Over half of new business formations are limited liability companies. Their popularity is due to their asset protection, privacy and tax benefits. It is important to fully understand these benefits to take advantage of them.
Some of these benefits are particular to LLCs in New Mexico and others are available to limited liability companies across the United States. What's important is finding the state which is right for you.
Holding companies and location independent companies, e.g. e-commerce, often come here for the privacy and to avoid high fees. Other states which allow privacy, such as Nevada, Wyoming and Delaware, also charge hundreds of dollars in annual fees.
New Mexico LLCs are commonly chosen for their anonymity and because the Secretary of State has created a friendly atmosphere for businesses. New Mexico checks off a lot of boxes for small business owners, such as:
What's above are just a few ways the Secretary of State makes doing business easy. The online filings and moderate fees show a commitment to creating a friendly haven for companies. Your only annual requirement is to have a registered agent in New Mexico.
These advantages make New Mexico LLCs some of the most competitive for small business owners and privacy minded individuals. Other states, such as Nevada and Delaware, charge several hundred dollars more EVERY YEAR just to do business there.
It is common to confuse corporations and LLCs. This is in part because LLCs can be taxed as S-Corporations. This means if you need S-Corp taxation, then you do not also need a corporation. A limited liability company will do. The differences between the two entities have to do with how they are taxed and managed.
Corporate Governance: Corporations carry a lot of baggage in terms of governance. They must have a board of directors, officers and shareholders. There must, at minimum, be a President, Secretary and Treasurer. Frequent meetings are required and minutes must be taken. These minutes must be held at the principal place of business and be accessible to shareholders on demand.
An LLC, by comparison, may only have members, or can also add managers. Only one annual meeting is required.
Taxes: Corporations may only be taxed as C-Corps or S-Corps. An LLC may be taxed as a disregarded entity, partnership, S-Corp or C-Corp. This flexibility means you are more likely to find a tax election which suits you and provides the most savings.
A corporation is infrequently the better choice due to higher taxes and compliance costs. Only in rare situations will the split share classes and defined management structure be anything more than a barrier to doing business.
The simplicity of starting an LLC, and the benefits it brings, make LLCs the go to entity for most small businesses. These advantages almost always make LLCs a better fit than sole-proprietorships or corporations:
Reason 1) Corporate Veil: This means the company's creditors cannot pursue the owners personally in case of an accident or lawsuit for example. This very benefit is in the name "Limited Liability" Company.
Reason 2) Lower Taxes: The IRS provides benefits to business owners that sole-props do not receive. You can reduce your income taxes, social security, medicaid and other payments to the government.
Reason 3) More Professional: Clients and vendors have more faith you are serious when you go through the effort of making a company.
The reasons above provide a strong incentive to form an LLC. The resulting asset protection, lower taxes and professionalism outweigh any formation costs. Plus, recent changes to tax laws make setting up an LLC more beneficial than ever.
Two additional pages you may enjoy reading are our page on incorporating in New Mexico and our page comparing N.M. to Nevada, Delaware and Wyoming.
The first page covers topics relating to how LLCs relate to corporations and sole proprietorships. It provides an overview of the incorporation process along with articles on filing for a free EIN, setting up a business bank account and more.
The second page shows how LLCs differ across states and can help orient you on which state is the best for you. Several states actively compete for new incorporations with each claiming to be the best. We find New Mexico's reduced reporting requirements, and low fees, tend to make the largest difference to our clients.