Definition

What is an LLC?

A limited liability company, or simply LLC, is a business structure in the United States. This type of entity offers several flexibilities, primarily that the owners and their assets are protected against any debts and liabilities in the business. New Mexico provides several incentives and benefits to LLCs. 

This is why most of the LLCs in the state are owned by people that are not even permanent residents of New Mexico. By forming an LLC, you can enjoy both corporation’s benefits and combined properties and sole proprietorships or partnerships.

Advantages

Advantages Of an LLC In New Mexico

LLCs in New Mexico can take advantage of several relaxations provided by the state, which significantly help promote economic growth here. With prospects like added privacy, tax benefits, protection of benefits, low filing costs, and much more, it is no surprise that more and more LLCs are springing up in the state now and then. New Mexico offers numerous economic opportunities for new businesses that, in turn, generate revenue for the state.

Following are some advantages you can enjoy if you are planning to start a limited liability company in New Mexico.

Disadvantages

Disadvantages Of an LLC In New Mexico

Below are some disadvantages to forming an LLC in New Mexico as well, but they are often outweighed by the advantages of doing so.

LLC Formation

How To Form An LLC In New Mexico

Setting up an LLC in New Mexico is similar to that in other states. It is pretty straightforward, albeit slightly lengthy, so you should ensure you follow it precisely. It is also suggested to take professional help so that you do not make any errors in any of the steps of the procedure. Below is a step-by-step guide to forming a New Mexico LLC:

1. Choose a unique name for your business
2. Choose a registered agent in New Mexico
3. File your Articles of Organization
4. Create an Operating Agreement
5. Apply for an EIN
6. Maintain the LLC

Choose a unique name for your business

This is the initial step and one of the most important ones in the procedure. You must select a unique name but one that is available for use. That is, any other New Mexico company does not use it. There are other requirements regarding the name as well, such as it should contain the words “Limited Liability Company,” “L.LC.”, or “LLC.” There should be no misleading terminologies in the name, for example, services you do not provide or words from the names of special services.

It is easy to check if your preferred name is available. You can do so yourself by browsing the business search platform of the Secretary of State of New Mexico. If you find an available name of choice but are unsure whether you want to go with it, you can reserve the name for 120 days for a small fee. 

This way, another business won’t take it in the meantime. This step is not mandatory, but it can prove helpful as it gives you enough time to make an informed decision since the LLC’s name is a crucial part of its identity. However, you will have to finalize your decision within this period because you can not renew the reservation if it passes.

New Mexico also allows you to do business under a fictitious name, the “Doing Business As” or DBA. This allows you to partake in business activities under a name different from the legal, registered name. An advantage in New Mexico is that you do not have to file a formal registration request for the DBA name, and you can use one without legal formalities.

Choose a registered agent in New Mexico

Having a registered agent is a mandatory requirement for all states, including New Mexico. The registered agent is responsible for collecting legal documents and correspondences from the government on behalf of the LLC, for example, in case the LLC is sued. 

LLCs must have a registered agent regardless of whether they are operated from within or outside the state. Your registered agent has to be a permanent resident of New Mexico and have a fixed address in the state. This is, so they are available to receive documents or if authorities need to contact them. 

Registered agents are often paid on an annual basis. An LLC member can also act as the company’s registered agent if they are older than 18 years of age, are a permanent citizen of New Mexico, and do not have any restrictions against doing business in the state. 

However, this is not a wise option because you will have to provide personal information to authorities and public platforms and manage the agent’s responsibilities along with the LLC’s workload. Before working with a third-party agent, the LLC has to get them to sign a consent form, which is then submitted to the state.

File your Articles of Organization

Known in other states as the Certificate of Organization, this is probably the most important step in the process. This is the document that seals your LLC’s registration in New Mexico. While filing for the Articles of Organization, you will need details like the LLC’s name, the name of the registered agent, the initial address, the details of any employees your LLC currently has, and information about the structure of the management of the company. On average, it takes 2 to 3 business days to get a response to your application, but it is possible to speed this time up by paying extra charges. 

You can file this application either online or by post, but foreign LLCs can not file the application online. Either way, doing this step yourself can save you a lot in additional service charges. However, this step is quite crucial, and there is no room for errors, so either you should do thorough research about the process or invite professional help to guide you through it and complete the registration on your behalf. 

Create an Operating Agreement

The operating agreement acts as the constitution of any LLC. The LLC members can list their rights, responsibilities, and business conditions in this legal document. The members have complete freedom to choose what they add to the agreement, given that all other members give their consent. 

In a New Mexico LLC, an operating agreement is not a mandatory requirement, but it is highly suggested to draft one regardless. This is to prevent any future discrepancies among the members and ensure that all of them agree on how they wish to operate and manage their company. Not only does it prevent the risk of conflicts, but it also helps during important decisions in the future, such as the dissolution of the LLC.

The operating agreement of your New Mexico LLC does not have to be very comprehensive, but it should describe in detail your plans for current and future business operations, as well as necessary conditions for future business decisions. LLC members can draft this agreement within themselves without spending a penny. However, legal help always comes in handy in this situation. With guidance from a legal expert, you can create a holistic agreement that includes all vital information and prevent arguments and disagreements among the members.

Apply for an EIN

The EIN, comprehensively the Employee Identification Number, is a numerical identity that has to be obtained from the Internal Revenue Service. This number makes the identification of a business identity easy for taxation purposes. 

Obtaining an EIN is a compulsory requirement in New Mexico and is needed when the LLC starts hiring people. In fact, there are several other rules and regulations that businesses have to abide by while hiring employees. The LLC has to obtain an EIN even if an out-of-state entity is operating it.

