How to Start a Business in New Mexico

Starting a business in New Mexico is an excellent idea for those with an entrepreneurial spirit. New Mexico is a good place to start a business, supported by business formation data from the US Census Bureau, which showed that in 2022 26,971 new businesses got started in the state. According to the Tax Foundation, New Mexico has the best property tax environment and the 9th lowest unemployment insurance tax.

New Mexico is also very business-friendly because it has some of the lowest business formation costs:

• LLCs cost $50 (3rd lowest)
• Corporations cost $60 (10th lowest)
• DBAs for Sole Proprietors and Partnerships cost $10 (5th lowest)

If you’re considering starting a business in New Mexico, continue reading to find out more on how to get started.

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1. Research and Plan your Business

Before starting your business, it is crucial to conduct preliminary research on your business idea and develop a comprehensive business plan. Market research will provide clarity on your target market, competitors, and unique selling point (USP).

Once you have gathered this information, it is important to draft a well-thought-out business plan. Although you may be tempted to skip this step and dive right into action, a solid business plan will serve as your support system throughout the entire process. It will guide you in pursuing growth and increase your chances of success. In fact, researchers at Harvard Business Review found that businesses with a clear and written business plan were 16% more likely to succeed compared to those without a plan.

It is worth noting that your business plan doesn’t have to be overly complex. Even a concise plan of just three pages can serve as a strong foundation. Your business plan will provide a framework for the future of your business and answer key questions such as:

• What sets you apart from the competition (USP)?
• Who is your target market?
• What will drive your revenue?
• How will you market and promote your business?
• What resources do you need to get started?

By investing time and effort into developing a well-crafted business plan, you will set yourself up for success and ensure a clear path forward for your business.

Recommended Additional Reading:Unlock the Secrets to Creating a Business Plan that Works

2. Choose a Business Structure

Next, it’s time to choose a legal structure for your business. Consider your comfort level with personal liability risk, desired tax status, and source of capital. There are four common types of business structures to explore:

• Limited Liability Company (LLC)
• Corporation
• Sole Proprietorship
• Partnership

Limited Liability Company (LLC)

According to Small Business Administration, LLCs are the most common formal business entity types. They’re a separate legal entity from their members – the people who own them. This provides owners with limited personal liability. If the LLC incurs debt or gets sued, this legal structure can protect the owners’ personal assets.

LLCs allow for an easy-to-manage business entity with favorable tax treatment. They can default as pass-through entities for taxation but are also flexible to elect C-Corporation or S-Corporation taxation. This flexibility lets owners focus on their core business without potentially complicated corporate tax planning. Therefore it shouldn’t be surprising that LLCs have become the go-to choice for many small business owners.

The level of protection and tax advantages offered by LLCs makes them a top choice for entrepreneurs who want limited personal liability protection and favorable tax treatment.

Additional Information:Pros and Cons of LLCs

Corporation

A corporation is a separate legal entity from its owners. It possesses similar rights and responsibilities as individuals, such as entering legal agreements, borrowing money, hiring staff, owning assets, and paying taxes. Limited liability is a key advantage, where shareholders profit from dividends and stock appreciation without being responsible for the company’s debts. Many large businesses, like Microsoft and Coca-Cola, are corporations. Some corporations have separate business names, like Alphabet Inc. doing business as Google. By separating ownership from operations, corporations enhance long-term planning and can exist indefinitely. They also provide an efficient way to raise capital for business expansion, stimulating economic growth.

Additional Information:What is a Corporation as a business?

Sole Proprietorship

If you don’t register a single-owner business in New Mexico under a formal structure like an LLC or Corporation, you’re automatically a sole proprietor. It’s a straightforward way to start a business and gives you complete control over your business. In a sole proprietorship, you and the business are legally seen as one and the same, which means any debt the business incurs is your personal liability.

Sole proprietorships are not the best pick for high-risk business ventures, as raising money can be challenging since you can’t sell stock, and banks are often hesitant to give loans to sole proprietorships. Nonetheless, a sole proprietorship can be the way to go for low-risk business ideas when you want to test their business concept before going for something more formal.

