How to Start a Sole Proprietorship in New Mexico
The most basic legal structure for a New Mexico business with only 1 owner is a sole proprietorship. While starting a sole proprietorship in New Mexico does require legal paperwork to be filed, there are additional filings like registering your New Mexico business name and obtaining relevant federal, state, and local business licenses and permits. This 5 step guide will help to covers the process and filings you’ll need to complete to get your New Mexico sole proprietorship started the right way.
Liability Risk of Sole Proprietorships
Prospective New Mexico business owners should keep in mind that a sole proprietorship does not protect your personal assets. If you form your business as a New Mexico LLC your personal assets can be protected if you are sued. For more information on the differences, check out our LLC vs Sole Proprietorship guide.
Initially when starting a New Mexico sole proprietorship you’ll need to choose a business name. You’ll want to make sure the name you choose is unique, easy to remember, and easy to search for. For more detailed directions on choosing a business name check out our 15 tip guide where we go over what makes a great business name.
Business Name Search
Make sure you conduct 2 prelimary searches to ensure that you business name is not already in use in New Mexico and hasn’t been trademarked at the federal level:
Unlike most other states, New Mexico does not have a way to register a sole proprietor business name via a filing like a DBA. While there isn’t an official registration you may still want to think about trademarking your business name or setting up a New Mexico LLC to ensure you have the right to control your business name. You’ll also want to think about registering the website domain name for your business. You can register your domain name for less than $10 with namecheap.
Sole proprietorships are subject to business and professional licensing requirements. Business and professional licenses are issued at the federal, state, and local levels. The types of licenses and permits your business is required to file will vary widely depending upon the nature of your business and how it operates.
Federal Licenses and Permits
Most common types of businesses are not subject to federal licensing, however if manufacture or sell products that are regulated at the federal level you will need the relevant federal license before you begin operating. Below is a list of federal agencies from the U.S. Small Business Administration (SBA) that issue federal permits and licenses :
- U.S. Department of Agriculture
- Federal Aviation Administration
- Bureau of Alcohol, Tobacco, Firearms and Explosives
- U.S. Fish and Wildlife Service
- National Oceanic and Atmospheric Administration Fisheries Service
- Federal Maritime Commission
- Bureau of Safety and Environmental Enforcement
- U.S. Nuclear Regulatory Commission
- Federal Communications Commission
- U.S. Department of Transportation
New Mexico State Business Licenses and Permit Resources:
For information on state-level licenses and permits in New Mexico visit the New Mexico Regulation & Licensing Department website.
Local Licenses and Permits
Local licenses and permits vary widely depending on where your business operates and the nature of the business, however the most common types of local licenses and permits include:
- Operating License
- Building Permits
- Zoning and Land Use Permits
- Health Licenses and Perits
- Signage Licenses
If you work in a regulated profession you may also require a profressional license. These licenses are required to show proof that you have completed the required training or possess the required expertise to work in the field. There are a wide variety of industries where a professional license is required but some of the most common are:
- Financial Advisors
- Hair Stylists & Barbers
- Insurance Agents
- Medical Professionals
- Real Estate Agents
With how complex and time consuming the business license research process can be, we recommend using a service to determine which licenses you’ll need to apply for.
Get Professional Help with your Business Licenses
Let the experts at MyCorporation do the research to determine which licenses you need.
If you have employees, you are required to get an EIN. EINs are a nine-digit ID number issued by the IRS to identify businesses for tax purposes. You can apply for an EIN for free online using the IRS’ EIN Assistant.
If you don’t have employees, you are not required to get an EIN as a sole proprietor. However, it can be useful to get an EIN. They are often required to open a business bank account and can be used in place of your social security number for most business applications.
Important Note about Sole Proprietor EINs:
Since sole proprietorships are not viewed as separate from an individual, sole proprietor EINs are issued under their names, not their DBA names. As a result, you will only be issued 1 EIN as a sole proprietor for your lifetime. This will be used for any and all businesses you will operate as a sole proprietor. If you apply for an EIN as a sole proprietor and receive reference error 101, this likely means that you have already been issued an EIN previously. If you cannot recall your EIN or have not been issued an EIN previously, you will need to call the IRS Business and Specialty Tax Assistance line at 1-800-829-4933 and use the prompts related to reference number 101.
The final step to making your New Mexico sole proprietorship a reality is to open a business bank account. It’s important to keep your business and personal transactions separate to prevent the co-mingling of funds. The easiest way to do this is to open a designated business bank account and use it only for business transactions. This will make it easier for you to complete your accounting and bookkeeping tasks.
Check out this helpful guide to learn how to opening a business bank account.
Other Items to Consider
Once you have established your sole proprietorship, you will also want to complete these important tasks:
- Setup Credit Card Processing:
Considering that over 60% of transactions are done via debit and credit cards, it’s essentially a requirement to accept credit card payments. We go over how to do this in our How to Accept Credit Card Payments guide.
- Establish an Accounting System:
You’ll need to determine the accounting method you will use for your business: cash basis accounting vs. accrual accounting. To learn more, check out our guide on small business accounting 101.
- Get Business Insurance Coverage:
As a sole proprietor, you lack personal liability protection, so getting adequate business insurance could be your only financial protection method. Learn more about business insurance here.