Maintain the LLC

After you have finalized the registration of your LLC, you are free to step into business immediately. Now, you may have to deal with certain intricacies of business operations recommended in general. For example, you should set up a separate bank account for the company to fully benefit from the asset protection laws in the state. 

You will also have to file for any necessary business permits and licenses required by the state that are relevant to your business. Finally, ensure that you abide by all the state laws to prevent legal troubles in the future. In such cases, the limited liability security offered by this business structure can not offer guaranteed protection for your assets against legal decisions.

Types of LLC

Which type of LLC is ideal for me?

LLCs are popular because they offer personal liability protection and tax flexibility. We’ll explain the different types of LLCs available in New Mexico to help you better understand which one might be the best fit for your situation.

1. Domestic LLC: A Domestic LLC is the most common type of LLC formed in New Mexico. This type of company is created when the business owner(s) plan to operate their business primarily within the state. To form a Domestic LLC, you’ll need to file the Articles of Organization with the New Mexico Secretary of State and pay the required filing fee.
2. Foreign LLC: If your business is already established as an LLC in another state, but you want to conduct business in New Mexico, you’ll need to register as a Foreign LLC. This process involves filing an Application for Registration with the New Mexico Secretary of State and paying the associated fees. Additionally, you’ll need to provide a Certificate of Good Standing from the state where your LLC was originally formed.
3. Single-member LLC: This type of LLC is suitable for individuals who want to own and operate their business alone. A single-member LLC provides the same liability protection and tax flexibility as other types of LLCs but has only one owner (also known as a member).
4. Multi-member LLC: A Multi-member LLC is designed for businesses with more than one owner. Like a single-member LLC, it offers liability protection and tax flexibility. In a multi-member LLC, the members must create an operating agreement that outlines the roles, responsibilities, and profit distribution among the owners.
5. Professional LLC (PLLC): A PLLC is specifically designed for licensed professionals such as lawyers, doctors, architects, and accountants. This type of LLC allows these professionals to form a company while maintaining their professional licenses. To create a PLLC, you must file the Articles of Organization with the New Mexico Secretary of State and provide proof of professional licensure.
6. Series LLC: A Series LLC is a more complex structure that allows for the creation of separate, individual LLCs (known as “series”) under a single master LLC. Each series operates as its own separate entity with distinct assets, liabilities, and ownership. Series LLCs are not commonly used in New Mexico, and it’s essential to consult with a legal professional to determine if this structure is appropriate for your business.

When choosing the right type of LLC for your business in New Mexico, it’s important to consider your specific needs and goals. It’s also a good idea to consult with a business attorney or accountant to ensure you make the most informed decision.

LLC Taxes

Applicable LLC taxes in New Mexico

When you own an LLC in New Mexico, there are several taxes that you may be required to pay, depending on your business activities and structure. I’ll provide a simple explanation of the primary taxes you should be aware of as an LLC owner in New Mexico.

1. Federal Income Tax: By default, LLCs are considered pass-through entities for tax purposes. This means that the profits and losses of the LLC are passed through to the owners (members), who then report this information on their personal tax returns. Single-member LLCs are taxed as sole proprietorships, while multi-member LLCs are taxed as partnerships. However, you can choose to have your LLC taxed as a C Corporation or an S Corporation by filing the appropriate forms with the IRS.
2. Self-Employment Tax: If your LLC is taxed as a sole proprietorship or partnership, you will need to pay self-employment tax on your share of the LLC’s profits. Self-employment tax covers Social Security and Medicare contributions. You’ll report and pay this tax through your personal tax return (Form 1040), using Schedule SE.
3. New Mexico Gross Receipts Tax (GRT): The GRT is a tax on the sale of goods and services within New Mexico. It is not a sales tax, as it’s imposed on the business rather than the consumer. As an LLC owner, you are responsible for collecting and remitting this tax to the New Mexico Taxation and Revenue Department. The GRT rate varies depending on the location of your business, as it includes a base state rate plus additional local rates.
4. New Mexico Corporate Income Tax: If you elect to have your LLC taxed as a C Corporation, you will be subject to the New Mexico Corporate Income Tax. This tax is based on your corporation’s net income and is filed using Form CIT-1. Keep in mind that C Corporations also face double taxation, as the company’s profits are taxed at the corporate level and again at the individual level when dividends are distributed to the owners.
5. Payroll Taxes: If your LLC has employees, you’ll need to withhold federal and state income taxes, Social Security, and Medicare taxes from their paychecks. You will also need to pay the employer’s share of Social Security, Medicare, and federal and state unemployment taxes. You’ll be responsible for filing the appropriate forms and depositing withheld taxes with the IRS and the New Mexico Taxation and Revenue Department.
6. Property Tax: If your LLC owns real property in New Mexico, you’ll be required to pay property taxes on the assessed value of the property. These taxes are administered at the county level, and rates vary depending on the location of the property.

It’s important to consult with a tax professional or accountant to ensure you understand and comply with all tax obligations for your specific LLC. They can help you navigate the complexities of the tax system and maximize any available deductions and credits.

Costs

Cost of forming an LLC in New Mexico

The overall fees of forming a New Mexico LLC are quite low, especially compared with some other states. However, like in any LLC formation procedure, there are quite a few costs that you have to be mindful of to prevent any unwanted financial surprises.

Following are the costs you will have to pay at various steps of the filing process:

Comparisons

Is LLC The Best Entity For Me?

Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.

FAQ

Frequently Asked Questions About Starting An LLC In New Mexico

Here are the most commonly asked questions about forming an LLC business in the state of New Mexico: