a classic breach of the duty of loyalty.
Marketing Agencies
Marketing is a relationship-based industry. If a partner leaves an agency to start a competing firm, they almost always try to solicit the top clients. Without an ironclad non-compete and non-solicitation agreement, proving damages relies heavily on showing the partner solicited these clients while still legally attached to your agency.
How Much Does it Cost in New Hampshire?
The financial commitment to litigate a business breakup can be significant. It is important to weigh the legal costs against the potential recovery and the value of stopping the competition.
- Court Filing Fees: Filing a civil complaint in a New Hampshire Superior Court typically costs $325. If you are requesting an expedited hearing for an injunction, there may be additional motion fees.
- Lawyer Fees: Most commercial litigation attorneys in New Hampshire charge between $250 and $600 per hour, depending on their experience. A full trial over a partner dispute can cost anywhere from $20,000 to over $100,000 in legal fees.
- Forensic Experts: If you need a financial expert to calculate lost profits or trace stolen assets, expect to pay an additional $5,000 to $15,000.
How Long Does the Process Take?
Getting a preliminary injunction can happen quickly, often within a few weeks of filing your petition, provided you can prove immediate and irreparable harm. However, fully resolving the lawsuit through a trial in a New Hampshire Superior Court usually takes between 12 and 18 months, depending on the court's docket and the complexity of the evidence.
Need Help Finding a Lawyer?
If you are dealing with a rogue partner who is illegally competing with your business, you do not have to fight this battle alone. You can easily find highly qualified local attorneys in our USA Lawyer Directory to help you secure an injunction and protect your company's future.
Frequently Asked Questions (FAQ)
Can a partner legally compete if we don't have a written operating agreement?
If you do not have a written agreement, default New Hampshire law applies. Under N.H. Rev. Stat. Ann. § 304-C:110, an LLC member generally owes a duty of loyalty and cannot compete with the business while they are still an active member. However, once they legally dissociate, their ability to compete may be less restricted unless trade secrets are involved.
What is usurping a corporate opportunity?
It means a partner discovers a lucrative business deal that falls within the scope of your company's normal operations, but instead of bringing it to the company, they take the deal for their own competing side business.
Are non-compete agreements enforceable against partners in New Hampshire?
Yes, New Hampshire courts generally enforce non-compete agreements between business partners if the terms are reasonable in time, geographic scope, and necessary to protect the legitimate interests of the business.
Can I fire my partner for starting a competing business?
You cannot simply fire a partner who owns equity. You must follow the involuntary dissociation or expulsion procedures outlined in your Operating Agreement, or seek judicial removal under N.H. Rev. Stat. Ann. § 304-C:104 through the court system.
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