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If you are thinking about starting a business in New Mexico, organizing it as a limited liability company (LLC) offers many benefits. Using a formal business structure may help to protect you from personal liability for business debts. If, for example, the business owes someone money, they will most likely not be able to come after you to collect the debt.
The names of an LLC’s owners, known as “members,” are not part of the public record in New Mexico, which effectively makes ownership of an LLC anonymous. The cost of creating an LLC in New Mexico is much lower than in many other states.
Here are the six steps you will need to complete in order to form an LLC in New Mexico:
Below, you’ll find a detailed explanation to walk you through each step.
New Mexico law sets several specific requirements for the name of an LLC. The name must be distinct from the name of:
The business name must include one of the following:
A person who intends to create an LLC in New Mexico can reserve that name for up to 120 days. You can use the SOS’s online portal to search business names to see if the one you want is available.
You do not need to reserve the name if you are ready to create your LLC. Name reservation is only necessary if you plan on forming an LLC with that name in the future. You may transfer the name reservation to someone else during the 120-day reservation period, but you may not extend the length of time that the SOS will hold the name for you.
Once you’ve found a name for your business, you can reserve it online or by filing an Application for Reservation of a Domestic Limited Liability Company Name with the SOS. Online reservation is available through the online portal. You will need to create an account at the SOS website.
To reserve a name by mail, you can download the form from the SOS website. You must provide the proposed LLC name and your name and mailing address. You must also provide information on where the SOS should deliver the name reservation document.
The filing fee is $20, whether you file online or by mail. You can mail the form with a check to the SOS at 325 Don Gaspar, Suite 300, Santa Fe, New Mexico 87501.
Some businesses choose to use an assumed name other than their legal name, also known as a DBA (“doing business as”). A business owner who operates as a sole proprietor, meaning they are not registered as a formal business entity with the SOS, may want to use a DBA so that they are not doing business under their individual name. An LLC or other business entity might want to use a DBA for a particular product line or service.
Unfortunately, New Mexico does not allow businesses to register an additional name as a DBA. Choosing a good name for your LLC is therefore very important.
Trademark law protects the right to use brand names, logos, slogans, and designs in connection with a product or service. You may be able to register your business name as a trademark in order to have extra protection against anyone else using the name.
You can register a trademark with the SOS to obtain protection throughout New Mexico. State law does not allow trademark registration until you have begun using the name for business purposes.
You may also register with the U.S. Patent and Trademark Office (USPTO), which protects the trademark nationwide. You must either already be using the name in commerce, or you must have a bona fide intention to begin using it soon.
For either type of registration, you must choose one or more “class codes” from the International Schedule of Classes of Goods and Services. You can apply for a state trademark through an online portal or by filing an Application for Registration of Trademark/Service Mark. You can apply for a federal trademark through the USPTO website.
Information needed for a trademark application includes:
The base filing fee for state trademark registration is $50. For each additional class code, the SOS charges $25. The USPTO’s filing fee is $325 to $350 for each class code.
Once you’ve found a name for your business, you should be ready to file the articles of organization. This document officially creates your LLC as a distinct legal entity.
The SOS charges a $50 fee to file the articles of organization.
The person who files the articles of organization is known as the “organizer.” You can be the organizer of your own LLC, or you can have an LLC formation service do it for you.
You must make several decisions about your business before you can complete the articles of organization. First, you must decide if you want to establish a specific duration for the LLC. Most LLCs have perpetual duration, meaning that they will continue to exist until the members decide to dissolve them. You could, instead, state that the LLC will have a finite life span, such as 20 years.
Next, you must decide how you want to handle the management of the LLC. The members of an LLC are typically in charge of running the business, but they could choose to turn that role over to managers. The relationship between members and managers in an LLC is somewhat similar to shareholders and directors in a corporation. If you will be the only member, or the business will only have a few members, you might not need to have managers run the business.
You will need to provide the following information for the articles of organization:
You must also submit a Statement of Acceptance of Appointment by Designated Initial Registered Agent signed by the registered agent.
The easiest way to file articles of organization is online through the SOS web portal. You can fill in all of the required information, upload documents like the registered agent acceptance statement, pay the filing fee with a credit card, and receive confirmation all at once.
