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By The Wyoming LLC Attorney Team

Sep 01, 2022
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  1. LLC Benefits

New Mexico LLC Advantages

How to Start an LLC

Forming an LLC in New Mexico offers many advantages and very few disadvantages. Key benefits include asset protection, tax advantages, flexibility in management, the ability to form an anonymous LLC, the ability to form a single member LLC, low filing fees, and no residency requirement. New Mexico's lenient requirements and e-commerce-friendly laws make it a popular choice for LLC formation. Additionally, New Mexico does not require an operating agreement (but, it is still a good idea to have one) and has low annual report fees. In this article, we’ll explore all of these benefits in-depth.

What Is an LLC?

LLC stands for Limited Liability Company and is a business structure that offers certain protections to its members. Owners use this arrangement to shield their personal assets from any lawsuits or losses that the business might face. An LLC is classified as a pass-through entity, allowing the company's profits and losses to flow directly to its members, who then report them on their personal tax returns. There are certain tax advantages and disadvantages to setting up a business as an LLC that we will outline below.

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What Are the Advantages of an LLC?

There are many benefits to starting an LLC. Here are 7 key advantages of forming an LLC in New Mexico.

Limited Personal Liability

The biggest benefit of forming an LLC is the limited personal liability. Members are free to profit from the business knowing their personal assets will be shielded from loss or litigation. An LLC is also able to protect all its members from liability whereas a limited partnership can only protect its partners.

Tax Advantages

Because LLCs are pass-through entities and the company’s income is declared on the individual returns of its members, it is not subject to corporate income tax or double taxation that many C corps have to deal with.

Flexibility

LLCs are in a position to decide on the management structure of their business, and can elect to be taxed as an S Corp if they wish. Consulting with a CPA can help you decide if S Corp filing will give you a tax advantage.

Privacy Protection

In New Mexico you are able to form your LLC anonymously without listing the owners or managers of the company. If you wish for privacy and further separation of your personal and business lives, forming an LLC in New Mexico may be a good step.

No Annual State Fees

Once you've completed the initial paperwork for your LLC formation in New Mexico, there's no need for additional annual filings or fees for its maintenance, unlike in many other states.

No Residency Requirement

The members of an LLC in New Mexico are not required to live in the state, you only have to have a registered agent in the state to qualify.

What Are the Disadvantages of LLCs?

Potential for Higher Taxes

Some businesses will not benefit from the structure of an LLC. Passing business income onto individual returns requires consideration of costs such as self-employment taxes or franchise taxes in certain states.

These costs may actually increase your taxes whereas in another corporate structure, they would be lower or you’d have more deductibles available such as an S Corp or C Corp.

May Deter Investors

Some investors may not wish to contribute to an LLC and would rather invest in a company that’s able to offer stock options.

Extra Bookkeeping Work

Because your business and personal taxes will be combined, and in cases of multi-member LLCs divided between people, it can make for more complicated accounting. You’ll have to ensure that your individual assets and finances are secure as you incorporate your business profits and losses. We highly recommend tapping into the services provided by our partners at Bench. Their comprehensive offerings not only save valuable time but also effectively reduce tax liabilities.

Harder to Transfer Ownership

In some cases, it can be harder to transfer ownership of an LLC than it may be with a corporation. This is because members of corporations are shareholders and they may sell their stock to others fairly easily. In an LLC typically all members have to agree to transfer ownership since there are no stock options.

Who Should Start an LLC in New Mexico?

Many businesses can benefit from forming an LLC. Because of its flexible tax structure and options for filing, an LLC can accommodate many business models. LLCs are good for those who wish to keep their personal assets safe with the limited liability nature of the structure, and who may also benefit from being a pass-through entity. Consulting with an experienced CPA or business lawyer is a good first step when considering how to structure your company.

New Mexico has very lenient requirements for their LLCs which make it a popular state to form businesses in. Because you don’t have to live in New Mexico to form an LLC there and there are no annual fees, businesses from around the country look to it as an option.

Many e-commerce businesses can benefit from forming an LLC in New Mexico due to the lax residency requirements and you can also do all filing online. The only stipulation is that you’ll need a resident registered agent, but there are many in New Mexico who you can hire to complete your in-state filing

How a Business Lawyer Can Help

If you are considering starting an LLC, it can be very beneficial to consult with a business lawyer. Although you do not need a lawyer to file the paperwork needed to start the company, they can be helpful in deciding which tax structure to use (whether you will elect S Corp status). They can help in drafting your articles of organization or your operating agreement.

Setting up the procedures and protocols of your business upfront will allow you to maximize the usefulness of the LLC designation.

A business lawyer can also help you decide which state will be the most advantageous to form in, as each state has its own set of filing and tax requirements. This can be especially useful for companies that do business in multiple states.

There are a number of online options for legal consultation, but it’s always a good idea to seek recommendations from other local businesses as the state laws can vary so much. You’ll want a lawyer who is intimately familiar with all state and federal regulations for LLCs to maximize your profits and minimize your tax liability.

If you're prepared to establish your New Mexico LLC and require guidance, please reach out to us. Our experienced paralegals are available to assist you. Feel free to get in touch by either filling out the contact form or dialing +1 (307) 683-0983.