Anyone reading this has likely decided to form a Limited Liability Company (LLC) in New Mexico or is considering forming an LLC. Any time you create a new business or start a business in a different state as a foreign LLC, it’s an exciting time, so congratulations!
In this article I’ll tell you everything you need to know about forming an LLC in New Mexico, but first I’ll provide an overview of what a Limited Liability Company is as well as the benefits of forming a New Mexico LLC as opposed to another business type so that you can be sure that an LLC is the right structure for your small business.
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is A New Mexico LLC?
A New Mexico LLC is a Limited Liability Company formed in the state of New Mexico that is governed by the laws, regulations, and statutes of the state of New Mexico.
Why choose An LLC?
There are many advantages that LLCs have over other business types (like a sole proprietorship), but here are the three most common reasons that small business owners choose to form an LLC in New Mexico.
1. Limited Liability And Asset Protection
The first benefit you’ll receive when you form a New Mexico LLC is considered by many business owners to be the most important one. As the owner of a New Mexico LLC, you can’t be held personally responsible for your LLC’s debts and liabilities.
What does this mean? If your Limited Liability Company should be sued or go bankrupt, the creditors of your LLC can’t come after your personal assets as a form of financial compensation. So things like the funds in your personal bank account, your house and your car remain safe despite any legal or financial woes your LLC faces.
Business owners in America have faced several types of unexpected events over the past few years like wildfires that span several states, hurricanes, and a worldwide viral pandemic. So it’s become obvious that even the most successful business is easily and quickly crippled when these things occur. Many small business owners love the personal asset protection they get when they form an LLC because they can feel safe knowing that even if they were to lose their business, their assets remain safe.
The next reason that many business owners choose to form LLCs is they can choose to keep their personal information safe with a New Mexico LLC.
Unfortunately, cyber-criminals and online con artists have become masters of their trade over the past decade or so. They can now quickly steal your identity and accumulate thousands of dollars in debt in your name with scant pieces of seemingly inconsequential information.
Other business types are required to list their personal information on the public record with the New Mexico Secretary of State.
But owners of LLCs can keep their personal information off the public record by using an LLC formation service.
An LLC formation service will register their information with the New Mexico Secretary of State to be put on the public record, rather than your own. So your information is kept safe and away from people who would use your information for criminal purposes. And don’t worry, even though the LLC formation service registers their information rather than yours, you’ll still retain ownership of your New Mexico LLC.
The last reason that many business owners choose to form a New Mexico LLC are the tax benefits that New Mexico LLCs enjoy.
It’s quite a shock for most business owners to learn about the taxes that corporations have to pay. If you own a corporation, you’ll be subject to what’s known as “double taxation”.
Here’s why it’s called “double taxation”. The profits of a corporation are initially taxed at corporate rates, which are then divided up and issued to shareholders in the form of dividends, which are also taxed. Thus, it’s referred to as “double taxation” because the profits are taxed twice before shareholders even get them.
LLCs entirely avoid the “double taxation” phenomenon. Here’s a breakdown of how LLCs in New Mexico are taxed.
The profits of LLCs are taxed at company rates (not corporate rates) and then dispersed to the LLC members in the form of personal income (not dividends) and are taxed at personal income rates. Therefore, the profits of New Mexico LLCs are not taxed the same way that profits of corporations are.
Besides the avoidance of “double taxation”, LLCs in New Mexico enjoy even more tax benefits.
In 2017, the Tax Cuts and Jobs Act was passed which included a tax discount for LLCs called the “Qualified Business Income Deduction” (QBID). QBID is a 20% tax discount that is exclusive to LLCs and not to other business entities.
How To Start An LLC In New Mexico
Now that you’ve read about what an LLC is and the benefits that LLCs receive, you can make an informed decision about whether an LLC is the right type of business entity for your company. If you’re sure an LLC is the right business type for you, here is a breakdown of how to form an LLC in New Mexico.
IMPORTANT: If you’ve never formed an LLC and you’d like some guidance through the LLC formation process, an LLC formation service is the way to go. LLC formation services will help you with obtaining and filing forms, creating formation documents for your LLC and keeping your information safe.