Additional Information:A Guide to Sole Proprietorships: Pros and Cons

Partnership

A general partnership is when two or more individuals agree to share a jointly-owned business’s responsibilities, assets, profits, and financial and legal liabilities. It’s important to know that partners may be personally responsible for unlimited liability in a general partnership. Unlike a limited liability partnership or an LLC, liabilities aren’t capped. Partners can be held personally accountable for the business’s debts and may even have their assets seized. It’s also important to remember that any partner can be sued for the business’s debts. Even if your partners are sued, you can also be held personally liable. Since a general partnership is a pass-through entity, the partnership’s income goes straight to the owners. Partners report their share of the profits or losses on their personal tax return. Remember, the partnership itself isn’t taxed.

Additional Information:Pros and Cons of Operating as a Partnership

3. Choose your Business Name

Every business needs a name. The next step for your New Mexico business should be to choose one so that you can get ready for business registration. Your business name helps to form its identity and can affect how your business is viewed, so be careful to choose something that works for your business. Your business name should help you to start building your brand identity. You also want it to be something your customers can easily pronounce, remember, and search online.

Use our guide on how to think of a business name if you need more detailed help creating your name.

4. Register your Business

Once have made the decisions regarding your business structure and name, the next step is to focus on officially registering your business. The process for getting your business name registered in New Mexico may differ depending on the chosen business structure. Let’s explore each of them briefly.

• Register a New Mexico LLC
• Register a New Mexico Corporation
• Register a New Mexico Sole Proprietorship
• Register a New Mexico Partnership

Register a New Mexico LLC

Forming an LLC in New Mexico requires you to file Articles of Organization with the New Mexico Secretary of State which has a filing fee of 50. Before you can complete your filing, you first need to check that no other business is using the name that you want to use. Carry out a New Mexico business name availability search to do this, and you can file your Articles of Organization if your name is available. If not, you will have to come up with a new one. Your filing needs to include the name and address of your LLC, as well as the owner’s or owners’ contact information. It is also necessary to appoint a New Mexico registered agent. At this stage, it’s also smart to create an operating agreement to outline how your business will operate, who owns how much of the LLC, and what voting rights owners have.

Register a New Mexico Corporation

To a corporation in New Mexico, you need to submit Articles of Incorporation to the New Mexico Secretary of State and pay the 100 filing fee. It is also crucial to appoint a registered agent who will handle service of process documents. Moreover, drafting a corporate bylaws document will provide you with a comprehensive set of internal operating rules for your corporation.

Register a New Mexico Sole Proprietorship

The process of starting a sole proprietorship in New Mexico is a simpler process than forming an LLC or Corporation. You aren’t required to file any documents at the state level, but there are some formal steps that you might need to take. For your business name, the legal name for a sole proprietorship is your personal name. If you want to operate under another name you will need to file a Trademark/Service Mark with the New Mexico Secretary of State, to prevent other New Mexico businesses from using your name. You’ll also need to obtain any applicable business licenses/permits and likely a New Mexico Business Tax Identification Number, which are outlined in steps below.

Register a New Mexico Partnership

A general partnership in New Mexico does not require any formal filings to start, but you can file a “General Partnership Registration Form” with the New Mexico Secretary of State. It’s highly recommended that you file this form to have a formal record of your partnership. This does not protect your business name, so if you want formal protection you’ll need to file file a Trademark/Service Mark with the New Mexico Secretary of State. In addition, you should write a partnership agreement document. Although it’s not legally required, it ensures you are clear about how decisions are made within the business. This can help to deal with disputes later.

5. Get an EIN

An Employer ID Number (EIN) is used by the IRS for both tax filing and employment. Not every business is required to have one, but it can be useful even for businesses that don’t need one. A Corporation, Partnership, or an LLC needs to have an EIN. Even if your business is a sole proprietorship or an LLC with only one owner, getting an EIN is a good idea because you can use it on forms in place of your social security number.

6. Register for New Mexico Gross Receipts Tax

In New Mexico, businesses are subject to a gross receipts tax similar to a sales tax. The tax rate varies from 5% to 9.3125% across the state, depending on rates imposed by the state, counties, and municipalities where businesses operate. Businesses remit the total tax to the state, which then distributes portions to counties and municipalities. All individuals conducting business in New Mexico are required to complete registration with the Taxation and Revenue Department.

How to Know if you’re subject to New Mexico Gross Receipts Tax?

All individuals doing business in New Mexico must register with the Taxation and Revenue Department. “Engaging in business” includes any actions taken to obtain direct or indirect benefits. Compliance is crucial for regulatory adherence and transparency. Gross receipts encompass the monetary value derived from various activities like:

• Selling a property in the state of New Mexico.
• Leasing or licensing property within the boundaries of the state.
• Granting rights to use a franchise operating within New Mexico.
• Providing services both within and outside of New Mexico, with the final product being initially used within the state.
• Selling research and development services from outside of New Mexico, with the resulting product being first utilized within the state.

