Do you want to form a limited partnership (LP) in New Mexico, but you’re not familiar with the formation process?
A limited partnership can be a great alternative to a general partnership, but the LP is definitely more difficult to form compared to the more casual nature of the general partnership. In this guide, we’ll discuss all the crucial details of forming this business type in New Mexico.
What Is a New Mexico Limited Partnership?
There are several significant differences between the general partnership and the limited partnership (LP), starting with the roles of the partners themselves. With a general partnership, the partners split profits evenly and take equal responsibility when it comes to liability ― general partners are personally liable for the company’s debts and settlements.
With a limited partnership (not to be confused with the LLC), there is at least one general partner and one limited partner, which is the term for a partner that does not have managerial responsibilities, and their liability is limited to the amount of money they invested in the partnership.
Sometimes, you’ll hear limited partners referred to as “silent partners” due to their lack of direct involvement in the day-to-day operations of the company.
Another major difference is that the general partnership is not a formal business structure, which means you don’t even need to file formation documents with the state of New Mexico, or pay any sort of formation fee. The general partnership is simply formed when the partners begin transacting business together.
On the other hand, a limited partnership does have a formal formation process with the New Mexico state government, and there is also a formation fee involved.
How to Form a New Mexico Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of New Mexico allows general partnerships to operate under the individual names of the partners, that is not the case for limited partnerships, which must have a distinct business name.
Your limited partnership’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In New Mexico, each business entity is required to include an indication of the entity type in the name. For example, all limited partnerships must have “LP,” “L.P.” or some other variation as the final word of the business name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a realtor, put the phrase “real estate” in your LP name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your limited partnership’s name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LP is to not get too attached to any one business name until you have either reserved the name with the state of New Mexico, or you’ve officially formed your business.
There is no standard filing form for those wishing to reserve a partnership name, but those wishing to do so may simply draft a document that includes the applicant’s name, address, and signature and complies with Section 108 [54-2A-108 NMSA 1978] of the Uniform Revised Limited Partnership Act and submit it to the Secretary of State’s office with a $50 filing fee. If the name is confirmed as available, it will be held for 120 days.
Step Two) Designate a Registered Agent
Every limited partnership in New Mexico is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the New Mexico Secretary of State,
registered agents may be either a legal resident of New Mexico or a business entity that is authorized to transact business in the state. In all cases, the registered agent must have a physical street address in New Mexico rather than just a PO box. Additionally, the registered agent must be available at that address during normal business hours, should physical service of process be necessary. Lastly, an entity may never serve as its own registered agent, though a qualifying affiliated individual may.
Without a registered agent in New Mexico, you could lose your good standing and the state also has the right to dissolve your LP if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend designating a registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Step Three) File the Certificate of Limited Partnership
At this point, it’s time to legally form your new limited partnership.
Doing so will require the filing of a Certificate of Limited Partnership with the New Jersey Secretary of State. The document will require the following information:
- Name of the limited partnership
- Street and mailing address of the LP office
- Name and street mailing address of each general partner
- Name and address of the initial registered agent
- End date of the limited partnership (if applicable)
- Any other additional information the partners wish to include
All necessary forms for limited partnerships may be found on the Partnership Forms page of the New Mexico website. After completion, you must mail the document to the New Mexico Business Services Division.
Cost to Form an LP: The state of New Mexico charges a filing fee of $50 to form a limited partnership.
Processing Time: The New Mexico Secretary of State website lists no standard processing time for these documents. For specific information regarding processing time, you may choose to reach out to a representative at the office.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of New Mexico, a limited partnership agreement outlines some of the key operating principles of the business. Even though you don’t have to submit it to the state to form your LP, it’s still a vital document that describes the exact nature of the agreement between the general partners and limited partners.
The information included in a limited partnership agreement does vary depending on the nature of your business, the size of your company, and some other variables. In general, it’s good to get the following information down in writing:
- The term (in years) of your partnership
- Identities and roles of general and limited partners
- Initial capitalization and ongoing capital contributions
- Allocation of profits/losses
- Management structure
- Voting rights and meeting plans
- Accounting and record-keeping practices
- Conditions for transfer and dissolution
Step Five) Handle Taxation Requirements
Limited partnerships require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LP functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LP for free through the IRS.
In addition to filing for an EIN, you’ll also need to register with the New Mexico Tax & Revenue Department (TRD). Doing so will help determine which state taxes you owe.
State-level taxes are generally industry-specific and will depend on what goods or services your LP offers. For a full list of NM state taxes (and to determine which your LP may be subject to) check out this comprehensive list of New Mexico state taxes.
When it comes to state-level limited partnership taxes, Kentucky levies these taxes based on the nature of your business. When it comes time to file, all necessary tax forms (as well as some additional resources and information on NM state taxes) can be found on the Business Taxpayers’ page of the New Mexico TRD website.
Depending on where in New Mexico your business is located, you may also need to pay local taxes.
In New Mexico, most taxes are paid through state tax filings, though some tax rates (such as the state-wide gross receipts tax) vary depending on municipality, they are still payable to the New Mexico TRD rather than the local government. If your limited partnership owns property, it may be subject to the local property tax.
Step Six) Obtain Business Licenses and Permits
New Mexico has no general state business license; most licensing happens at the local government level. Much like with the state’s taxes, most licenses are industry-specific or determined by the business location.
Because most licensing and permits are facilitated by the local government, it’s best to reach out to your county official in regards to ensuring your limited partnership complies with all local laws. For a full list of counties and their contact information, the New Mexico state government has compiled this list for your use.
As an additional resource, the New Mexico Regulation and Licensing Department has compiled a list of agencies you may want to contact regarding your NM licensing compliance which can be found here.
Would You Prefer a Professional Form Your LP?
If you would rather have a professional take care of your formation paperwork for you, you have a couple of options. The less expensive choice is to hire a business formation service to create your limited partnership.
While some service providers stick to less complicated business entities like limited liability companies, some of our favorite options also provide LP formations ― namely, LegalZoom and BizFilings. Either one of them should do a great job forming your new LP.
If you want the maximum possible degree of expertise, you should also consider hiring a business attorney to form your limited partnership. This is certainly a more expensive route, but if you want the peace of mind that every step is completed correctly ― and that all of your options have been thoroughly explored ― hiring a lawyer is a great option.
Next Steps: What to Do After Creating a New Mexico LP
Open a business bank account
We highly recommend that you establish a business bank account so that your business and personal finances are maintained separately. This is important because it helps protect your personal assets, and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
If your New Mexico limited partnership has any number of employees, you’ll be required to pay unemployment insurance (UI) tax. To do so, you’ll need to first register online with the New Mexico UI website. If your limited partnership has three employees or more (or if your LP is licensed by the Construction Industries Licensing Act with any number of employees), you will be required to carry workers’ compensation insurance. Workers’ compensation insurance can be obtained either through private insurance companies or the New Mexico Insurance Department. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Income reportingLimited partnerships do not file business tax returns. Instead, the income is passed through the business entity to the partners, who then claim their share of profits or losses on their personal tax returns. Still, LPs do need to file an annual information return with the IRS, in which you report your business income, deductions, gains, and losses for the year.
Most New Mexico businesses are required by law to file an annual report with the Secretary of State in order to remain in good standing. The annual report carries a $50 filing fee and must be turned in between January 1 and April 1. For more information on filing the annual report, you may visit the Annual Report information page located on the New Mexico Secretary of State website.
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.