Setting Up a Business Partnership in New Mexico

In New Mexico, you can form several types of partnerships: 1) General Partnership (GP), where all partners share in management and have unlimited liability; 2) Limited Partnership (LP), which has both general partners who manage the business and limited partners who are typically investors with limited liability; 3) Limited Liability Partnership (LLP), which provides liability protection for all partners; and 4) Limited Liability Limited Partnership (LLLP), which combines features of LPs and LLPs. Each structure has different formation requirements, liability protections, and tax implications.

Unlike other business entities, a general partnership in New Mexico can be formed without filing any documents with the state. A partnership legally exists when two or more people agree to operate a business together for profit. However, while not legally required, it's highly recommended to create a written partnership agreement that outlines the rights and responsibilities of each partner. Additionally, you may need to file a DBA ('doing business as') with the county clerk if you're operating under a name different from the partners' legal names, and obtain necessary business licenses and permits.

A comprehensive partnership agreement in New Mexico should include: 1) Each partner's capital contributions; 2) Profit and loss allocation percentages; 3) Partner authority and decision-making processes; 4) Management responsibilities; 5) Procedures for admitting new partners; 6) Buyout provisions if a partner leaves; 7) Dispute resolution methods; 8) Procedures for dissolving the partnership; 9) Non-compete clauses if applicable; and 10) Provisions for partner death or incapacity. While not legally required for general partnerships, a written agreement helps prevent misunderstandings and provides clear guidance for handling various business situations.

Partnerships in New Mexico are typically treated as pass-through entities for tax purposes. This means the partnership itself doesn't pay income taxes. Instead, profits and losses 'pass through' to the individual partners, who report their share on their personal tax returns. Partners pay both federal and New Mexico state income taxes on their distributive share. Additionally, partners who actively participate in the business must pay self-employment taxes (Medicare and Social Security). Partnerships must file an informational tax return (Form PTE-A for New Mexico) that shows each partner's share of income, deductions, and credits.

Liability varies significantly between partnership types in New Mexico. In a General Partnership, all partners have unlimited personal liability for business debts and legal claims. In a Limited Partnership, general partners have unlimited liability while limited partners' liability is restricted to their investment. Limited Liability Partnerships (LLPs) provide all partners protection from personal liability for business debts and the negligence of other partners, though partners remain liable for their own negligence. Limited Liability Limited Partnerships (LLLPs) combine these features, with general partners receiving liability protection they wouldn't have in a standard LP. Choosing the right structure depends on your business activities and risk tolerance.

To register an LP in New Mexico, file a Certificate of Limited Partnership with the Secretary of State. For an LLP, file a Statement of Qualification. Both filings require: 1) The partnership's name (which must include 'Limited Partnership,' 'LP,' 'Limited Liability Partnership,' or 'LLP' as applicable); 2) Principal office address; 3) Registered agent information; 4) Names and addresses of all general partners (for LPs) or all partners (for LLPs); 5) Purpose of the business; and 6) Duration of the partnership if not perpetual. The current filing fee is $50 for both entity types. Forms are available on the New Mexico Secretary of State website.

Partnerships in New Mexico must maintain compliance with several ongoing requirements: 1) Annual reports for LPs, LLPs, and LLLPs must be filed with the Secretary of State (general partnerships are exempt); 2) Business licenses and permits must be renewed as required; 3) Partnerships with employees must comply with employment laws, including withholding taxes and providing workers' compensation insurance; 4) All partnerships must file appropriate tax forms, including federal Form 1065 and New Mexico Form PTE-A; 5) Any changes to the partnership structure, such as adding or removing partners, may require amendments to state filings; and 6) Maintaining a registered agent in the state (for LPs, LLPs, and LLLPs).

To dissolve a partnership in New Mexico, follow these steps: 1) Review your partnership agreement for dissolution procedures; 2) Hold a partner meeting and document the decision to dissolve; 3) For general partnerships, no state filing is required, but for LPs, LLPs, or LLLPs, file a Statement of Dissolution with the New Mexico Secretary of State; 4) Notify all creditors, customers, and business contacts; 5) Cancel business licenses, permits, and registrations; 6) File final tax returns marking them as final; 7) Close business accounts after settling all debts; and 8) Distribute remaining assets according to ownership percentages or partnership agreement terms. Consider consulting with an attorney to ensure proper dissolution.

Yes, you can convert a sole proprietorship to a partnership in New Mexico by taking these steps: 1) Find a suitable partner(s); 2) Create a written partnership agreement; 3) Apply for a new EIN (Employer Identification Number) from the IRS, as partnerships require their own tax ID; 4) Register the partnership name if different from the partners' legal names; 5) Transfer assets from the sole proprietorship to the partnership (which may have tax implications); 6) Update business licenses, permits, and registrations; 7) Notify customers, vendors, and the bank of the change; and 8) If forming an LP, LLP, or LLLP, file the appropriate formation documents with the New Mexico Secretary of State.