A limited liability company (“LLC”) is a type of business structure that may be utilized by a prospective business owner. According to United States business law, if an individual or entity files a lawsuit against a corporation, and the lawsuit is successful, only the corporation will be liable to pay money out of the corporation’s assets.
This means that individual members’ and owners’ own assets are not accessed when determining liability or paying corporate debts. This is one of the main reasons that prospective or current business owners choose to form an LLC, because they are not personally liable for the corporation’s debts. Additionally members and owners are also not responsible for any damages awarded against the corporation in a lawsuit.
One of the main disadvantages in forming an LLC may be the risk of double taxation. Double taxation means that corporate profits are first taxed to the corporation as they are earned, and then the profits are taxed to each individual shareholder as capital gains income when the shareholders receive their respective dividends. Another example of a disadvantage associated with an LLC is that the liability of LLC structures is such that owners may still be sued for their own negligent actions.
Similar to partnerships, LLCs are not taxed at the entity level. This means that unlike corporations, LLCs do not pay taxes as an LLC. The only taxes that are paid by the LLC are paid by individual members who have earned profit.
To reiterate, limited liability companies differ from corporations in terms of the ownership structure. A LLC is owned by its members or a group of individuals, while corporations are owned by shareholders.
Who Should Form an LLC?
In terms of who should consider forming an LLC, prospective business owners who wish to own a small business should always consider forming an LLC. As mentioned above, forming an LLC protects a person’s assets by limiting liability to the LLC’s own resources. As such, if the LLC is sued, the small business owner would not have to pay the lawsuit damages out of their own personal assets.
Business owners interested in forming a business with less paperwork and costs should also consider forming an LLC. This is because LLC formation only requires filing a few simple documents, such as articles of organization with the state. A small filing fee must also be paid. This small fee is generally less expensive than the required fee for forming a traditional corporation.
Additionally, keeping track of LLC income and expenses is considerably simple. This is due to the fact that under an LLC business structure, a separate tax return filing is not required. Instead, the members and managers will report all their respective income and expenses on their individual tax returns.
The management of an LLC is also often simple. This is because an LLC with two or more individuals can, and often do, develop an operating agreement. Within an operating agreement, the members will provide details regarding how the LLC is governed, how profits will be allocated to each individual member, and what members’ votes are needed for specific actions taken by the LLC.
Additionally, an operating agreement may also address how the LLC may be dissolved or shut down. The operating agreement will also commonly provide rules as to how disputes among LLC members are to be resolved. Further the operating agreement will provide information as to what happens if a managing LLC member dies or becomes incapacitated.
How Do I Form an LLC in New Mexico?
In New Mexico, individuals have the option of filing the necessary paperwork required to form an LLC in person, via mail, or online.It is important to note that if an individual chooses to file in person or through the mail, they will need to provide both the original paperwork, along with a duplicate of the paperwork.
Importantly, there are separate required forms for in-state, or domestic, LLCs and out-of-state, or foreign, LLCs. As such, if you are not a business located within the state of New Mexico, you will need to visit the New Mexico Secretary of State website to find and fill out the appropriate forms. If you are an individual who wants to establish a domestic LLC, then you will need to first file “Articles of Organization.”
The following information will be required in order to complete the form for Articles of Organization:
- The name of the LLC
- It is important to note that you are not allowed to choose a name that someone has already used;
- A New Mexico office address for the LLC
- It is important to note that the address cannot be a post office box, as the address will be used for service of process;
- A date that the LLC will end, if you do not want the LLC to last in perpetuity;
- The LLC organizer’s name, address, and signature;
- A statement as to whether or not the LLC will have more than one member;
- The LLC’s registered agent’s name and address
- A business is permitted to be the registered agent, but they must possess a physical New Mexico address;
- The date the organizer wants the Articles of Organization to become effective, if they do not want them to become effective right away; and
- Whether or not the LLC will be run by a manager.
As noted above, there are different requirements for the formation of LLCs that are outside New Mexico. Similar to domestic LLCs, foreign LLC that want to engage in business in New Mexico are required to file an Application for Registration. Although the form for a foreign LLC requires much of the same information required by the form for a domestic LLC, the Application for
Registration does not require the foreign business to disclose whether the LLC will be run by a manager or whether the LLC is a single-member LLC. However, the application does require a statement as to where the foreign LLC was originally formed, the name(s) of whoever is managing the LLC, and the physical office address for LLC in its location of origin.
Regardless of whether you are filing Articles of Organization as a domestic LLC or if you are filing Application for Registration as a foreign LLC, you will also need to file a completed Statement of Acceptance of Appointment by Designated Initial Registered Agent.
Additionally, depending what kind of business you are filing for, you may need to file additional paperwork in order to obtain an Employer Identification Number (“EIN”), sales tax registration, payroll registration, and/or professional business licensing.
What Are the Advantages of Forming an LLC in New Mexico?
As noted above, there are many advantages of forming an LLC. First, owners of an LLC in New Mexico will have limited liability protection similar to that of a traditional corporation. Also, having an LLC offers a lot more flexibility for the distribution of profits, as LLCs do not require a 50-50 profit split like partnerships.
Additionally, New Mexico is the only state that does not require the members of the LLC to provide their actual names. Under New Mexico law, the members do not even have to be the ones who are initially registering the company. This means that the members of an LLC in New Mexico are able to remain completely anonymous if they so wish.
What Are the Disadvantages of Forming an LLC in New Mexico?
Under the laws of New Mexico, an LLC is required u to withhold the income taxes for any of its members who live out of state and pay these taxes on the members’ behalf. This is done as part of filing the annual withholding of net Income from a pass-through entity detail report, rather than simply passing on the profits to its members and allowing them to figure out how much income tax they owe to the state.
A member of the LLC can circumvent this requirement and opt to pay their own taxes by filing an Owner’s or Remittee’s Agreement to pay withholding on behalf of a pass-through entity or Remitter. However, this form will need to be filed by that member each and every year that the member wants to be the one responsible for paying their own taxes. If not, the LLC will be required to withhold their taxes from the profits to which that member is entitled.
Do I Need a Lawyer for Help With Forming an LLC in New Mexico?
If you want to form an LLC in New Mexico, you should contact an experienced New Mexico corporate lawyer. An experienced corporation attorney can help you navigate through the LLC formation process. Additionally, an experienced business attorney will also be able to ensure that you choose the most appropriate business structure suited to the needs of your business.
Additionally, an attorney will also be able to educate you regarding the upkeep of the LLC, along with explaining the local tax laws. Finally, an attorney will also be able to represent you in court, as needed, should any legal issues arise regarding the formation or operation of the LLC.
