How to Start an LLC in New Mexico? (Complete Guide)
Forming an LLC in New Mexico can be made straightforward by following the steps set forth by the state.
Although there are advantages to forming an LLC in New Mexico, there are also some downsides you should consider before you make your decision.
Based on my experience as a business consultant and in collaboration with our panel of experts, our collective effort will provide an in-depth guide on how to form an LLC in New Mexico.
Additionally, these New Mexico professional LLC services are available to help you create an LLC.
Quick Summary:
- Starting an LLC in New Mexico involves a streamlined process following state guidelines, offering advantages like operational flexibility for the business entity.
- Choosing the right type of LLC structure in New Mexico is crucial, as it significantly affects your business's operational dynamics and scalability.
- In New Mexico, small business employees constitute 52.9% of the workforce, highlighting the significant impact of small businesses in the state.
- Personally, the absence of required annual filings and fees in New Mexico makes it an attractive location for entrepreneurs seeking to minimize ongoing administrative burdens.
How To Form an LLC in New Mexico
To initiate an LLC in New Mexico, you have to follow a set sequence of steps.
All of them are equally important because they ensure that your LLC will stay compliant with the state. In New Mexico, as stated in the Small Business Economic Profile, 345,088 small business employees make up 52.9% of New Mexico employees, underscoring the significant contribution of small businesses to the state's workforce [1].
Furthermore, according to the U.S. Chamber of Commerce, there were 33,865 new business applications in 2023, illustrating a growing interest in entrepreneurship and the establishment of LLCs in the region [2].
Each structure has its trade-offs between ease of management, control, and collaborative dynamics. You should align your choice with your business objectives and operational preferences.
1. Choose the Type of Your LLC (Mandatory)
Drawing from my experience as a business consultant, I've observed that the choice of LLC structure in New Mexico significantly impacts the operational dynamics and growth trajectory of a business.
- Single-Member LLC: While appealing for its simplicity, particularly for solo entrepreneurs, it often falls short in terms of scalability. Clients have expressed concerns about the blend of personal and professional liabilities, which can be a significant risk factor.
- Multi-Member LLC: This structure is often chosen for its collaborative approach, enabling pooling of resources and shared expertise. However, I've seen situations where conflicting interests among members led to operational inefficiencies. It's crucial to have clear agreements and roles defined from the outset.
- Manager-Managed LLC: Ideal for investors or members who prefer not to be involved in day-to-day operations. Clients appreciate the professional management aspect, but it can sometimes lead to a disconnect between owners and managers, impacting the overall direction of the business.
- Member-Managed LLC: Particularly favored by small businesses for its direct control mechanism. This structure facilitates quick decision-making, but can be challenging if members lack managerial experience. I often advise clients to invest in management training or consultation to mitigate this drawback.
2. Choose a Name for Your New Mexico LLC (Mandatory)
A limited liability company in New Mexico is required to have a name that complies with the New Mexico LLC naming requirements.
Before you finalize a name, make sure that it is unique and not used by another New Mexico LLC or corporation.
You should also check to see whether there are any similar names registered with other state agencies (such as trademarks).
You can use the New Mexico business search when looking for an available name.
Here are the following naming guidelines, rules, and restrictions that have to be complied with:
- The name should be unique and not be used by any other entity registered in New Mexico.
- It must contain the words limited liability company or its variation, LLC.
- It should be easy to remember and clearly state the nature of your business.
- It should not end with any punctuation, such as dashes or periods.
- The business name cannot contain any restricted words, such as bank, insurance, attorney, or any other words that are associated with a government agency (FBI, IRS, Department, etc.) [3].
If you want to reserve a desired business name for your LLC, complete a form for the Application for Reservation of a Limited Liability Company Name and file it with the New Mexico Secretary of State.
A $20 filing fee for this service will keep your LLC name reserved for the next 120 days.
Read More: Looking Up an LLC in New Mexico
3. Select a Registered Agent (Mandatory)
Every New Mexico LLC has to appoint a registered agent.
This person or company will receive official paperwork and notices from the state on behalf of your LLC. They also handle important documents like the operating agreement.
A reliable registered agent must have a physical address in New Mexico and be available during regular business hours.
New Mexico registered agents must sign a service agreement with your LLC.
This document states that the registered agent agrees to accept legal papers on behalf of your company.
The cost of your registered agent service will vary depending on the company that you choose.
The annual cost usually starts around $40 but can go up to $200 or more. Ask your registered agent service about any additional fees they may charge, such as preparing and filing an LLC annual report.
