The state is extremely popular among those who want to keep low costs, optimize taxes and even get some extra privacy. It is easy to tell why – after all, there are no annual fees or reports. You only need a registered agent, which every state in the USA requires.
You can even file for LLC over the Internet, so there is no need to travel there. All in all, there are a bunch of small things that have changed the business face of New Mexico. This article will explore the pros and cons, as well as the procedures to register a company in this state.
Benefits of Company Formation in New Mexico
No annual reports
This is one of the main benefits of the New Mexico company formation system. When most states require such filings on a yearly basis, New Mexico has decided to scrap this requirement. In fact, some states even require such filings on a quarterly basis.As if all these procedures were not enough, most states also require an annual fee, which normally depends on the sales you make – sometimes, it is a flat fee. New Mexico has gotten rid of these issues. There are no requirements or fees involved whatsoever.
Some extra privacy
You cannot register a company in New Mexico in a completely anonymous manner – authorities need to know a thing or two about you. But then, many states keep records public, so everyone can search for your name and see your shares, roles, and so on.In New Mexico, there are a bunch of restrictions against public records. The state is one of the few in the country that does not require your name to be included in the articles of organization when you have to file them.
What does that mean? Simple. Your name or address will not be in public records. Sure, you can choose to do so, but most people would rather appreciate a bit of privacy – especially against unscrupulous individuals and frivolous lawsuits.
Extra protection for assets
Asset protection regulations in New Mexico are extremely high, especially when compared to other states. Different rules apply to different situations, but for example, if you have an operating agreement about each member's responsibilities, it is normally enforced in the letter.What does that mean? Simple – personal assets are well protected against other members’ actions against them. There are a few requirements for such extra protection, but they are normally mild and will not require too much work.
Extra time
Normally, like many other states, New Mexico needs a date for the LLC when you file to register it. So, when do you plan on starting a business? Some people do not have actual dates in mind, or they take one thing at a time, based on their budget.New Mexico authorities understand these necessities, so you will not necessarily require to give such date or start right away. While you should, you have an extra option to delay the starting day – up to 90 days, so it is more than enough to find the perfect time based on your financial situation.
Extended business operations
Again, many New Mexico business people do not live in the actual state. Rules of the state are even more permissive. You do not even need to do business in New Mexico, but just incorporate the business there and do business in your home state. There are no extra requirements in terms of finances or paperwork.For some business people, this is a dream come true. You can open shops or provide services at home, yet you have to double check the regulations there. New Mexico is quite permissive, but your home state may have different rules – in the worst case, there might be some additional paperwork.
Inexpensive services
Different states have different fees when it comes to registering companies. Some of them take weeks to process applications, while others take days. In New Mexico, it will cost you around $50 to register a classic LLC. It is nothing but a simple one time fee.Even if your requirements are higher and you need more licenses, most companies will get everything sorted with less than $300. This amount of money also includes the price for a registered agent for a year – quite difficult to find a better deal out there.
Many business incentives
There are more factors that can create a top-notch climate for business people, and New Mexico has moved in the right direction recently. Business incentives are among the most common factors out there. Some programs are federal, but most of them are governed by the state.For instance, high-salary jobs come with tax credits. It obviously depends on what the business does. But then, once you get a New Mexico company formation service, you can qualify for a tax credit program – 10% of the wages. The maximum limit is set at $12,000, but it may change.
Are you involved with the manufacturing sector? Even better. You have another tax credit, and the business can get just over 5% of the value of all the equipment you purchase. At the same time, you can apply for this benefit on the property used in the manufacturing process.
Business people who focus on rural areas will gain even more. Just like for other credits, you can apply for this one after you actually register the company. This credit goes on taxes due on receipts, personal or corporate income tax.
Not everyone can apply for this benefit, though. In New Mexico, there are some tiers regarding the location of your business. To get this benefit, your business must be in the first two tiers in rural areas. Also, this credit has a limited lifespan – three years only.
Corporation benefits
Based on what type of New Mexico company formation you opt for, you will have different benefits. Corporation benefits go in more directions and bring in a plethora of incentives according to the industry you choose.For example, it makes no difference what type of corporation you have. If the manufacturing industry, you will have benefits for trade support companies in border areas, angel investment credit, high wage jobs tax credit, and all sorts of consumables for manufacturers.
