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Are you looking to start a business in New Mexico? Creating a limited liability company (LLC) offers several advantages, such as safeguarding your personal assets and opening an account with a good business bank. This comprehensive guide outlines 7 steps to help you start an LLC in New Mexico.
You’ll learn how to choose a distinctive business name, designate a registered agent, and submit your articles of organization to the state. With these essential steps covered, you’ll be well on your way to establishing a thriving LLC in New Mexico.
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Pros and Cons of Starting LLC in New Mexico
In New Mexico, commencing an LLC has both benefits and drawbacks, which we will examine below.
Pros
Here are the benefits of LLC in New Mexico
Protection of Limited Liability
Protection of limited liability means that in case of legal action or debt, your personal assets like your home or savings are safeguarded.
Your personal assets will remain secure even if your business fails to perform well. This feature is especially appealing to small business owners who seek to secure their assets against any business-related obligations.
Versatility
LLCs operating in New Mexico possess adaptable management structures, enabling business owners to customize their operating agreements as per their preferences. This includes specifying the responsibilities and roles of members and managers, as well as determining how profits and losses will be shared.
This flexibility enables business owners to devise a structure that aligns with their business objectives and requirements.
Tax Advantages
LLCs follow a pass-through taxation structure, where the business’s profits and losses are reflected on your personal tax returns instead of being taxed separately. Lower taxes and simplified tax filings can be a potential outcome of this. Business owners in New Mexico can elect to classify their LLC as either an S corporation or a C corporation, depending on their objectives.
Choosing to structure your business as an S corporation eliminates corporate-level taxation. Alternatively, C corporations can be a suitable option for companies looking to reinvest earnings and avoid dual taxation. This added flexibility can offer significant benefits for small businesses. Read more about LLC taxes here.
Cons
Here are the drawbacks of LLC in New Mexico
Extra Paperwork
Establishing an LLC involves more paperwork and continuous maintenance compared to other business structures. In New Mexico, LLCs must file annual reports and maintain separate business bank accounts. This additional documentation can be time-consuming and costly, which could pose a significant disadvantage to small businesses.
Limitations in Raising Funds
Unlike corporations, LLCs are unable to issue stock shares to obtain funds. This can create difficulties for LLCs in attracting investors and securing financing. Some investors may demand a better understanding of LLCs’ comparatively recent legal status and the risks linked with privately owned small businesses. Here’s how LLCs differ from corporations.
Additionally, admitting new members into an LLC can be more complex than selling stock in a corporation. As a result, LLCs may require assistance in procuring the necessary capital for starting or expanding their operations.
Loan Acquisition Challenges
LLCs may face challenges when seeking loans from banks compared to other business structures. This is because they are relatively new legal entities and are often small and privately held, making them perceived as riskier. Consequently, lenders may demand personal guarantees from the LLC’s managers or members or require the LLC to obtain personal loans instead of business loans.
7 Steps on How to Start LLC in New Mexico
Here are the steps on how to open LLC in New Mexico:
1. Create a Realistic Budget for Your LLC
Forming an LLC in New Mexico costs about $50, making it one of the most affordable states in the country for LLC filing fees. However, additional fees will apply if you choose to hire a company to assist you in setting up your LLC or to act as your registered agent. The cost of these services can vary considerably, depending on the company you choose and the specific services you require.
To avoid unexpected expenses, it’s essential to accurately budget for the services you need. Carefully consider the costs associated with your chosen company and factor them into your overall budget. This way, you can ensure that you have a realistic estimate of the total costs of forming and maintaining your LLC in New Mexico.
2. Ensure Your LLC Name is Available and Reserve It in New Mexico
Before starting the LLC process in New Mexico, it’s crucial to confirm that the desired business name is available. In case the name you’ve chosen for your business is either already in use or too similar to an existing name registered with the Secretary of State, you’ll have to opt for an alternative name. You can verify the availability of a name by utilizing the Secretary of State’s business search portal. If the name is available, you can go ahead and file the paperwork for your LLC.
To guarantee exclusive usage of your preferred LLC name for up to 120 days, you may choose to reserve it. Though not mandatory, reserving the name can help you avoid losing it to another business. Remember that you cannot renew the name reservation once the 120-day window has passed.
3. Designate a Registered Agent for Your LLC
LLCs in New Mexico must designate a registered agent and provide a registered office address to receive official documentation on their behalf. You can either appoint yourself or a resident employee of New Mexico as your agent, but they must have a physical address in the state. P.O. boxes are not permitted. The registered office address should match the agent’s business address.
Alternatively, if you do not wish to designate an individual as your registered agent, you may engage a company to serve as your agent. The typical fee for a registered agent’s services is between $100 and $300, depending on the company and the services offered. Before choosing a company, read reviews and testimonials and ask specific questions about the services you intend to purchase to ensure you are getting the best deal.
4. Submit Your New Mexico LLC Forms
To file for an LLC in New Mexico, the forms and fees you need to submit will depend on whether you are a domestic or foreign entity. For in-state LLCs, domestic entities are required to create an online account and complete the filing process, with a filing fee of $50.
On the contrary, foreign entities cannot file online and are obligated to send their Certificate of Registration forms to the Secretary of State through mail. They also need to provide a certificate of good standing from their state of origin.
It is advisable to make payments via checks or money orders and ensure they are made out to “New Mexico Secretary of State” or “NMSOS” to avoid any payment processing issues.
5. Obtain an Employer Identification Number (EIN) for Your LLC
Most businesses are required to obtain a federal EIN, except for single-member LLCs that do not have any employees. Getting an EIN (Employer Identification Number) is a great way to protect your Social Security number from exposure or potential fraud. It is a free process and can be accomplished on the IRS website. Note that EINs may also be referred to as Federal Employer Identification Numbers (FEIN) or Federal Tax Identification Numbers (FTIN), but they are all the same thing.
Apart from acquiring an EIN, every business operating in New Mexico must also register with the New Mexico Department of Taxation and Revenue. Following the registration process, you will receive one or more New Mexico business tax ID numbers based on the types of state taxes applicable to your business.
6. Apply for Necessary Business Licenses
Ensuring the legal operation of your business may necessitate obtaining licenses from the state, localities, or even the federal government. In certain cities or counties in New Mexico, businesses may be obligated to have a general business license.
Moreover, the state mandates licenses for specific industries and professions, whereas certain industries are regulated and licensed by the federal government. Conducting thorough research and obtaining all requisite licenses is critical to ensure that your LLC is functioning legally.
7. Draft an Operating Agreement for Your LLC
While LLC operating agreements are not required in New Mexico, it’s still recommended to create one. The operating agreement is a fundamental document for your LLC that outlines the financial obligations and member responsibilities. Having a well-crafted operating agreement for your New Mexico LLC makes it more legitimate. It’s a good practice to create one to avoid confusion or internal disputes down the line.
Frequently Asked Questions
Conclusion
If you are looking to start an LLC in the United States, New Mexico is a great place to consider. This guide provides in-depth research to help business owners who are interested in starting an LLC in New Mexico.
To ensure a successful LLC formation process, it’s essential to follow the steps outlined above carefully. Additionally, we have answered some frequently asked questions for individuals who are interested in starting an LLC in New Mexico.
