When a limited liability company (LLC) is formed with only a single owner it is known as a single member LLC. With just the sole owner, i.e. a single member, the single member LLC differentiates itself from that of a multi-member LLC. This distinction aside, however, both LLC types enjoy the same benefits.
The single member LLC is a common choice among business owners. Utilizing an LLC formation over that of a sole-proprietorship can offer the business and business owner several benefits that cannot be achieved with a sole-proprietorship. Most notably among them is the benefit of limited liability protection. The single member LLC is also used by holding company subsidiaries, as the holding company serves as the sole owner of the subsidiary. Investors commonly use this structure as an effective means for protecting assets.
Forming Your New Mexico Single Member LLC
Regardless of your reason for forming an LLC, the state of New Mexico allows for the formation of single member LLCs. The Formation process for a single member LLC is generally the same as that of a multi-member LLC. So, even if you are the only member of your LLC, you will still want to take the time to ensure your company is formed correctly and set up for long-term success
Here are the steps to follow when forming your New Mexico single member LLC:
1. Choose a Name for your LLC
The name you choose for your LLC must be unique from all other active businesses in the state of New Mexico. In order to ensure that the name you choose is not being use by another business, you can check its availability by conducting a name search on the state's website.
2. Designate a Registered Agent
A registered agent is required for all active New Mexico LLCs. It is an essential part of maintaining your good standing with the state. The role of the registered agent is to be available for receipt of important legal documents on behalf of the business. The individual that you choose must be a resident of New Mexico or a corporation that is authorized to conduct business in New Mexico. Note that you do have the option of serving as your own registered agent.
3. File Your Articles of Organization
In order to officially form your LLC with the state of New Mexico, you must file Articles of Organization with the New Mexico Secretary of State. When filing your articles you will be required to specify whether your LLC is a single or multiple member entity. The filing fee associated with your Articles of Organization is $50. There is the option to file your articles online. The processing time for your articles is typically 2 business days.
Operating Agreement for Single Member LLCs
While it is not a requirement for New Mexico single member LLCs, drafting an operating agreement can play an important role for your business. An operating agreement acts as an official company document that outlines both management structure and member duties. By outlining these aspects of the business, the operating agreement can help to separate member’s finances from the LLC’s finances.
ThereThe operating agreement may prove useful in other ways, as well. For example, when it comes to opening a bank account for your LLC, many banks still require that you provide your company’s operating agreement. Additionally, an operating agreement would prove useful were you to ever hire a manager, such as in the case of a property manager to oversee a real estate asset. The operating agreement would determine what actions of the manager were allowed or prohibited.
Understanding Your LLC Taxes
When you form your New Mexico single member LLC, the IRS will view it as a disregarded entity. This means that your LLC experiences pass-through taxation, which allows profits and losses to be passed on to the owner and recorded on the owner’s personal return. In this way, LLCs avoid the double taxation that corporations experience.
While this is the default classification for LLCs, you also have the option to be taxed as a C-corp, S-corp, or partnership. When making this choice, consider seeking the advice of an accountant or legal expert to determine which classification will benefit you the most. If you are changing your tax classification, the IRS should be informed of the classification change (form 2553) within 75 days of obtaining your Employer Identification Number.