At the same time, there is an investment tax credit for manufacturers, not to mention the single sales factor or the tax credit for rural jobs. Those who live in New Mexico by the Texas border will also have some tax exemption benefits.
S corporations in New Mexico also bring in the benefit of an independent life. The business will keep going and does not have to be dissolved if one of the members leaves or dies – not so common in other states.
Besides, a new S corporation in New Mexico will not pay income tax. In fact, the profit or loss of this company will pass over to stockholders. Therefore, your company does not depend on other people, which is a major plus.
LLC benefits
The LLC brings in lots of benefits, especially in terms of taxation. There is plenty of flexibility there. Taxation will vary between partnerships, sole proprietorships, C or S corporations, so there is plenty of choices.Then, you have the classic incentives based on the industry you choose – some of them are similar to the incentives for corporations, but there are some extras too. Beer and wine producers, for example, benefit from a different tax rate.
As if all these were not enough, the LLC will also come with the traditional limited liability. You will be able to benefit from limited liability protection, meaning someone can sue the company, but not the people behind it.
With these thoughts in mind, New Mexico company formation sounds like a brilliant idea. But just like everything else in this industry, it is not perfect. What works for some people will not work for everyone else – here are some disadvantages to consider too.
Cons of Company Formation in New Mexico
New Mexico poverty rate
You do not have to be a genius to figure it out – New Mexico is not among the richest parts of the USA. In fact, operating a business there implies becoming familiar with the environment. The state has a high poverty rate compared to others.
For instance, in 2019, it was believed that almost 20% of the population could go into the poverty category. Over the USA, the rate was at 10%. Some businesses will not be affected by such numbers, but it is worth being aware of it.
Unemployment rate
The high unemployment rate in New Mexico is not to be overlooked either. On the same note, based on unemployment rates, New Mexico is almost at the end of the country, with just one or two states having a higher unemployment rate.You probably imagine a new business will create jobs, so there should be no problem finding employees. Truth, but at the same time, a high unemployment rate also means people do not have too much money to spend on local businesses.
The necessity of a registered agent
This drawback does not affect New Mexico only, but all states out there. It is not a general rule, though – if you live in New Mexico, you can forget about it. But if you do not, you will need a local registered agent – a service that will also cost money.Taxation without selling
Again, this is not a general rule – however, you might have to pay some sort of tax even if you fail to sell anything. New Mexico has a so called corporate franchise tax. The minimum is set at $50 for now, but it could go higher overtime.Even if you fail to sell anything, if your LLC is made to be taxed as a corporation, you will still have to pay this minimum fee. Obviously, the more you sell, the higher this tax will be, but the minimum must be paid either way. It is not a fortune, but it is worth some consideration.
The necessity of a local address
While you are not required to live in New Mexico, you need a registered agent. You will need an address for your company too. The good news is this is not regulation – fail to include one, and your registered agent's address will be included.
Now that you are aware of the pluses and minuses of New Mexico company formation, how do you do it?
Things to Consider for Company Formation in New Mexico
Come up with a plan
Just like for any other type of venture in life, you will need a plan. You need a business plan to figure out what you need and how to make profit – a business plan is also required if you consider getting a loan for your business. Most lenders will require a plan to see whether or not the loan is worth it.This is not really a requirement, but according to statistics, people with business plans have a high rate of success because they have solutions and follow some steps. You would not travel from one country to another by car without a map or a navigation system, so why would you do it with a business?
Keep an eye on trademarks
This is another important consideration in the process – also overlooked, mostly because it is not really required. You cannot get into business and pick a name if someone else has already thought about it – even worse, registered it.Trademark infringement lawsuits can seriously affect the business – even kill it. Before you pick the name, make sure you double-check trademark search tools to see if variations of your name (if not even the same name) are already trademarked.