Every business entity registered in New Mexico must designate an individual or business to serve as the company’s registered agent. They must have a street address, not a P.O. Box, in the state where someone is available during business hours to receive paperwork on behalf of the LLC. A registered agent in New Mexico must be either:
The state will send important notifications to the registered agent. If someone files a lawsuit against the LLC in a New Mexico court, the process server will deliver the paperwork to the registered agent.
You may serve as the registered agent for your LLC and use the LLC’s principal business location as the registered office. If you do so, however, you give up the anonymity that comes with creating an LLC in New Mexico. As a member of an LLC, your name and address are not part of the public record. Information about registered agents, however, is available to the public.
Third-party businesses offer registered agent services to LLCs and other businesses registered in New Mexico. Some lawyers or law firms may act as registered agent for their business clients. You may also use a registered agent service, which will act as your registered agent and use its office location as your registered address in exchange for an annual fee. The benefits of this include preserving the anonymity of your LLC’s members and reducing the amount of paperwork that comes to your business address.
You can designate a registered agent when you file the articles of organization. The registered agent must give consent by signing a Statement of Acceptance of Appointment by Designated Initial Registered Agent. You can change the registered agent or registered office by notifying the SOS.
New Mexico law defines an operating agreement as “a written agreement providing for the conduct of the business and affairs of a limited liability company.” It establishes important issues like how members or managers make decisions for the company, how members may receive their shares of business profits, and how to resolve disputes between members or managers. Operating agreements are particularly helpful for LLCs with multiple members, but even single-member LLCs can benefit from having a written set of rules and guidelines for running the company.
An operating agreement is not a legal requirement in New Mexico the way that designating a registered agent is required. That said, having one is a very good idea for most LLCs. An operating agreement can set clear expectations for the LLCs members. It can memorialize the members’ intentions regarding issues like the apportionment of profits and losses, and help you avoid disputes further down the road. It can also help preserve the members’ liability protections by setting clear boundaries for actions taken on behalf of the company.
An LLC operating agreement must be in writing in New Mexico. State law does not set any specific requirements for the form of the agreement beyond that. An operating agreement can supersede most provisions of state law that govern LLC operations.
Contract law suggests that an operating agreement should include every member’s capital contribution to the LLC. Every member should sign the agreement, and the company should keep the original agreement somewhere safe.
Next, you will need to obtain an Employer Identification Number (EIN) from the IRS. This number serves a similar purpose as a Social Security Number. They have the same number of digits, although they are formatted differently. A Social Security number is written xxx-xx-xxxx, while an EIN is written xx-xxxxxxx.
You will need an EIN for your LLC for multiple purposes, including:
If you are located in New Mexico, or anywhere else in the U.S., you can obtain an EIN online, by fax, or by mail. Outside of the U.S., you may be able to apply for an EIN by telephone.
Applying for an EIN online is the fastest method. You should be able to obtain a number right without having to wait. Applying by fax or mail means waiting days or weeks to get your EIN.
Regardless of the method you use to apply for an EIN, you should fill out Form SS-4. The first section of the form asks for the company’s name and contact information, as well as your name as the “responsible party.” Lines 8a-8c ask for information about the LLC. Line 10 asks the reason why you are applying for an EIN. You may choose “Started new business.” You could choose “Hired employees” or “Banking purpose” instead if you think that is more appropriate.
The IRS does not charge a fee to obtain an EIN. To apply by mail, send the completed SS-4 to the Internal Revenue Service, Attn: EIN Operation, Cincinnati, Ohio 45999. You can fax the form to (855) 641-6935.
Figuring out all of the tax obligations is one of the most difficult parts of forming an LLC. Your business will have to file tax returns at the federal level, and possibly at the state and local levels as well.
You have a choice about how the IRS will treat your business for tax purposes. By default, the IRS taxes LLCs like partnerships, which are known as “pass-through” entities. The IRS does not tax the company itself directly. Instead, the LLC’s income passes through to the members, who report their share of business income on a schedule attached to their personal tax returns.
Suppose, for example, that an LLC has two members who own equal shares of the company. The business’s net income, after deducting expenses, is $50,000. Each member would report $25,000 in income on their tax returns.