There are many New Mexico LLC formation services to choose from and they can typically help you with the formation process for as low as $0 plus the cost of state filing fees. However, my favorite LLC formation service is ZenBusiness, which charges a fee of $49 plus state filing fees.
If you’d like some assistance to get through all of the form filing and red tape associated with LLC formation, check out my guide on the Best LLC Formation Service.
1. Obtain Articles Of Organization Form
The first thing you’ll need to do is get a copy of the New Mexico Articles of Organization form, which you can obtain from the New Mexico Secretary of State’s website.
In New Mexico, you’ll fill in your form and submit it online rather than submitting it by mail.
Because the Articles of Organization is the main form you’ll need to form your LLC in New Mexico, the subsequent steps will refer to the Articles of Organization form.
2. Choose Your Business Name
The first thing you’ll need to complete on your form is the company name of your LLC.
But you’ll need to give this some thought and not haphazardly jot down the first name you think of. Each New Mexico State business must have a different name, which means that LLCs must have names that are exclusive to them.
Luckily, it’s pretty easy to check to see if the name that you want is available. Just head to the New Mexico Secretary of State’s website to search their business name database.
If the name you’ve chosen has been taken, you can add a suffix to the end of the name such as “Limited Company”, “LLC”, “L.L.C.”, “Ltd. Co.”, or “L.C.”. It’s sort of like adding numbers to the end of an online screen name or gamer tag when you find that the name you chose isn’t available.
Once you’ve chosen an appropriate name, you’ll need to file a Reservation of Limited Liability Company Name form. You can get the PDF here. There's a $20 filing fee and you must file the form by mail.
If you don’t like the official name of your Limited Liability Company, don’t sweat it. You can use what is known as a trade name, assumed name or DBA name (Doing Business As). Interestingly, New Mexico does not require LLCs to file any sort of form to use a trade name or DBA name.
3. Choose A New Mexico Registered Agent
New Mexico LLCs must have what is known as a “registered agent”.
A registered agent is a person or company appointed to receive mail from official government offices (like the New Mexico Secretary of State Corporations Bureau) as well as legal documents or notices (like service of process) on behalf of your business during normal business hours on weekdays.
You have two options when it comes to choosing the registered agent for your LLC: you can either choose to appoint yourself the registered agent of your LLC or you can use a registered agent service.
If you choose to become the registered agent for your business in New Mexico, it’s worth noting that it will require a lot of your time and could be difficult. You’ll need to be available to receive mail and legal documents for your business during normal business hours. Most LLCs also operate during normal business hours and you can’t be in two places at once to both run your business and perform the tasks of a registered agent.
Furthermore, if you miss an important legal notice like a service of process, you could be sued and have no opportunity to defend yourself in court. And a default ruling against your company could be very costly. Not to mention that missing mail and legal notices could land you in hot water with the New Mexico Secretary of State Corporations Bureau. The only upside to becoming the registered agent for your LLC is that you won’t have to pay the fees of a registered agent service.
If you use a registered agent service then your personal information will remain secure. What’s more, you’re pretty much guaranteed to receive the mail and legal documents that are sent to your business because a registered agent must be available to receive it all on behalf of your business. The only downside to choosing to use a registered agent service is that they typically charge a fee of between $99-$299.
Because it can be so costly to you and your business to miss a service of process, an important notice or piece of mail from the New Mexico Secretary of State, the fee that most registered agent services charge is well worth it. I always recommend that new LLCs use registered agent services.
If you’d like to make sure that your information is kept safe and that you’ll receive all of the mail and documents that are sent to your business, check out my article about the Best New Mexico Registered Agent.
4. Choose Your LLC Address
The next piece of information you’ll have to put on the form is a business address. Each LLC in New Mexico must have an address that is registered with the Secretary of State to be listed on the public record.
If you aren’t using professional registered agent services, then you’ll need to list the physical address of your business on the form. If your business doesn’t have an actual physical address then you’ll be forced to list your home address or your home office address on the form.
If you’ve chosen to use a registered agent service then they will supply their name and address to put on the form, rather than your own.
5. Sign And File Your Articles Of Organization
Once you’re sure you’ve completely filled in the form and you’ve checked it for accuracy, it’s time to sign and file the Articles of Organization form for your LLC.
