Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.
Every New Mexico LLC is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making a New Mexico operating agreement.
On this page, you’ll learn about the following:
New Mexico LLC Operating Agreement Content
An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.
- Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
- Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
- Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
- Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
- Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
- Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
- Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
- Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
- Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
- Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
- Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
- Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
- Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.
Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.
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Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:
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Importance of a New Mexico LLC Operating Agreement
New Mexico doesn’t require you to create an operating agreement if the LLC is registered. The majority of states require their business entities to draft an operating agreement that allows them to inspect the structure of the business. In New Mexico, you can skip this step while forming the LLC and it won’t attract any legal fines.
If you’re looking to protect the business and its owners from misunderstandings and negotiations, then you should not skip this step at all. Here, check out some of the main reasons why you should write this contract for the LLC.
- To protect the company: Basically the operating agreement defines the rules for an LLC. This means that the rules will be enforced by the government in case any members are unable to adhere to the rules. The agreement can safeguard the LLC from the government’s rules as well as provide additional benefits.
- The LLC appears trustworthy: Investors look at the credibility of the business when they are looking for businesses. Because the operating agreement shows that the members are concerned about their business and are determined to ensure that it is upheld by all laws and regulations, the LLC appears professional. So, this provides an opportunity for growth by attracting investors.
- The LLC’s status has to be secured: LLCs are well-known due to their limited liability status. If the operating agreement clearly defines this, the government is not able to misunderstand. Because it is very easy to misunderstand a single-member LLC that is sole proprietorship but an operating agreement could show they are different.
- To settle conflicts: There could be future conflicts concerning distributions and decisions. The operating agreements outline the requirements, processes, and rules for company members. The operating agreement permits members to quickly review the details of the agreement before they begin to perform a task.
- LLC flexibility is made possible due to Limited Liability Companies. These LLCs can have this type of character since the operating agreement assists the LLC to be flexible. It is the operating agreement that grants the LLC its freedom.
- To assist in opening business accounts: Many times, there is a need for a document of the operating agreement whenever the business owner is looking to open bank accounts. If the company doesn’t have this document then it would be difficult to open a bank account.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in New Mexico.
You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.
It is required by law in California, New York, Maine, and Missouri, but it is not in New Mexico. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.