If you currently have a corporation in New Mexico and want to convert it to an LLC, you must ensure you understand the basic process for converting a business entity within New Mexico. You should also expect complicated tax consequences when you change your corp to form an LLC. As such, you should always consult with a tax adviser prior to making the change. As your registered agent we are happy to provide a reference.
Varying Types of Conversions
To further complicate the process of converting from a corp to LLC in New Mexico, there are numerous variations. You can have one of several types of corporations or one of several LLC tax statuses. There are even multiple types of conversion. Some distinctions to consider include:
- S corps vs. C corps.
- Nonprofit corps vs. for-profit corps.
- Corps formed in New Mexico vs. in other states.
- Single-member vs. multi-member limited liability companies.
- LLCs with taxation as partnerships, corporations, vs. disregarded entities.
There are also multiple ways to convert a business, including non-statutory or statutory conversion and statutory mergers.
It is not realistic to explore every combination. For simplicity, the following information focuses on for-profit corporations in New Mexico that are closely held and want to convert to a multi-member LLC.
The Conversion Statute
New Mexico offers a simplified process for converting your business via several documents. The PRC (Public Regulation Commission) receives these documents from you. This process allows for “statutory conversion” and will automatically transfer all liabilities and assets to the LLC. There is no need to form a separate LLC before beginning; the process only involves a single business entity. You can view the specific code in the New Mexico Statutes Annotated Sections 53-19-59 to 53-19-63.
To begin the process of converting a New Mexico corp to an LLC, you must provide the conversion agreement. You must also receive approval of this conversion’s conditions and terms from shareholders. Finally, you must file your statement related to the organization articles and conversion with the Public Regulation Commission.
The previously mentioned conversion agreement must outline the conditions and terms for the conversion related to the shareholders’ stocks and how they will become either cash or membership in the LLC. The default is that the conversion’s conditions and terms must follow those of your governing document, such as the organization articles. In the case where you do not have these guidelines in a document, all shareholders must consent.
You will not find a form to fill out for the conversion statement. You must create your own draft. Within your conversion statement, you must include the following information:
- A specific statement that you converted your corp to LLC.
- The corp name before the conversion.
- The quantity of votes shareholders made against and for the conversion. In non- unanimous cases, you must also include the required percentage to gain approval based on governing documents.
- A statement canceling the incorporation certificate at the time of your conversion.
There are also specific requirements regarding the new LLC’s organization articles. These must feature:
- Name of the newly converted LLC.
- The initial registered office’s street address with the name of your registered agent.
- The principal place for business’s street address, if not the same.
- The duration of the LLC.
- The statement that it is an LLC with single membership or that a manager manages it if it applies.
- The signature of at least one authorized individual.
There is a blank form available from PRC for this purpose.
You will also have to pay a filing fee of $150. This includes your articles of organization in addition to the conversion statement.
Other Steps to Take
In addition to the above legal steps, you must also ensure you complete the tasks any new LLC must complete. These include things like notifying clients and suppliers of the new status, holding any required meetings, keeping minutes of those meetings, using the name properly, and separating LLC finances.
Be sure to go over the tax implications of your conversion from a corporation to an LLC with a lawyer or tax adviser as well.