Decide on the legal structure
This is the most complicated part in the process because there are more options out there. It is worth noting that most people will go with a corporation or a classic LLC, yet you may have different necessities in the long run. Here are your main options:
- Domestic LLC
- Domestic profit corporation
- Domestic nonprofit corporation
- Domestic cooperative association
- Foreign LLC
- Foreign profit corporation
- Foreign nonprofit corporation
- Foreign cooperative association
- Foreign business trust
- Partnership
Each structure has its benefits and disadvantages. To avoid potential problems, make sure you research each of them – maybe even discuss with a New Mexico company formation service, so you can get guidance based on your needs.
Each business must file with the local Secretary of State. You need to determine what structure you want first. Then, if you choose a service, they can also do all the paperwork for you – you can even do it yourself, as the process is straightforward and costs are quite low.
Get the federal tax ID number
This is basically some sort of identification for your company. Sure, most people will refer to it by its name – while authorities could do that as well, they prefer numbers to avoid confusion at all. It makes no difference if you have employees or not.Either way, you must get the FEIN – Federal Employer Identification Number. This number can also be referred to as EIN. The good news is you do not have to pay any fees to get it – plus, you can get it over the Internet on the official website.
Get a local business tax ID number
Similar to the above-mentioned requirement, the local business tax ID number is just as important. Again, you can do it online – simply get to the official website of the local Tax and Revenue Service Taxpayer Access Point.There are a few steps to go through, including the identification of your business. Also, you will not have to pay anything to get it done. Instead, simply follow a few steps, and you will get the required number straight away. You cannot do business without it.
Register the business with the local county or municipality
This is another major requirement when interested in doing business in New Mexico. Such licenses vary widely, based on the industry you activate in and the type of company you have. Normally, they will cost around $35 a year, but things could change.
Most municipalities and counties in New Mexico require local businesses to register with them and get a license. There are a few forms you must complete and, just like you have probably guessed already, they are all available online.
Get permits and certifications
You will require all sorts of permits and certifications according to what your business is about. Industries like financial services, construction, or manufactured housing will require the appropriate license to operate.The same rule applies to alcohol or gaming, among many others.
Based on what you do, it is up to you to do your homework and research the New Mexico Regulation and Licensing Division. The division has an official website, but you can also ring and discuss what you do if you are not sure about one thing in particular.
If you hire a New Mexico company formation service, an expert will be able to guide you accordingly.
Employee requirements
Now, some companies can do with nothing but a single individual. You are responsible for everything. It depends on the business – as you expand, you can hire more people, but many businesses (especially small and middle businesses) are started by one person only.Whether you hire people straight away or you plan to do it in the future, you need to figure out all the rules and laws regarding employment matters. You must double-check the Department of Labor and its official website to familiarize yourself with the regulations.
At the same time, once you decide to employ someone, you will have to register with the New Mexico Department of Workforce Solutions as well. The registration as an employer can be done online. Companies with more employees will also need worker’s compensation insurance.
Trademark requirements
While this is not mandatory, and you do not necessarily need it, it could be an option if you like to innovate and come up with something unique – the registration of a trademark, copyright, or patent. It will help you retain the rights over your invention or name.For instance, you could get a trademark on the logo. This way, you get exclusive rights for it, and no one can use it or even borrow it. Other items you can cover with such protection include intellectual property, such as a unique process or perhaps a phrase you use in your marketing campaign.
You will need to get in touch with the United States Patent and Trademark Office for such registrations.
FAQs
Still undecided about whether or not to use a New Mexico company formation service?How much are the starting fees for New Mexico company formation?
New Mexico company formation will cost you $50 – more if you hire an agency to do it for you, but not by much. Plus, it can save you the hassle and documentation. Compared to other states, New Mexico is one of the cheapest options out there.What are the annual fees in New Mexico for a company?
Compared to other business-minded states in the USA, New Mexico has no annual fees. Delaware, for instance, will charge around $300 a year, while Nevada goes up to $350. Wyoming will cost you just over $50 a year.Bottom line, New Mexico company formation can make things easy for a lot of entrepreneurs. New Mexico has made a few minor changes over the past years – the type of changes that have turned it into a solid environment for business-minded people.
Just like any other state, New Mexico brings in a plethora of benefits, but at the same time, it may not be the perfect environment for everyone. There are, indeed, many incentives for different types of businesses or industries, but you need to ensure it matches your business needs.
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