Remember, it's important to keep your contact information updated with the state of New Mexico. If you ever change your registered agent service, be sure to let the state know.
4. File Articles of Organization (Mandatory)
The New Mexico LLC Articles of Organization are a document filed with the New Mexico Secretary of State to create an LLC.
They contain key information about your company that other businesses and the state will use to contact you and verify your company's existence.
Make sure to include the following information in your Articles of Organization:
- The name of your LLC
- The registered agents for your LLC
- The address of the principal office for your LLC
- The name and address of each owner of the LLC
- Purpose and nature of the business
- Other information that may be required by the state
You must also submit a signed Designated Initial Registered Agent Statement of Acceptance of Appointment when submitting your document.
Articles are filed online through the New Mexico Secretary of State website, accompanied by a $50 filing fee. See our article for more information on the cost of starting an LLC in New Mexico.
Steps to Take After Forming an LLC in New Mexico
Based on my professional journey in assisting a variety of businesses, I understand that the steps taken after forming an LLC in New Mexico are pivotal for ensuring the company's smooth operation and adherence to legal standards.
Here are the essential steps to take after forming an LLC:
5. Create a New Mexico LLC Operating Agreement (Optional but Recommended)
The New Mexico LLC operating agreement is a short document that contains the terms of the management and operation of an LLC.
The document is prepared by a single member or all members (if there are multiple members), through which they regulate certain issues like:
- Appointment/Removal of managers
- Dividends and profits
- Voting rights
- Resolving disputes among members
Operating agreements are not filed with the New Mexico Secretary of State, but they should be kept in the company's records.
All New Mexico LLCs should have an operating agreement, even if there is only one member.
If you don't have an operating agreement, the default rules will apply, and you might lose your rights as an LLC member.
The New Mexico Secretary of State provides a sample of operating agreements on their website that can be used by single-member LLCs or multiple-member LLCs with equal voting interests.
If there are more than two members in an operating agreement, consider hiring legal counsel to help draft the document.
6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)
An employer identification number is a unique number that is assigned by the Internal Revenue Service (IRS) to identify a business entity.
EIN is necessary for every business entity that wants to hire employees or open a bank account.
This number will also be used to pay state income taxes or all other taxes owed to the federal government.
There are a few ways to obtain an EIN: online, by fax, or by mail. For more information on how to apply for an EIN, visit the IRS website.
7. Open an LLC Bank Account (Optional, but Recommended)
LLCs offer excellent personal liability protection. However, it is important to keep the LLC owners' personal assets separate from the LLC's assets.
To ensure that your assets are protected, open a separate bank account for the LLC and get a separate business credit card that you will not use to cover personal expenses.
The first person named in the Articles of Organization should apply for an EIN and open a business checking and savings account with this number.
By keeping your personal and business accounts separate, you will lower the chances of LLCs piercing the corporate veil and losing your personal assets in the event of a lawsuit.
8. Obtain Business Licenses and Permits
Business licenses and permits are required for many types of businesses. You will need to contact your local government office to find out what licenses and permits you need.
Some common licenses and permits include the following:
- General business license
- Tax Permit
- Health department permit (if you're selling food or beverages)
- Fire department permit (for restaurants, bars, and other businesses with fire hazards)
- Zoning permit (if your business is in a restricted area)
- Seller's permit (required for businesses that sell taxable items)
If you are starting a professional limited liability company in New Mexico, you will need special business licenses that traditional LLCs might not need.
New Mexico's Regulation & Licensing Department handles state-level licenses, so make sure to check with them.
9. New Mexico Compliance Notice Requirement (Mandatory)
LLCs in New Mexico are required to maintain updated records of compliance with state-specific regulations. This includes maintaining accurate records of business transactions, licenses, and other legal obligations pertinent to your specific business activities.
Adherence to these regulations is crucial for the legal operation of your LLC in New Mexico. Regularly reviewing and updating these compliance documents ensures that your business remains in good standing with the state authorities.
10. Choosing Your Tax Structure
By default, a single-member New Mexico LLC is treated as a sole proprietorship for tax purposes, while multi-member LLCs are treated as partnerships.
This business structure offers additional flexibility, so LLCs in New Mexico can choose whether they want to be taxed as an S or C corporation.
Each tax election has its benefits and drawbacks, so it's important to consult with an accountant or tax advisor before making a decision.
This makes New Mexico an attractive place to do business for small companies.
