The Limited Liability Company (LLC) is a popular entity structure for businesses starting in the state of New Mexico. The LLC provides personal liability protection and has the potential to save money on taxes. With our guide, you can learn how to form an LLC in New Mexico without an attorney.
Unlike a sole proprietorship or partnership where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure, protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Steps to Form a New Mexico LLC
Let’s break down the steps to complete the New Mexico LLC formation process.
Total Time: 10 minutes
Step 1: Choose a Name for the LLC
The first step in forming a New Mexico Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of New Mexico. The New Mexico Secretary of State makes it easy to search and verify if your LLC name is available. Here is more information on how to do a New Mexico LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Company
– Limited Liability Co.
– Limited Co.
– Ltd. Company
– Ltd. Co.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is a name you want to use but aren’t ready to form the LLC, the Application for Registration of Limited Liability Company Name can be filed to hold the name for up to 120 days. The state filing fee for a name reservation is $20, paid to the Secretary of State.
Before settling on a name, you may want to see if a domain name (sometimes called a URL) is also available to match your business name and website address.
Step 2: Appoint a New Mexico Registered Agent
Every LLC in New Mexico is required to have a Registered Agent. A Registered Agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a Registered Agent in New Mexico include:
– The agent must be a New Mexico resident at least 18 years of age or a commercial Registered Agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a Registered Agent in New Mexico.
Any individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a registered agent service like Northwest Registered Agent to be the Registered Agent will reduce unwanted phone calls and mailings.
Step 3: File the New Mexico Articles of Organization
The paperwork to officially create an LLC in New Mexico is called the Articles of Organization. To submit the paperwork, you will file online through New Mexico Secretary of State’s Corporations and Business Service’s website.
When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Effective Date Request – If you want the LLC to start immediately, choose today’s date. If you want to LLC to start later, enter a date less than 90 days in the future to start. The main reason for delaying the LLC start date is when the filing is being done close to the end of a calendar year, and the business isn’t going to have any activity until the following year. By delaying until the following year, they save from having to file one business tax filing.
Period of Duration – If you intend the business to exist forever, which most businesses do, leave “Perpetual” selected. If you have a specific end date in mind (typically used for investment-related businesses), choose how long the LLC will operate after selecting “The period of duration is.”
NAICS – This section is optional and asks for information regarding the activities of the business. To answer, there is a number called NAICS (North American Industrial Classification System). This code is a six-digit number that classifies and categorizes the different business industries. This information is used in reporting statistical data for each of the industries in the U.S. Remember this number as you will need it when filing annual tax returns.
If the activities of your business aren’t specifically listed, choose one that is close. The filing allows for up to three codes to be entered.
Business Purpose – Another optional section, the Secretary of State asks for is some basic information about what the business does. Some will use a statement that keeps the business purpose open-ended that says, “The LLC will and engage in any lawful business activity for which a Limited Liability Company may be organized in New Mexico.”
Principal Place of Business – In this section, enter the street address, city, state, and zip code of the initial principal office. This address can be the LLC’s physical address, or it can be the address where the business records are stored. You may not use a PO Box for the principal place of business. This address can be the same as the Registered Agent.
Mailing Address – If the mailing address is different from the primary place of business, enter that address in this section. If the mailing address is the same as the principal place of business, click on the “Same as” box to copy an earlier used address.
Manager / Member Info – This section asks for information regarding the LLC’s managers and members.
– Managers, also known as a Manager-Managed LLC, are people hired by the members to run the LLC, similar to a CEO of a corporation.
– Members are the owner(s) of an LLC. An LLC managed by the members is known as a Member-Managed LLC. In this setup, the members have an active involvement in the management of the LLC.
Most LLCs are member-managed, and at least one member must be entered.
Learn more about the differences between a member-managed and manager-managed LLC.
Organizer Information – An LLC Organizer is someone involved with the formation of the Articles of Organization. The Organizer may or may not become a member, such as a mentor, attorney, or accountant, but any of the initial members could be listed as organizers. Click the “Add Organizer” button and enter the Organizer’s information.
Estimated Cost: 50 USD
Turnaround Time: It normally takes 2-3 business days for the Secretary of State to process the LLC paperwork.
You don't have to form your LLC by yourself or pay an attorney!Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.
You have a New Mexico LLC. Now what???
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a New Mexico LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number or FEIN) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file state and federal taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
Related: How to Apply for an EIN
Elect the LLC’s Form of Federal Income Taxation
One of the significant benefits of the Limited Liability Company is the tax flexibility it provides. When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:
- Sole proprietorship
While this may sound confusing, this refers to how the LLC is taxed, not the legal structure.
Related: How can an LLC be taxed?
By default, the taxation of an LLC is called pass-through taxation, which means the profits or losses of the LLC flow through to the members.
Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.
Multi-member LLCs will, by default, be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.
In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership is that the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership. As a result, the owner will pay self-employment taxes on all business profits. As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes. Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.
Before electing how your LLC will be taxed, consider talking with an accountant to assess which one will be best for you. Some tax elections, such as the C corporation, may be detrimental for some people due to double taxation.
LLCs in New Mexico that are taxed as a corporation (both C and S) will be assessed a corporate franchise tax, which is a tax for the privilege of doing business in the state. LLCs that are taxed as a sole proprietorship or partnership do not pay this tax, but will pay state income taxes on profits.
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally the bank will request a New Mexico Certificate of Good Standing to prove the LLC is active and in good standing with the state.
Get Business Insurance
Even with the liability protection of the LLC, business insurance is important to protect the business. The most common types of insurance include:
General Liability Insurance – covers damages owed and medical expenses for accidents that happen at your place of business.
Business Property Insurance – replaces damaged, stolen, or lost business property. This includes your physical business location, equipment, supplies, and anything else you used to run your business.
Business Vehicle Insurance – covers company vehicles and may also include coverage for personal vehicles used for business-related activities. Many personal policies won’t cover your vehicle if there is an accident while being used for business purposes.
Workers Compensation Insurance – mandatory in most states if you have employees, this insurance covers medical expenses that occur because of an accident or injury that happens to one of your employees while they’re at work.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting your business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Combined Reporting System Number (CRS) – All businesses in New Mexico must register with the Taxation and Revenue Department.
Common Questions To Starting An LLC In New Mexico
How much does it cost to start an LLC in New Mexico?
The state filing fee to start an LLC in New Mexico is $50.
Is there a yearly fee for an LLC in New Mexico?
Each year, an annual report must be filed, though there is no annual LLC fee.
How long does it take to start an LLC in New Mexico?
It normally takes 2-3 business days for the Secretary of State to process the LLC paperwork.
Do I have to pay to hire a registered agent?
No. Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is an approval from a government entity to legally operate.
What is a Foreign Limited Liability Company?
A foreign LLC refers to an LLC that is physically operating in states outside of the state where it was formed. Physically operating means having a presence, such as having an office or employee in the state. The LLC will need to register as a foreign LLC in each state that the LLC plans to operate.
What is a Professional Limited Liability Company?
Businesses that require occupational licensing in New Mexico, such as accountants, architects, veterinarians, etc., will want to file for a Professional Limited Liability Company (PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.