New Mexico Corporations

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Corporations


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Corporations are legal entities that separate an owner from a business. Corporations enjoy most of the rights and responsibilities that individuals possess, but they also offer liability protection. Corporations can enter contracts, obtain loans, borrow money, sue, and be sued.

They can also hire employees, own assets, and pay taxes as their own entity without it affecting any of the owners (referred to as shareholders). The shares can be held by a few individuals, but they can also be offered for sale to the public. This is referred to as a "publicly held" corporation.

There are also non-stock corporations that can be a non-profit or a for-profit business. These corporations may be held or formed for a short-term and specific purpose.

How Corporations Work in New Mexico


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Corporations are owned by their shareholders or stockholders. Each shareholder owns one or more pieces of the corporation. Each of these individuals has decided to invest money into the corporation in order to own a portion of it. If the corporation is publicly held, then each of these shares is valued by the stock market.

Corporations are taxed separately from their owners. They will be taxed at the federal corporate tax rate of 21%. Corporations pay taxes based on the net income or profits each year as a separate tax entity. IRS Form 1120 is prepared to calculate the tax liability of the corporation.

The Process of Forming a Corporation in New Mexico

As compared to an LLC, it is much more complex to start a corporation. Because of this, it is often preferable to seek assistance when starting a corporation. In order to form a corporation in New Mexico you will need to do the following:

  • Hire a transactional attorney to go through the formation process.
  • Appoint a registered agent with a physical presence in the state of New Mexico
  • File the articles of incorporation for your corporation
  • Create the corporate bylaws and appoint directors
  • Issue stock
  • File any other necessary documents with the New Mexico Secretary of State
  • File any necessary IRS forms

Why Start a Corporation?

Corporations add a level of professionalism to your business. They also offer limited liability which is essential if you wish to keep your personal assets safe. There are different advantages to different forms of corporation ownership, which can lead to tax breaks as well. Corporations are also private when formed anonymously.

Different Types of Corporations


Frequent Questions

Corporations can choose how they are taxed. There are three main options.

S Corp

If you choose to be taxed as a Subchapter S corporation, you will need to notify the IRS of this election. Profits are then taxed when they're passed down to shareholders, and the shareholders report those profits and deductions on their own personal returns. This helps to avoid double taxation that occurs with a standard C corp.

To qualify as an S corporation you must:

  • Be a domestic corporation.
  • Not have more than 100 shareholders.
  • Be composed of individuals, trusts, or estates.
  • Not be partnerships, other corporations, or non-resident alien shareholders.
  • Only have one class of stock.

C Corp

Any corporation that does not specifically make the election to become an S corp will be taxed as a Subchapter C corporation. This means that your corporation may be subject to double taxation. Double taxation means that the corporation will be forced to pay corporate taxes at the 21% tax rate, while the shareholders will then also need to pay taxes on their own personal tax returns as well.

Non Profit

Specifically used for charitable, educational, and religious organizations, a non-profit corporation operates without generating profits. Because of this, non-profit corporations are exempt from taxation. Any contributions, donations, or revenue will be used to spend back on the corporation. Whether that is for expansion, operations, salaries of employees, or future plans.

Advantages of a Corporation


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  • Separate legal entity: Corporations are completely independent of their owners and are considered legal entities. This means they can enter contracts, go to court, be sued, and obtain loans.
  • Limited liability: This advantage protects shareholders from any business liability of what happens with the corporation as far as debts and coming after personal assets of the shareholders.
  • Source of capital: Because many corporations are publicly traded on the stock market, this makes it incredibly easy to obtain funding and capital.
  • Easy to attract investors: Corporations have a high level of professionalism which makes it easy to attract investors with the right pitch.
  • Unlimited life: Whether owners, stockholders, shareholders, or members die, the corporation will continue to live on. This means that regardless of the death or inability to perform duties, the company will not be dissolved unless chosen to be so.
  • Competent management: There is a specific structure in place for a corporation. The board of directors is voted for and has the responsibility of hiring a professional management team.

Disadvantages of a Corporation


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  • Maintenance is Difficult: When forming a corporation there are many requirements versus an LLC. There are not only incorporation costs but also many requirements in terms of recording information and staying compliant.
  • Potential Double Taxation: As a C corporation you will be required to pay taxes on both corporate earnings and on the dividends of individual shareholders.
  • Reporting: Documentation to the state, investors and the IRS is essential with a corporation. This includes filing annual reports and tax returns, as well as maintaining accounting records, licenses, and other important documents.

Should You Start a Corporation?


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If you own a New Mexico business and are considering starting a corporation it is important to weigh your options. If you are able to set up as an S corp and your current tax liability is higher than 21%, then you may benefit from lower overall taxation. If you do not qualify as an S corp, then you may be losing more money overall in taxes because of the double taxation a c corp is subject to.

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