If you’re comfortable with your personal information being put on the public record, you can sign and file the form yourself. If you’re using an LLC formation service they will sign and file the articles on your behalf so that your information isn’t listed on the public record.
You must file your Articles of Organization fee online, along with a payment for the filing fee. The filing fee is $50.
Once you’ve submitted your form, the Secretary of State’s office will contact you by email when the filing process is completed. This process typically takes between 1-3 days.
Other LLC Activities
Once you’ve filed your Articles of Organization there are several other activities you’ll have to partake in for your LLC that have nothing to do with formation.
You won’t need to get any New Mexico business licenses for your LLC, it’s pretty likely that you’ll need to obtain business licenses and permits from your local government. If you collect sales tax then you’ll haveto register with the New Mexico Taxation and Revenue Department.
New Mexico does not require LLCs to file an annual report. But even though you don’t have to file an annual report for your LLC, you’ll have a lot of paperwork filing to do for your LLC taxes.
You also must file for a Business Tax Identification Number from the New Mexico Taxation and Revenue Department. Multi-member LLCs are pass-through, tax entities in New Mexico, so if you own a multi-member LLC you have to file an Income and Information Return for Pass Through Entities (PTE) form before your federal tax filings are due. You can learn more about this at the New Mexico Taxation and Revenue Department website.
You’ll also need to pay both a state tax and a federal tax for your NM LLC, as well as obtain a Certificate of Good Standing.
If this all sounds like a lot of work, it’s because it is. If you’d like to take some of the burden of filing all the paperwork for your LLC off your shoulders, you should consider hiring a New Mexico PEO service, as well as registering for online legal services.
New Mexico LLC Fee Summary
You’re probably wondering “How much does it cost to form an LLC in New Mexico?” It doesn’t matter whether you’ve chosen to form an LLC on your own or use an LLC formation service, you’re going to have to pay some state filing fees and cover some other costs. Here’s a list of some of the more common state filing fees and costs you’ll encounter when you form a New Mexico LLC.
Articles of Organization filing fee: $50
Name Reservation filing fee: $20
Registered Agent Fee: $99-$299 per year
State Personal Income Tax: 5.9%
State Corporate Income Tax: 4.8%
After Starting Your New Mexico LLC
You’ve completed the first and most monumental step and took control of your business’s future when you formed your LLC, so congratulations and celebration are in order. Go out for a night on the town, enjoy a shopping spree, take a weekend trip or simply have a glass of champagne or wine. But you can’t celebrate for too long because there are still a few steps you need to complete for your LLC to have the proper foundations it needs to operate as a fully functional business.
Step 1. Create An Operating Agreement
New Mexico’s laws regarding LLCs don’t require them to draft an Operating Agreement, but I highly suggest that you do anyway.
To illustrate how important an Operating Agreement is for your company, I want you to imagine your LLC as an animal of some sort. It can be any land animal, maybe one of your favorite animals. The LLC would be the animal’s skin or shell that protects it and the LLC Operating Agreement would be the creature’s nervous system that tells it how to react to things and what to do.
The Operating Agreement for your company both acts as a contractual agreement between LLC members and also provides detailed instructions about how the business should run. It should list each LLC member and then establish the structural, operational, managerial and financial aspects of your LLC.
*IMPORTANT* Before you draft your Operating Agreement, you should decide which managerial style you want for your LLC. If you have a single member or one member LLC, then a single member will make decisions for your LLC. If you have a multi-member LLC then you’ll have a group of members who vote on each high-level decision.
Your Operating Agreement should start by naming each LLC member individually, indicate which members have the authority to make high-level business decisions, and then plainly define the percentages of profits and losses as well as the ownership percentages of each member. Your agreement should clarify the roles that each member will play in your company and how they will interact with other departments or LLC members. If you design your Operating Agreement this way then your LLC members and employees will know what their jobs are, who their superiors are, which LLC members, employees and departments they will most closely interact with and the tasks covered by each department and member to prevent confusion and squabbles.
It’s important that your LLC Operating Agreement includes a section that describes what should happen if an LLC member leaves or if new LLC members join. It’s a common occurrence that LLC owners overlook this section, but it’s important because it provides precise instructions in case there is ever a falling out between LLC members. Having a set of clear, logical rules is very helpful during highly charged emotional situations.
