Are you looking to run a business with one or more partners in the state of New Mexico?
The simplest way to do this is to form a New Mexico general partnership, which at its core is essentially just a handshake agreement between two (or more) people to operate a business together.
General partnerships are just one of several ways for multiple people to co-own a business, so in this guide we’ll describe how the general partnership compares to some other more formal business structures in New Mexico.
What Is a General Partnership?
At its core, the general partnership bears the most similarities with the sole proprietorship. Both are unincorporated business entities that are viewed as extensions of their owners as people, rather than as separate legal entities. General partnerships often don’t even have business names, as they can be operated using the owners’ personal names.
Let’s take a look at two of the most important differences between general partnerships and formal business entities:
1) Taxation and Signature Requirements
Due to the lack of legal distinction between the general partnership and its owners, the “pass-through” model of taxation applies to this type of company. This means that the profits and losses of a partnership are claimed on the owners’ personal tax returns. Along those same lines, general partnership owners can sign business contracts using their own names instead of signing on behalf of the company, and customers are also welcome to write checks to the owners personally.
2) No Asset Protection
The most important distinction between general partnerships and formal business structures like corporations or limited liability companies (LLCs) is the issue of personal asset protection. In a general partnership, if your business is sued, your creditors are free to pursue your personal assets, including but not limited to your house, car, and even the contents of your personal checking account.
On the other end of the spectrum, owners of LLCs and corporations enjoy limited liability protection, which means that for the most part, creditors can only go after business assets, and the personal assets of the ownership group are left intact.
How to Become a New Mexico General Partnership
If you want to start a general partnership in the state of New Mexico, there is no formal business registration process to complete.
To form a New Mexico general partnership, you simply need to start working with your partner or partners. In addition, unlike corporations or LLCs, there aren’t any formation fees or ongoing maintenance fees associated with filings like annual reports.
While the actual legal requirements are incredibly simple, there are still some other steps that you might want to take, depending on your preferences and your goals for the company. Let’s discuss the additional steps that may or may not suit your business needs.
If you don’t want to use your personal name as your official business name, you can acquire a doing business as (DBA) name from the state of New Mexico. With a DBA, you can use an assumed name in an official capacity, which is a great way to attract customers, as most people find that a business name adds legitimacy and professionalism to a business, as opposed to simply using the owners’ own names.
With a DBA, your general partnership can also open business bank accounts using the assumed name, which is another way to increase the professional aspect of your company. After all, it looks much better to have your company name on your checks, rather than just writing checks from your personal accounts.
However, New Mexico is different than most states in regards to DBAs and trade names. Currently, the state does not mandate that a business register its assumed name with the Secretary of State. In fact, there are no DBA name registration requirements on either the state or local levels.
Register for Taxes
Other than the fact that general partnerships have more than one owner, the other major difference between a sole proprietorship and a partnership is the fact that a general partnership needs to acquire a federal tax ID number, otherwise known as an EIN.
While sole proprietors can get away with just using their personal social security number, the partnership needs an EIN because ― even though partnerships do not file business tax returns ― it needs to file an annual information return with the IRS.
In addition to the EIN, your business may need to register for state or local taxes.
In New Mexico, all businesses transacting business in the state are required to register with the Taxation and Revenue Department. This process will help determine which taxes your general partnership is liable to pay. For additional help with determining which state taxes your business will need to pay, you may consider consulting this comprehensive list of taxes compiled by the New Mexico TRD. When it’s time to file, the necessary forms and further information can be found online on the Business Taxpayers’ page of the New Mexico TRD website.
Determine License and Permit Requirements
The state of New Mexico does not have a general business license that all general partnerships are required to obtain. However, depending on what industry you operate in, your business may need licenses or permits to enable you to run your company in a compliant fashion.
Because most New Mexico licensing happens through the local government rather than the state, you’ll likely want to contact your local government office in regards to licensing and permit compliance. For a full list of counties and their contact information, the New Mexico state government has compiled this list.
For help with determining which occupational and local licenses you may need, the New Mexico Regulation and Licensing Department has compiled this list of agencies that may serve to help you gain additional information.
The general partnership is a much simpler business for multiple owners than a corporation or a limited liability company.
The state of New Mexico doesn’t require any official formation for general partnerships, and they’re also not required to pay any formation fees or participate in ongoing maintenance filings like annual reports. However, the general partnership as a business structure has some serious weaknesses as well, like the lack of personal asset protection that leaves owners’ assets exposed to potential lawsuits.
We hope this article helped you determine whether you’d like to form a New Mexico general partnership, or if there’s another business type that would better suit your needs. As always, we wish you a successful business future!