How to Form an LLC in New Mexico!

Forming an LLC in New Mexico can provide a number of legal benefits.

Freedom of Contract

The New Mexico LLC Act expressly states its policy is “to give maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.”

The Act gives members contractual freedom to create voting and non-voting classes of membership and to customize their capital contributions and shares of profits and losses.  The ability to create voting and non-voting classes of membership facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.  The ability to specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than a member’s portion of capital contributions gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.

Privacy for Owners

The Act does not require filing of members’ names.  A “person” may organize an LLC by filing its articles of organization with the New Mexico Public Regulation Commission.  The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity.  An LLC’s members may therefore have an entity or person who is not a member file the LLC’s articles of organization.

Perpetual Duration

The Act provides for an LLC’s unlimited life.  Section 53-19-6 states an LLC may have a perpetual duration.  An LLC’s existence can therefore outlive its members’ lifetimes.

Benefits for Business Partners

The New Mexico LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties.  The Act provides a default rule that a member is not liable to the LLC or other members “solely by reason of his act or omission on behalf of the limited liability company in his capacity as a member having particular management responsibilities or as a manager, unless such act or omission constitutes gross negligence or willful misconduct.”  In addition, members must account to the LLC and hold as trustees any profits or benefits they derive from transactions with the LLC or use of the LLC’s property.

But the articles of organization or an LLC agreement may change the default rules.  In addition, the Act contains a “safe harbor” provision for members’ use of the LLC’s property and “interested” transactions, which are transactions between an LLC and one or more of its members or managers.  It provides that members do not have to account to the LLC or hold as trustees any profits or benefits if the use or transactions meet minimum disclosure, approval, or fairness requirements.

Protections Against Unwanted Parties

The New Mexico LLC Act allows members to protect their control of an LLC.  The articles of organization or LLC agreement may prohibit members from assigning their membership interests.  But if the articles of organization and an LLC agreement do not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to participate in management or to become a member.  Instead, the assignee may receive only the distributions to which the assignor would have been entitled, and the non-assigning members must unanimously consent to the assignee becoming a member.

Creditors Only Get Passive Rights, Not Control Rights

Section 53-19-35 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, the judgment creditor has only the rights of an assignee.  That is, the judgment creditor has only the right to receive distributions which would otherwise be paid to the member and does not have a right to participate in management.

Furthermore, section 53-19-38 states that unless the articles of organization or an LLC agreement provide otherwise or all members give unanimous written consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, becomes a debtor in bankruptcy, is adjudicated bankrupt or insolvent, or fails to contest a petition seeking the appointment of a trustee, receiver, or liquidator over his or her property.  These events are considered “events of dissociation.”

Here are the steps you will need to follow to set up an LLC in New Mexico.

Step 1. Choose a Name

The law of New Mexico requires that every LLC name use the words “limited liability company” or “limited company” in its name, although these can be abbreviated. The name needs to be distinguishable from every LLC, LP, or corporation that is formed or authorized to do business in New Mexico.

Step 2. Appoint a Registered Agent in New Mexico

A New Mexico LLC must continuously maintain an agent for service of process in the state.  A commercial registered agent service may act as a New Mexico registered agent.

Step 3. File Articles of Organization

To officially use a New Mexico LLC, it must be filed with the Secretary of State. This is done through Articles of Organization, which are filed with a $50 filing fee and include the name of the company, the name and address of the registered agent, the address of the principal office of the LLC, the duration of the LLC, whether the LLC will be managed by managers, and if the LLC only has one member.

Step 4. Prepare an Operating Agreement

The internal business of a New Mexico LLC is governed by its operating agreement. This must be in writing, and any amendments must be written as well. While the law does not explicitly require an operating agreement, we would recommend that you have one.

There is an additional step you will need to take after you form your New Mexico LLC to finish setting up and maintaining your business.

Get an EIN Number

If you’re going to hire employees for your LLC, or if you have multiple members, you need to request an EIN from the I.R.S. You can do this yourself, or a service like Incnow can obtain one for you.