LLC owners in New Mexico file their taxes on personal tax returns, and the LLC itself is not counted as a separate entity for tax purposes.
The significant rise in new business applications by 20.4% in December 2023 compared to the previous year signals a thriving entrepreneurial environment and the potential for further economic growth.
The New Mexico Taxation & Revenue Department handles Gross Receipts Tax (a tax on business income and taxable goods) and Employer Taxes (a tax on employee wages and benefits).
Benefits and Drawbacks of an LLC
Benefits:
- Favorable Tax Environment: New Mexico offers a relatively low tax burden for LLCs. The absence of a state-level income tax on LLC profits, as profits pass through to individual members' tax returns, is a notable advantage. This can be particularly beneficial for small to medium-sized businesses.
- Asset Protection: LLCs in New Mexico provide robust personal liability protection for their members. This means personal assets are typically safe from business debts and lawsuits.
- Simplified Compliance and Flexibility: The state has relatively straightforward requirements for forming and maintaining an LLC, making it an appealing choice for entrepreneurs who seek less bureaucratic complexity.
- Confidentiality: New Mexico allows LLCs to maintain a high degree of privacy. The state does not require the public disclosure of members or managers, which is a unique benefit compared to many other states.
"After finalizing the initial documentation for your LLC formation in New Mexico, you are not required to submit annual filings or pay maintenance fees, a contrast to the requirements in numerous other states."-Jon Morgan, Co-Editor & Co-Founder of Venture Smarter
Drawbacks:
- Limited Growth Potential: For some businesses, the LLC structure might limit growth potential and access to certain types of funding, as investors often prefer corporations over LLCs.
- Out-of-State Recognition: While New Mexico LLCs are well-protected within the state, the level of asset protection may not be as strong when dealing with out-of-state legal matters.
- Franchise Tax: While New Mexico's overall tax environment is favorable, LLCs are subject to a franchise tax. This is a consideration businesses must factor into their financial planning.
- Renewal Requirements: Though not unique to New Mexico, LLCs must ensure they meet renewal requirements and fees to maintain good standing, which can be overlooked by business owners new to LLC management.
Related Articles:
- How to Close an LLC in New Mexico
- Premium LLC Formation Services in New Mexico
- How Long Does It Take to Form an LLC in New Mexico
DIY vs. Professional LLC Formation
DIY LLC Formation:
Benefits:
- Cost-Effective: DIY formation is often less expensive as it avoids professional service fees.
- Direct Control: Handling the process yourself provides direct oversight and a deeper understanding of your business’s legal framework.
Challenges:
- Time-Consuming: The process can be time-intensive, requiring detailed research and an understanding of state-specific regulations.
- Potential for Errors: Without professional guidance, there's a higher risk of mistakes in paperwork or missing critical legal requirements.
Professional LLC Formation:
Benefits:
- Expertise and Reliability: Professional services bring expertise, ensuring that all legal requirements are met accurately.
- Time-Saving: Outsourcing this task frees up time for entrepreneurs to focus on other aspects of their business.
Challenges:
- Cost: Professional services can be a significant investment, particularly for small startups operating on a tight budget.
- Less Hands-On Involvement: Entrepreneurs may have less involvement and understanding of the intricacies of their business’s legal structure.
The choice between DIY and professional LLC formation depends on various factors, including budget, time constraints, and the entrepreneur's comfort level with legal processes.
While the DIY route offers a more hands-on approach and cost savings, professional services provide peace of mind through expert handling of legal formalities.
FAQs
Does New Mexico LLC Have a Franchise Tax?
Yes, New Mexico LLC has a franchise tax if the business entity is taxed as a corporation. The amount of the franchise tax is based on net income and ranges from $50 to $500 per year. There is also a minimum annual franchise tax payment of $50.
Does LLC in New Mexico Need Business Insurance?
An LLC in New Mexico needs to obtain general liability business insurance to protect the company from litigation that may arise. If you are unsure about what type of insurance policy would be best for your LLC, consult with an insurance agent to find a policy that fits your budget and business needs.
Does New Mexico Allow Foreign LLCs?
New Mexico allows foreign LLCs to register and do business in the state. File the required documents with the New Mexico Secretary of State and pay the corresponding $100 filing fee.
References:
- https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-NM.pdf
- https://www.uschamber.com/small-business/new-business-applications-a-state-by-state-view?state=nm
- https://www.wolterskluwer.com/en/solutions/bizfilings/state-guides/new-mexico-llc-requirements