The reason your LLC Operating Agreement is such an important document for your LLC during its inception is that it not only describes to LLC members what their jobs are and how much they’ll be paid, but also provides clear instructions about how the business will be run.
If the description of the agreement hasn’t been clear, let me elaborate: the rules that you set up in your agreement are the definitions of how your business must operate and everything must be conducted according to the framework you set out in the agreement so, if you draft a poorly-written Operating Agreement then it can stifle business growth. You can easily mess the agreement up by not allowing room in it for things like change or business growth and innovation. If you draft your agreement well then your business should take off and flourish without being held back by poorly thought out instructions.
If you’re concerned about your inexperience with writing Operating Agreements and you don’t want to screw it up (which is definitely something you should be concerned about), there are a few options available to you.
The first is that you can use the free template that Northwest Registered Agent provides for LLC Operating Agreements. The second is that LLC formation services will typically create an Operating Agreement for your company as part of their services, which takes a lot of the guesswork out of Operating Agreements. And lastly, if you’d like to create your LLC’s Operating Agreement on your own, you can sign up for online legal services which will guide you through the process and help you with all of the legal terms.
Step 2. Apply For An Employer Identification Number
The next step is to apply for an Employer Identification Number (EIN). You’ll need an EIN if you plan to open an LLC bank account or hire employees for your business. You aren’t required to hire employees to obtain an EIN- it’s just an identification number for businesses that will qualify your LLC for certain licenses and permits.
An EIN is a tax identification number that identifies businesses in the same sort of way that a Social Security Number is used to identify individual people. Applying for an EIN is simpler to do than you’d think and you can do it through the Internal Revenue Service (IRS).
A lot of New Mexico’s LLC formation services will apply for an EIN on behalf of your business in New Mexico which takes a lot of the guesswork out of the application process. But you can apply for an EIN yourself as well. Just head over to the IRS website Monday- Friday between 7 am and 10 pm, fill out the application and submit it online.
Step 3. Open A Business Bank Account
The last step to complete so that your business has the foundations it needs to operate properly is to open a business bank account.
A lot of business owners don’t consider this an important step, but it’s absolutely vital to business success. Business owners frequently conduct business transactions from their personal account thinking that having one bank account for both things is somehow more convenient, but there are two reasons why you shouldn’t do this.
The first reason is that having a bank account specifically for business purposes is very helpful during tax season. So often, inexperienced business owners assume that they’ll remember the difference between business and personal transactions for tax filing purposes. But often tax season doesn’t come until months after the purchases were made and it becomes harder to remember things with the passage of time, therefore it’s simply easier to open a dedicated business bank account so that it’s less of a headache to file state tax information later.
The second reason is that you won’t want to become vulnerable to lawsuits. If you’re conducting business transactions through your personal bank account then you’re leaving your personal information vulnerable, as well as the funds in your account. So even if you form an LLC to gain personal asset protection, it’s nullified if you conduct business this way.
To sum things up, if you want to make filing your taxes easier as well as maintain personal asset protection, just open a business bank account for your LLC.
You’ll need what’s known as a bank kit to open a dedicated business bank account for your LLC. This contains a lot of the LLC formation documents I’ve discussed so far, like copies of your Certificate of Good Standing, Articles of Organization, Operating Agreement, your initial resolution and your EIN.
A lot of LLC formation services will create a bank kit for your LLC as part of their services. So if you don’t want to bother about assembling one yourself, you could hire an LLC formation service.
You’ve taken a substantial step towards controlling your business destiny when you decided to form an LLC, so congratulations!
If you decide to form your LLC on your own without the use of an LLC formation service (which typically charge fees as low as $0 plus state filing fees), here are the five steps you’ll need to take to form an LLC in New Mexico.
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
It’s easy to feel overloaded by all of the red tape, form filing, applications, registration and legal jargon associated with LLC formation in New Mexico. But nothing beats the feeling of accomplishment and achievement you get from forming an LLC on your own, so it’s worth all of the effort!
Congratulations again on your decision to form an LLC in New Mexico, and good luck on the rest of your business journey!