Why Form an LLC in New Mexico?
Forming your business as a Limited Liability Company (LLC) in the United States wreaths it with many benefits that the status of a conventional corporation, sole proprietorship and partnership cannot individually offer as an LLC possesses a unique hybrid make-up that merges the defining features of these traditional business structures with one another.
To illustrate, an LLC offers the flexibility of sole proprietorships and partnerships as it is free from most of the formalities and paperwork necessitated with corporations, and yet it also provides the limited liability inherent to a corporation, offering liability protection to you and your personal assets if you are faced with a lawsuit. Its hybrid structure also crucially bestows upon you your taxation of choice.
Anyone can form an LLC in the United States – even foreign citizens and companies. However, the requirements for LLC formation varies slightly from state to state.
In this article, we will be looking at how to set up an LLC in the state of New Mexico. Business is booming with over 9,000 LLCs being formed every year. Its low labor cost has paved the way for many innovations to come into fruition, in fact, the state is considered by the US Chambers of Commerce to be the 7th best nationally for entrepreneurship.
The process of starting an LLC in New Mexico is significantly easier when compared to most states as lesser requirements are demanded and lesser restrictions are imposed.
How to start an LLC in New Mexico
STEP 1: Name of the LLC
First and foremost, you must name your New Mexico LLC in your formation documents. You would have to pick a unique name for your LLC that complies with New Mexico’s naming requirements:
- The name must contain either the words “Limited Liability Company” or “Limited Company” or one of their abbreviations, “LLC”, “L.L.C.”, “LC” or “L.C.” respectively.
- The name cannot insinuate that it is a business entity other than an LLC.
- The name cannot contain words that may associate the LLC with a government agency.
- The name cannot contain prohibited words, if it contains restricted words it would need to go through additional paperwork and it may necessitate a licensed person whose profession respectively correlates to those restricted words being a part of the LLC.
- The name must be unique, distinguishable from the names of pre-existing business entities in New Mexico. Variations of designators, punctuations and grammar do not amount to distinguishability. According to New Mexico’s examiners, the distinguishing factor must be the very constituent of the name.
In order to determine if the exact name you have envisioned is available, you may browse through the business name database on the New Mexico Secretary of State’s website.
You may reserve the name you have envisioned for 120 days by filing a Reservation of Limited Liability Company Name with the New Mexico Secretary of State. The reservation could only be filed through mailing to its office. The filing fee would be $20.
You should also check if your LLC’s name is available as a web domain name. You may preemptively buy the URL in order to ensure that the web domain name matches your LLC’s name.
Though you are not required to register a “Trade Name” or more specifically a “DBA” for New Mexico LLC, you may want to do so if you intend on operating under a name other than your LLC’s filed legal name in the Articles of Organization. Luckily for you, New Mexico is one of the few states that do not impose filing requirements when it comes to using a “DBA”.
STEP 2: Appointment of Registered Agent
You are required by New Mexico’s state laws to nominate a designated Registered Agent for your New Mexico LLC while filling out your formation documents.
A Registered Agent is a business entity or an individual that acts as the LLC’s point of contact with the state, being responsible for receiving on the behalf of the LLC any tax forms, notices from the New Mexico Secretary of State and even legal documents from lawsuits. The Registered Agent also keeps the business afloat by ensuring that the proper paperwork is updated and correct.
One of the requirements of being a Registered Agent in New Mexico is that the agent must either be a resident of New Mexico or a corporation present within the state with authorised Commercial Registered Agent services. The agent must have a physical street address within New Mexico, the state where the business of the LLC is to be conducted and where the documents are to be sent. Additionally, the agent must always be available during business hours to receive a Service of Process when necessary.
Anyone within the LLC who is over the age of 18 and has a physical address could suffice, even friends and family who satisfies all the above could also suffice. You could also appoint yourself as the Registered Agent if need be, as the business owner you are not barred from having a dual position.
Nevertheless, though it will cost you some additional expenses, it is suggested that you hire a professional Registered Agent service as it greatly cuts down the risks of mistakes that a mere amateurish individual would make, therefore avoiding the accumulation of even more expenses over time. This suggestion is especially relevant if you yourself or your acquaintances do not have a physical address within the state.
