An LLC, or a Limited Liability Company, is a business structure used in the US for running a business. Instead of an unregistered business such as a sole proprietorship, registering a business as an LLC can have some benefits enjoyed by corporations. However, regulations surrounding LLCs are highly dependent on the state in which they’re registered and things can be significantly different from one state to another. Looking at the different factors involved, there are certain pros and cons associated with forming an LLC in New Mexico.
New Mexico has truly made it easy for people to form LLCs in the state. Firstly, New Mexico offers a highly competitive filing fee for those establishing an LLC at $50. This is incredibly low given a state such as Massachusetts would require a filing fee of $400.
After the initial payment of the filing fee, an LLC in New Mexico does not have to pay an annual fee, unlike other states. The state also does not require annual reports. New Mexico offers true anonymity as the only names needed in the documents of the LLC are the organizer and the registered agent. The benefits of an LLC in New Mexico would then be weighed with the socioeconomic characteristics of the state.
Pros of Forming an LLC in New Mexico
Annual fees are typically required by the state to keep LLCs in compliance and in good standing. Depending on the state, the LLC must pay a fee annually or every two years. Unfortunately, the annual fee is typically not dependent on the income or activity of the LLC which means as long as the LLC is operational, it must pay annual fees.
Annual fees can vary across different states; LLCs in Alaska are required to pay an annual fee of $100 every two years while LLCs in California pay more than $800 in annual fees. However, the Secretary of State of New Mexico prioritized making the state inexpensive when it comes to forming businesses and entering commerce. Thus, LLCs in New Mexico do not have to pay annual fees in order to be compliant and operational.
Annual reports are documents that detail the activities of a company throughout a fiscal year. They give the state an idea of how the LLC is doing, and it is also a way to update the state with the information regarding the names and addresses of directors or managing members of a corporation or LLC as well as the company and registered agent address.
Some states have a predetermined date where all LLCs must submit their annual reports before regardless of when the LLCs were formed while some states require the submission of the annual reports on the anniversaries of the formation of the LLCs.
Since LLCs are registered at the state, most states require annual reports to be submitted. In contrast, sole proprietorships and partnerships do not have to submit annual reports to the state. However, some might find it advantageous that New Mexico does not require LLCs to submit annual reports.
Once the organizer – the individual or entity primarily responsible for the technical formation and establishment of the LLC – has submitted the Articles of Organization – the necessary documents for LLC establishment – they can then proceed to pay the filing fee. Filing fees vary from one state to another and can become quite competitive. While some states have a higher barrier to entry with an exorbitant filing fee, other states are more welcoming with a minimal filing fee.
Filing fees are decided by the state and vary from one to another. For example, a lot of states have filing fees set at $100 such as Georgia, Idaho, Louisiana, Maryland, New Hampshire, Oklahoma, Oregon, Virginia, West Virginia, and Wyoming. Many states have filing fees higher than $100 such as Illinois with $150, Alabama with $200, Alaska with $250, and so on. Filing fees can also be quite expensive such as the case for Texas with $300, Nevada with $425, and Massachusetts with $500.
Since the state of New Mexico promotes the formation and operation of businesses in the state, the state offers a highly competitive filing fee of only $50. With a filing fee of $50, New Mexico has one of the lowest filing fees aside from Arkansas with $45 and Kentucky with $40.
Registering a business with the state confers several benefits which effectively drive people to form LLCs. For one, LLCs provide limited liability protection to the members (owners) of the LLC. This means in the event of debt and legal action, the financial burden does not befall the members, thereby protecting their own personal assets such as property, cars, and bank accounts.
Business owners forming an LLC also enjoy pass-through taxation where the taxes generated by the LLC passes through on to their own personal tax. This is in contrast with corporations that have double taxation where they pay taxes for both the business and themselves separately.
However, one disadvantage to forming a legal entity recognized by the state government is that the personal information of the people involved has to be listed and becomes public record. While this is acceptable to many individuals, there are those who would rather keep their anonymity. For these people, they would rather opt for an anonymous LLC.
An anonymous LLC is one where the ownership information of the LLC is not made publicly available by the state where the LLC is registered. Unfortunately, individuals who would want to form an anonymous LLC would have to operate in states that support anonymous LLCs.
It is said that while some states do support anonymous LLCs, New Mexico is one of the states that allows for truly anonymous LLCs. This is because the state does not maintain any records of ownership or management at all. In New Mexico, the only names required to be listed in the Articles of Organization are the organizer and the registered agent as they act as the point of contact between the state and the LLC.
Disadvantages of Forming an LLC in New Mexico
Operating a business in a state requires one to be familiar with the sociodemographic of the people living there. While New Mexico does make it easy for new business owners to form LLCs, they have to keep in mind that the state does have one of the highest poverty rates in the country. In 2019, it was estimated that 18.2% of the population in New Mexico was listed to be in poverty. This is especially alarming as the poverty rate of the US for 2019 was at 10.5%; This means that New Mexico had a poverty rate almost twice that of the country’s poverty line.
While there are businesses that might not be affected by this statistic, it is still one that new business owners have to keep in mind if they are considering forming an LLC in New Mexico.
Another statistic to consider is the high unemployment rate in New Mexico. According to the US Bureau of Labor Statistics, New Mexico is ranked 48th of all the states according to the unemployment rate as of April 2021. Unemployment rates are an important marker for businesses to consider because when unemployment is up, more people have less money to spend on goods and services.