Are you considering starting a business in New Mexico? One of the business structures worth your consideration is the Limited Liability Company (LLC). Because of the options they provide in terms of protection, taxation, and flexibility, LLCs are a popular choice for many business owners.
The formation of an LLC permits you to shield your personal property from the business’s debts and liabilities, while also benefiting from pass-through taxation. This entails that instead of the business itself being taxed, profits and losses are divided among its members, eliminating the taxation’s level of detail.
Besides these advantages, LLCs also offer the advantage of flexibility in the management of the business, whether managed by you only, your business partners, or both. With all of these benefits, an LLC could be the optimal structure to position your business for success in New Mexico.
In this article, we will show you how to form an LLC in New Mexico by providing important details and useful tips later in the post.
Why Form an LLC in New Mexico?
Limited Liability: This is perhaps the most significant advantage of an LLC. Your assets are more or less insulated from business debts and liabilities. If your business gets into trouble, like losing a suit or finances, your possessions like a house or car remain intact.
Tax Flexibility: LLCs have the benefit of tax flexibility. In essence, LLCs are treated as pass-through entities. Their income however does not get taxed at corporate rates as the business profits and losses get passed through to the owners’ tax returns. This can be beneficial in terms of lowering one’s tax burden. On the other hand, if beneficial to your circumstances, you can also opt to have it taxed as a corporation.
Operational Flexibility: LLCs have a lot of operational flexibility. You get to decide how your business will be structured/who will manage it: members, managers, or any combination of these. It allows you the ability to customize your business operational matters around your requirements and preferences.
Credibility and Professionalism: When an LLC is formed for your business, it is likely to boost the credibility and professionalism of your business. It makes you more committed to your business and will assist in getting clients, partners, and investors.
Administrative Requirements Simplified: LLCs have generally a lesser level of administrative requirements compared to corporations. Annual meetings might not be a requisite or formal corporate record. This can save you time and money.
Step 1: Name your LLC
Mandatories: The name of the LLC has to contain the words “Limited Liability Company” or the word “Company” with the abbreviations “LLC” or “L.L.C.” This is important as it clarifies the legal form of the entity and helps to differentiate the organization from other forms of undertaking.
Confirm that the Name is Not in Use: To establish the eligibility of the name you want, you should first search it on the New Mexico Secretary of State’s office business name database. If in doubt, this step is important to not get into legal problems or the embarrassment of filing an application that would be rejected based on already registered names or trademarks.
To reserve your name if you want: If you wish to keep your name in the future, you can do so for as much as 120 days, which is usually not the case. This involves submitting a Name Reservation Form and paying a small fee to the state which enables you to focus on other things regarding your business without the fear of being unable to use the name you have in mind.
Step 2: Choose a registered agent for LLC New Mexico
In New Mexico, an LLC needs to have a registered agent. A registered agent is a person or a business that has been appointed in compliance with law requirements because, a registered agent fulfills the primary purpose of receiving significant legal documents, tax notices, and other relevant communications from the state about your LLC allowing for proper management of official affairs.
Eligibility: The registered agent may be either a resident of New Mexico or a business registered in New Mexico and entitled to provide registered agent services. Thus, they are physically present and able to act on the client’s behalf efficiently.
Responsibilities: The registered agent’s physical location must be a street address in New Mexico as a P.O. box is not a permitted address. This serves as the address for receiving assets and legal papers. This address facilitates the provision of responsive legal services.
Step 3: File the Articles of Organization
The process of creation for your LLC will be complete after you file the Articles of Organization with the Secretary of State of New Mexico. This document acts as the legal framework of the controlled chamber calling it an LLC, which specifies its organization and operating principles.
Filing Method: If however, you do not wish to file the Articles of Organisation by email then you may send the document in the mail, whatever is your priority time saves processes or paperwork. Online applications generally use less time relative to mail but the latter is better for someone who does not want to carry out most of the activities around the screen.
Filing Fee: Given their nature of unpaid, these have very low pocket value. However, the amount you pay solely depends on the filing method of your choice. Please make every effort to verify the most current fee schedule to avoid any delays that could be caused by under or over-payment.
Information Required:
- The name contained in the certificate of the company
- The registered agent’s full name and address
- Indicate if the term is permanent or if the LLC has a specified term
- Other members of the LLC will manage the LLC and there will be a manager who will be responsible for certain functions, decision-making, negotiation, etc.
Step 4: Formulate and Assemble an Operating Agreement
Even though such a requirement does not exist under New Mexico laws, the use of an operating agreement shall be highly encouraged. Every LLC has different owners, and these people all have different roles and responsibilities. This document simply clarifies these roles and makes sure everyone is within their area of expertise.
Benefits:
- This certificate makes any verbal agreements less effective and makes sure there aren’t any miscommunications.
- By clarifying the roles of each member within the LLC, this document helps to minimize potential disputes
- Having such a structure ensures that all aspects of the business are conducted efficiently as everyone knows what they are responsible for
Step 5: Apply for EIN
A unique identification number that has been assigned by the Internal Revenue Service and is required for the tax activities of your Limited Liability Company. Different activities include registration of business bank accounts, hiring of staff, and registering and paying taxes to the Federal Government.
How to Apply: You can go to an IRS office to request an EIN at no cost. The easiest and quickest way would be to do it online and upon application submission, the EIN will be issued instantly at no fee. This helps in alleviating bottlenecks in attending to other office work.
Step 6: New Mexico’s Tax Obligations
State Taxes: Depending on the business activities of your LLC, registration for certain taxes that are specific to New Mexico LLCs may be necessary. These may include gross receipts tax which applies to shrewd businesses and unemployment insurance tax if you have hired workers. These obligations are very important as they will help you adhere to compliance and avoid unnecessary restrictions.
Annual Reporting: New Mexico does not require any annual reports from the LLCs so another benefit of establishing an LLC is that the member(s) of the LLC do not have to worry much about ongoing compliance measures as compared to practicing this in many other states. This can cut down the operational costs of your business making it possible for more focus to be directed towards expansion and advancement.
Step 7: Keep Your LLC In Good Standing
Licenses: Get all the appropriate business and state licenses that your LLC requires. There can be huge discrepancies in the prerequisites, therefore it is best to contact your local city or county government for any specific regulations that may pertain to your industry or business type. The proper licenses are essential to lawfully conducting business and may affect the ability to get contracts and clients.
Document: Legal compliance is one of the goals of record maintenance. Having proper records of financial statements, the minutes of meetings, and other essential documents should not be a problem. Adequate record management aids decision-making and makes it easier to conduct audits when necessary.
Nabin Adhikari