The service provides you with the luxury of privacy whereby the service’s address will be listed in public records instead of yours, moreover, if you do get into a lawsuit, the service will immediately and discretely inform you, allowing you to avoid being served those documents in public. It will also shoulder the burden of being up to date with the necessary legal documents and free up your schedule as it is no longer a necessity to be on-site at all business hours.
You may nominate your initial Registered Agent via the New Mexico Secretary of State website while you are filing your formation documents or by mailing a physical copy of the Articles Organization with your Registered Agent’s information filled up in Article 3 of the paper to the New Mexico Secretary of State office address.
It is also possible to change your nominated Registered Agent, simply do so virtually through the New Mexico Secretary of State website or by mailing in a physical copy of a Statement of Change of Registered Agent form to the New Mexico Secretary of State office. The filing fee shall be $20 for either route.
Registered Agent services in New Mexico includes:
- Northwest registered agent
- High Desert Corporate Filings LLC
STEP 3: Filing the formation documents
Unlike most states, an option LLC formation through mail is not offered in New Mexico ever since 2019. Nevertheless, the option they have kept is certainly the more convenient one. An LLC in New Mexico could be set up through an online filing of the Articles of Organization to the New Mexico Secretary of State website. Do keep in mind that you would first need to make an account with the Secretary of State website, specifically through the Corporate and Business Services page.
The online filing must include these necessary details of the LLC:
- Business Purpose;
- Intended duration of the LLC’s existence;
- Formation Date;
- Organizer’s Name;
- Organizer’s Address;
- Registered Agent’s Name;
- Registered Agent’s Address,
- Email Address;
- Phone Number; and
- Management Structure
The filing fee for the LLC Articles of Organization shall be $50, a one-time fee.
Before you submit the document, do ensure that you have reviewed it thoroughly to affirm that there are no mistakes made, these mistakes could carry on and even affect the business if they are as glaring as a misspelling of the LLC’s name.
Once the formation document is submitted and approved, usually within 1 to 3 days, you would receive the stamped and approved Articles of Organization and Certificate of Organization alongside an Acceptance Letter.
STEP 4: Register the Business for Tax and Regulatory Requirements
Once you have formed your New Mexico LLC, you may have to apply for business licenses or permits depending on the trade and location your LLC is in. Practically all New Mexican businesses would have to first register with the state’s Taxation and Revenue Department in order to obtain the privilege of operating in New Mexico.
The more specific licenses that may be relevant to your New Mexico LLC could range from a Building Permit to a Liquor License. These licenses are provided at a local level, through specific county offices. In order to ascertain the exact licenses you may be mandated to possess you could contact your county office and make an inquiry whereby they would direct you accordingly.
With an idea of what licenses your LLC should possess, you may now search them up on NMRLD’s page for information on the laws pertaining to them and more detailed instructions on how to procure them, it would take you to the specific agency in charge of the exact license you want.
Your LLC in New Mexico may also be necessitated to register for one or more forms of state tax depending on the trade your LLC is in and how the business is conducted. You may find and apply for the necessary tax forms through the New Mexico Department of Taxation and Revenue’s website.
STEP 5: Prepare an Operating Agreement
Albeit of the fact that having an Operating Agreement is not compulsory within the state of New Mexico in order for an LLC to function, it still highly suggested that you prepare one for your business as it plays a vital part in determining the dynamics within the LLC and how it is run.
An Operating Agreement is a foundational legal document that establishes who owns the LLC, how much of it they own and member terms. It is a comprehensive internal document that also serves as the core of the business by listing out a multitude of crucial information in order to reduce future conflicts. New Mexico’s LLC Law would only affect the internal affairs of the LLC in the absence of Operating Agreements.
The New Mexico LLC Act provides that members of an LLC in New Mexico have the contractual freedom to customize their capital contributions and their shares of profits and losses through the use of Operating Agreements. Classes of members could also be demarcated through an Operating Agreement into “voting members” and “non-voting members”. As such, members could either increase their significance in the LLC or opt-out of certain duties depending on the composition of the Agreement.
