Forming an LLC in New Mexico can be a daunting task. There are many steps to take and many considerations that need to be made before you're ready to start your new business venture.
Although there are many good sides to forming an LLC in New Mexico, there are also some downsides you should consider before you make your decision.
If you're thinking about how to start a New Mexico LLC, then this blog post is for you. We'll go over how LLCs work and how they differ from other types of businesses.
New Mexico LLC Formation
Before your entity can be legally recognized as a separate business, there are several steps you need to take. All of them are equally important because they ensure that your LLC will stay compliant with the state.
Omitting or doing any of these steps wrong can lead to costly mistakes, so you must seek professional help if this is the first time you are setting up an LLC in New Mexico.
Step 1: Pick a Suitable LLC Name
A limited liability company in New Mexico is required to have a name that complies with the New Mexico LLC naming requirements.
The first step in forming a New Mexico limited liability company is coming up with a suitable name that follows all of the naming rules and guidelines.
The good news is that you don't need to come up with something fancy or unique, but it should be memorable enough so that people can find your business.
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 name when searching for an available name.
Some tips for choosing an LLC name:
- The name should be unique and not in use by any other entity registered in New Mexico
- 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
- It must contain words limited liability company or its variation, LLC
- You can include a designator at the end of your company's name (such as LLC or Ltd.), but it is not required
- The business name cannot contain any restricted words, such as a bank, insurance, attorney, or any other words that are associated with a government agency (FBI, IRS, Department, etc.)
Suppose you want to reserve the desired business name for your LLC. In that case, you must 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
Step 2: Appoint a New Mexico Registered Agent
Every New Mexico LLC has to appoint a registered agent service.
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 normal 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 the 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.
Step 3: Write the LLC operating agreement
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.
Step 4: File LLC Articles of Organization
New Mexico LLC Articles of Organization are a document filed with the New Mexico Secretary of State to create an LLC.
The document includes important information about your LLC, such as its name, registered agents, and the owner(s).
New Mexico Articles of Organization are not complex, but they are as important as the operating agreement.
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
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 to start an LLC in New Mexico.
Step 5: Obtain an EIN
Business entities in New Mexico are required to obtain an EIN.
An employer identification number (federal employer identification number or federal tax 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.
Step 6: Open a Business Bank Account
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 you will not use to cover personal expenses.
The first person named in the Articles of Organization should apply for an EIN and open one 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.
Step 7: Get 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:
- 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 traditional LLCs might not need.
New Mexico's Regulation & Licensing Department handles state-level licenses, so make sure to check with them.
New Mexico LLC Taxes
By default, 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.
New Mexico taxation is also favorable for businesses with income below a certain threshold. The first $50,000 of taxable income is taxed at a rate of only .575%.
This makes New Mexico an attractive place to do business for small companies.
LLC owners file their taxes on personal tax returns, and the LLC itself is not counted as a separate entity for tax purposes.
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).
The Benefits of New Mexico LLCs
A limited company in New Mexico offers pass-through taxation, meaning the company's profits are not taxed at the company level.
The owners of the LLC pass their income through to their personal tax returns and only pay taxes on the income they earn from the business.
This can be a huge benefit for small businesses, as it keeps costs down.
Another advantage of New Mexico LLCs is that the owners have limited liability protection against business debts.
If business debts occur, a creditor can only go after an owner's personal property if they are personally liable for creating or maintaining the debt in question.
In addition to these advantages, New Mexico also has very favorable small company taxes (as low as $500 annually).
In summary, New Mexico LLCs have many benefits: they provide pass-through taxation and limited liability protection.
They keep costs down by providing an inexpensive way to set up a business entity in the state of NM.
As well as these specific advantages, it should be noted that other states are starting to limit certain benefits of LLCs, so forming a company now may be more advantageous in the long term.
For these reasons, it is important to consult with an attorney before making any decisions about forming a limited liability company.
If you are looking for help setting up your LLC in New Mexico, please contact our office! We would be happy to assist you.
Is There a Franchise Tax in New Mexico?
Unless your LLC elects to be treated as a corporation, you are not obligated to pay a corporate franchise tax. However, corporations and LLCs taxed as corporations are subject to a franchise tax. 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 New Mexico Require an Annual Report for LLC?
No. LLCs are not required to file the New Mexico annual report. However, New Mexico does require LLCs to file franchise tax reports.
How Much Does a Business License Cost in New Mexico?
Local licenses and permits for a business in New Mexico can cost anywhere from nothing to hundreds of dollars. If the business is operating out of any kind of residential building (home-office), then that business structure must have all required local and state licenses and permits.
Keep in mind that some professional LLCs might have to obtain a license for all LLC members (if it has more than one member), so that might pose additional cost.
Is New Mexico LLC Anonymous?
It can be. New Mexico allows business owners to stay anonymous when filing their LLC formation documents. This is the only country that allows this.
To hide your identity as an LLC owner, you can appoint anyone from your registered agents and LLC formation service to your attorney who can file the formation papers for you.
However, if you decide to operate your LLC in public view and not use an anonymous trust or company, then you must list the name of at least one member on the Articles of Organization.
Does LLC in New Mexico Need Business Insurance?
It depends on your field of work. The state doesn't impose this rule on LLCs. However, it is recommended that all LLCs in New Mexico obtain general liability insurance. This type of insurance will protect your business in the event that someone is injured or their property is damaged as a result of your company's actions.
If you are unsure about what type of insurance policy would be best for your LLC, consult with an experienced insurance agent. They can help you find a plan that fits both your budget and your business needs.
Does New Mexico Allow Foreign LLCs?
Yes, New Mexico allows foreign LLCs to register and do business in the state. There is no limit on the number of members a foreign LLC can have, but it must have an agent for service of process in New Mexico.
To register your foreign LLC in New Mexico, you will need to file your registration with the New Mexico Secretary of State and pay a $100 filing fee. Other legal documents that are required for regular LLCs may also apply to foreign entities too.
How Do I Change My Registered Agent in New Mexico?
You can change your agent in New Mexico by filing a Statement of Change of Registered Agent form with the New Mexico SOS.
The Statement of Change of Registered Agent comes with a $20 filing fee, and you can appoint a new individual or business entity to act as your registered agents as many times as you want.
Can I Use Myself as a Registered Agent in New Mexico?
Yes, you can use yourself as your own registered agent in New Mexico. There is no requirement to hire a registered professional agent, and you can save money by using yourself as your registered agents. However, there are some drawbacks to using yourself as your business's registered agents.
First, you will be responsible for receiving legal notices and handling other official communications on behalf of your LLC. That responsibility can be time-consuming and inconvenient.
What Happens if You File LLC Taxes Late in New Mexico?
Late filings of LLC taxes in New Mexico can have serious consequences, including penalty fees ($25 fee per month that the tax return is late (for up to 12 months)) or even dissolution of your LLC.
If you are having trouble paying your LLC taxes because of financial hardship, then be sure to file an extension with the New Mexico Taxation and Revenue Department (TRD).
If you've been looking for a way to jump-start your new business with little hassle, an LLC in New Mexico is the perfect fit.
Learning how to do it yourself can be time-consuming and expensive when you have legal questions or need help filing paperwork.
Starting a new business can be confusing, but you don't have to do it alone.
Hiring ZenBusiness will not only save you time and money in the long run but also help guide your company through its first few years of existence with a clear understanding of what is needed for success.
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