For businesses without a physical presence in this state, including a marketplace provider, being “engaged in business” means having a total taxable gross income of at least $100,000 in the previous calendar year. This includes income from sales, leases, licenses of tangible personal property, as well as sales of services and licenses for the use of tangible property sourced to New Mexico.

For more detailed information visit the NM Taxation and Revenue Department: Gross Receipts Tax Overview page or contact a qualified New Mexico tax professional.

7. Apply for New Mexico Business Licenses and Permits

To ensure legal compliance with federal, state, and local laws, it is important for your business to obtain one or more business licenses and/or permits. The specific licenses and permits required will vary depending on various factors, such as the nature of your business, the products and services you offer, the data you collect, and your location. It is crucial to understand and adhere to these requirements to operate your business smoothly and within the bounds of the law.

Federal Licenses and Permits

Your business may need a license or permit to operate legally if your business is involved in an activity that is regulated at the federal level, such as:

• Agriculture
• Alcoholic beverages
• Aviation
• Firearms, ammunition, and explosives
• Fish and wildlife
• Commercial fisheries
• Maritime transportation
• Mining and drilling
• Nuclear energy
• Radio and television broadcasting
• Transportation and logistics

For more detailed information on federal business licenses and permits visit the Small Business Administration: Federal Licenses and Permits page.

State and Local Licenses and Permits

A general business license is not required in New Mexico, however most businesses will require a local business license.For more detailed information visit the New Mexico Regulation & Licensing Department Business License page.

8. Open a Business Bank Account

A separate business bank account is important to have for your business. It ensures you can avoid mixing up your personal and business finances, known as “co-mingling funds”, which can cause problems for you later. Keeping your finances separate makes it easier to maintain your accounting and bookkeeping. It also means you won’t risk losing your limited liability if your business is an LLC or Corporation. Separate business finances protect you from debt and legal issues.

Not only does this make bookkeeping and accounting much harder, but it can also result in losing your limited liability status if you’re an LLC or Corporation. If you mix your personal and business funds, you can put yourself at serious legal risk if your business is sued by piercing the corporate veil. By opening a dedicated business bank account and use it strictly for business activity, you can avoid these risks.

Take a look at our guide to opening a business bank account to find more details on how to choose a bank account provider and open up your business bank account.

9. Set Up Credit Card Processing

If your business doesn’t accept debit and credit card payments, you could miss out on a lot of business. Whether you have a brick-and-mortar business, an online business or need to accept payments on the go, card processing is important.

For a more detailed breakdown of the topic, see our Guide: a href=”https://stepstostartingabusiness.com/how-to-accept-credit-card-payments/” target=”blank”>How to Accept Credit Card Payments

10. Establish an Accounting System

An accounting system allows you to track and manage your business finances in a number of ways. When you set up your accounting system, you will be able to create budgets, keep an eye on your incomings and outgoings, and create financial reports for your business.

Our Small Business Accounting 101 guide gives you more help on how to set up your accounting system, making important decisions about your accounting, and the essential steps, which you can find here.

11. Get Business Insurance

Don’t forget one of the most important steps of starting a business in New Mexico – taking out business insurance. The right insurance will protect your business in various ways. If you experience a lawsuit, an accident occurs, or a natural disaster or weather event takes place, your business is protected with insurance in place.

Check out our guide on Small Business Insurance, where we go over the six types of business insurance so that you can make sure you’re covered.

12. Hire Employees and Set Up Payroll

Hiring employees makes it easier to grow your business. When you hire employees, you’ll need to set up payroll to ensure they are paid properly and to withhold any necessary taxes.

There are two items that employers must complete to be federally compliant when hiring new employees. You must verify that any employee is eligible for employment in the US and obtain a signed IRS Form W-4 to ensure you are withholding the correct amount for federal taxes. For more detailed information, visit the IRS page for Businesses with Employees.

Since New Mexico has a state level income tax, you’ll need to withhold taxes from your employees and remit them to the state. In addition to this you’ll also need to register for unemployment insurance. Luckily in New Mexico both of these registrations are done with the New Mexico Taxation and Revenue Department. For more specific information about your requirements as an employer in New Mexico visit the NM New Hire Directory: FAQs page for more info.