Amongst the most important structural support an Operating Agreement provides to an LLC that you should have within your own version are:
- Its organization of how the ownership of the LLC is divided as mentioned above.
- The verdict on whether the LLC would be managed by managers or by multiple members and if the latter case occurs, how the voting powers are divided amongst the members.
- Records of the capital contributions that each member had invested in the LLC.
- The calculation of how the profits and losses of the LLC are to be divided amongst the members. The most regular route entails that the profits and losses are to be divided equally.
- The regulation of how members are introduced into the LLC and how members could leave it.
- The outlines for a potential dissolution in the scenario where the members of the LLC have decided that the business should cease to exist.
Moreover, it serves the fundamental role of preserving your shield of limited liability by aiding you in proving that your LLC truly does stand as itself, a separate legal entity from you.
STEP 6: Obtain an EIN
An EIN, or “Employer Identification Number” could be seen as a 9-digit “social security number” that is assigned by the Internal Revenue Service (IRS) to a business in order for the IRS to clearly identify it for tax and filing purposes.
The EIN may also be referred to as the Federal Employer Identification Number (FEIN) or a Federal Tax ID Number, nevertheless, they are just different names as they are essentially the exact same thing as an EIN.
It is required for you to obtain an EIN from the IRS for your LLC if you:
- Own an LLC that has more than one member, even if there are no employees hired.
- Intend on hiring employees for your LLC.
- Intend on filing and managing Federal and State taxes.
- Intend on opening a bank account for your LLC.
- Intend on having the LLC taxed as a corporation.
- Intend on applying for specific business licenses that would require it.
Additionally, an EIN also serves the functions of maintaining the shield of limited liability as it once again enforces that your LLC exists as a separate legal entity and strengthening your position against identity theft as it is less probable that someone could intrude into your accounts when you separate your personal and business finances.
Evidently, due to the wide ambit it covers, an EIN is functionally compulsory for your business to run. The only way for you to justifiably refuse to obtain an EIN is if your LLC has only one member, no employees and its business structure is akin and taxed like a sole proprietorship.
Getting an EIN is also the stage where you are offered to pick one of the variations of taxation options available to New Mexico LLCs. As mentioned above, most would pick a “pass-through” taxation option, the default, however, if you wish for to be taxed as an S Corporation or even a C Corporation you could file certain forms to do so once you have obtained your LLC’s EIN.
You could obtain an EIN by applying for it through the IRS website or by physically mailing it to the IRS with a “Form SS-4”, Application for EIN. No filing fee will be charged.
There are no filing fees necessitated for obtaining an EIN.
STEP 7: No Annual Report is needed!
While most states require your LLC to be renewed through an Annual Report or at the very least a Biannual Report, New Mexico demands none of that. This is a huge boon to starting up an LLC in New Mexico as you are free from piles of paperwork whose absence would normally be fatal to your business.
You could simply continue on with your business without a care on its documental upkeep year to year until you have decided that its time should come to an end. It would not be abruptly and unceremoniously shut down by the state due to a careless oversight. Furthermore, lesser capital would be squeezed out of you as most states further demand a filing fee in conjunction with the Annual Reports.
Additional Information on Starting an LLC in New Mexico
With all the above carried out, your New Mexico LLC would be up and running and hopefully flourishing. They are the compulsory components that you would have to perform for your business to even begin and continue on as an LLC in New Mexico.
Nevertheless, there are additional considerations that you may want to weigh your options on in order for your LLC to succeed even further:
Opening a Bank Account
If you possess an EIN you could open up a bank account for your New Mexico LLC which is highly suggested for the smooth sailing of your business. The bank account need not be in the same state as the LLC.
A business bank account will ease transactions with other businesses in the United States and crucially, maintain your personal liability protection. Allowing your own personal bank account to be involved with the business could lead to confusions concerning what assets belong to who. This would lead to personal liability issues and consequently, damage done to your personal assets.
Knowing which Taxation Variant you are opting for
The principal utility of an LLC is that it provides you with your taxation of choice at a federal level. As an LLC in New Mexico you could choose to be taxed as either a:
- Sole Proprietorship, if the business is a single-member LLC;
- Partnership, if the business is a multi-member LLC; or
- Corporation (either S Corporation or C Corporation).