An LLC with only one member receives different tax treatment from the IRS. It is considered a “disregarded entity” for tax purposes. The member would include all business income, deductions, and losses in a schedule attached to their tax return.
The member(s) of an LLC can elect to have the LLC taxed like a corporation instead of a partnership. Corporations must file their own federal income tax returns. They may have to pay tax on business profits, depending on the type of tax treatment they have chosen. An LLC can elect corporate tax treatment by filing Form 2553.
New Mexico LLCs must pay both federal and state income tax. The state income tax rate depends on the company’s total income. The maximum rate is 4.9%.
Businesses in New Mexico pay a gross receipts tax instead of a sales tax. It is different from a sales tax because the business is the one paying the tax, not the customer. In states with sales tax, businesses add sales tax to the price charged to customers and then remit that amount to the state. New Mexico assesses the gross receipts against businesses themselves.
All of that said, many businesses pass the cost of the gross receipts tax onto customers by charging extra. The two taxes look the same from the customer’s perspective.
The minimum gross receipts tax rate is 5.125%. It may be higher in some areas, up to a maximum of 8.8675%.
As a business owner, you may pay yourself wages or a salary, or you may receive all or a share of the business’ income. If you do not pay yourself through a formal payroll system that deducts federal income tax and payroll taxes, you might have to pay self-employment tax on your income.
Self-employment tax and payroll taxes contribute to Social Security and Medicare. With payroll taxes, the employer matches the amounts withheld from employee paychecks. Self-employment tax is the rate as payroll tax, but you are responsible for all of it. The current rate is 15.3% of your net earnings. This consists of two parts: a 12.4% rate for Social Security and 2.9% for Medicare.
If your LLC has employees, possibly including yourself, you may be required to withhold federal income tax and other taxes from their paychecks, and to pay additional payroll taxes. You must withhold 7.65% of each employee’s pay — 6.3% of this is for Social Security, and 1.45% is for Medicare. As the employer, you are responsible for matching this amount.
The IRS refers to amounts withheld from employee paychecks as “trust funds,” since you are holding that money in trust for your employees’ tax obligations. Failure to send trust fund amounts to the IRS promptly is something the IRS does not take lightly. Typically, employers send withheld amounts to the IRS on a monthly basis. They file Form 941 every calendar quarter.
Employers must also pay unemployment tax based on employee wages to both the state and the IRS. The rate of state unemployment tax is based on your business’ industry. It may change based on whether you have any unemployment claims. The Federal Unemployment Tax (FUTA) rate is set at a maximum of 6%, but you may receive a discount for state unemployment taxes that you have paid. You only have to pay FUTA on the first $7,000 of wages paid to each employee per year. At the highest tax rate, the most you would ever pay in FUTA would be $420 per employee per year.
If you chose to have your LLC taxed as a corporation, you may be required to pay a corporate franchise tax. The amount is typically $50 per year.
Now that you have formed your LLC, obtained an EIN, and figured out your tax obligations, you are almost ready to get to work. Here are a few more steps to make sure you have everything you need.
To help maintain the liability protection offered by the LLC business entity, you need to keep your business assets separate from your personal assets. One of the most important things you can do is set up a bank account in the LLC’s name. In addition to keeping your assets separate, having a business bank account also helps you build credibility for your business.
All business income should go into this new account. You should pay all business expenses from this account. The only time you should ever take money from the business account for yourself is when you are paying yourself wages or a salary, or when you are distributing business income to yourself as a member of the LLC. You should follow the procedures established in your operating agreement for this.
New Mexico currently does not require LLCs to file annual reports. However, this may change over time and it’s important to stay in good standing with the state and maintain annual compliance in case this requirement will change. In addition, you might have to pay the corporate franchise tax each year. You might also have non-official annual fees, such as the fee for a registered agent service.
Your LLC will have annual or periodic financial requirements. Staying on top of these obligations could distract you from running your business. Hiring a financial professional, such as an accountant or bookkeeper, can give you peace of mind that the business is doing everything it needs to do.
Your business might need to obtain licenses or permits to do business in certain areas or to engage in certain activities. If you plan on operating a retail store, for example, you might need a building permit from the city. If your business involves food service, you will need a health permit. Businesses in certain industries might need permits or licenses from the state or a local government. The city or county clerk in your area can give you more information about what you need to do.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.