Most companies will fall into the default, the former two on the list, which is what they prefer as the LLC will be treated as a “pass-through” entity, allowing you to be taxed directly and as such, avoid double taxation. They are considered the main tax benefit of having an LLC as you are allowed to operate like a company without its burdening taxations.
Opting to be taxed as an S Corporation would also allow you to avoid double taxation, however, the IRS imposes certain restrictions to limit the kind of businesses that could choose an S Corporation status. The LLC would need less than 100 allowable shareholders and have only one class of stock.
Opting to be taxed as a C Corporation would incur double taxation upon you, however, the upside to it is that you are allowed to have an unlimited amount of shareholders.
To change your New Mexico LLC from the tax default of a Sole Proprietorship or Partnership, you need to file Form 8832 and Form 2553 with the IRS to be taxed as a C Corporation and an S Corporation respectively.
Deciding if the LLC should be Member-managed or Manager-managed
If your LLC in New Mexico is rather small and the members are on board with managing the day to day operations of the business then the LLC could pursue a “member-managed” structure.
If the LLC is rather large with copious amounts of members and the majority of them are not keen on running the day to day operations of the business, then the LLC could pursue a “centralized management” system and focus its organizational roles onto one or more managers selected.
List of Necessary Addresses for the purposes of setting up the LLC
New Mexico Secretary of State Mailing Address:
New Mexico Capitol Annex North
325 Don Gaspar, Suite 300
Santa Fe, NM 87501
Internal Revenue Service’s Mailing Address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Frequently Asked Questions (FAQs)
How much does it cost to form an LLC in New Mexico?
In order to first form your LLC you would have to spend $50 for the formation fee of your New Mexico LLC. This the sole compulsory payments demanded. The rest depends on your needs and wants. There would not even be fees for your LLC’s annual renewal as in New Mexico, annual renewals are not necessary!
Can a foreign LLC conduct its business in New Mexico?
Yes, a foreign LLC may conduct its business in New Mexico. However, all foreign LLCs are required to register with the New Mexico Secretary of State prior to doing so. This could be done through mailing the Secretary of State office a Foreign Limited Liability Company Application for Registration. The Secretary of State mandates that you would also need a Registered Agent present within the state of New Mexico itself. The filing fee would be $100.
Can a professional LLC be formed in New Mexico?
Yes, a professional LLC may. However, professional LLCs in New Mexico are required to go through a more thorough and stringent application process before they could ever come into existence. To illustrate, some of the additional requirements include professional state licenses for the LLC itself and a professional licensed status for the owners themselves.
Multiple professional services cannot be offered by a singular firm, only one specific type of professional service may be provided.
What is the minimum wage for workers in New Mexico and are there any regulations on how often I would have to pay them?
Generally, the minimum wage in New Mexico is $10.50 per hour. However, in its capital, Santa Fe, the minimum wage would be $12.50 per hour. Its largest city, Albuquerque demands that employees are to be paid at least $9.50 per hour if they have benefits or $10.50 per hour if they do not have benefits.
New Mexico also mandates that employees are to be paid their wages twice a month.
How do I dissolve my LLC in New Mexico?
Dissolving your New Mexico LLC is relatively simple with the help of the Secretary of State. The sole prerequisite is that your LLC must be in good standing with the state before you could dissolve it, and with annual renewals not being in the equation, chances are your LLC would be! Just ensure that your taxes are paid and you are likely good to go.
With that taken care of, the dissolution of your LLC could be carried out through filing an Article of Dissolution with the New Mexico Secretary of State. The Secretary of State would accordingly carry out the dissolution process.
What is the difference between a domestic LLC and foreign LLC?
Limited liability company LLC is referred to as a “domestic LLC” when it conducts business in the state where it was formed. For instance, a domestically formed business New Mexico is a form of LLC. Meanwhile, a foreign limited liability company LLC is commonly formed when an existing LLC looking forward to form an LLC elsewhere in another state which requires business licenses and permits.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.