New Mexico LLC Operating Agreement: Drafting Checklist

You will need certain documents and files to start an LLC or a limited liability company in New Mexico. Although it is not mandatory, an LLC operating agreement is recommended.

An operating agreement in New Mexico is an internal document. You won’t need to file it with the New Mexico Secretary of State. However, having this written file is crucial before starting your small business.

This article will highlight the benefits of having an operating agreement and why it’s helpful for a business formation.

Key Takeaways

• An LLC operating agreement isn’t necessary to start your small business in New Mexico, but it’s highly recommended.

• Your LLC operating agreement offers various advantages, like regulating day-to-day operations and ensuring the ownership structure outlines specific roles for each member.

• A New Mexico LLC operating agreement regulates various scenarios for a business, including voting rights, profit distribution, and what to do if a member leaves.

What Is an LLC Operating Agreement?

An operating agreement is a legal document used to define and outline various functional and financial decisions. With it, you can demonstrate the LLC structure and the rules so that the business does not fall under default state laws in case of a dispute.

All founding members must abide by the rules of your LLC and follow them in particular situations. For example, an operating agreement can outline the process of a member leaving.

Even without the LLC operating agreement, your LLC in New Mexico will be a legal entity nonetheless. However, this document is beneficial, as listed below.

State Requirements

Although no New Mexico laws require operating agreements, a strong written operating agreement is essential for limited liability protection.

Since the operating agreement is an internal document, it is unnecessary to file it with the Secretary of State. However, New Mexico LLCs must keep a copy of the operating agreement on file by New Mexico’s Limited Liability Company Act.[1]

LLC Operating Agreement Benefits

Since New Mexico doesn’t require you to have an operating agreement to create your LLC business entity, you might think it’s a good idea to skip it. However, that can be a mistake considering all the benefits the operating agreement offers.

Protecting Liability Status

The operating agreement proves that the company and owners’ assets are separate, and it can protect your personal assets in case of a lawsuit. This legal document will protect the members from becoming personally responsible for the company’s liability.

In some cases where an operating agreement can solve legal disputes, you don’t need to seek legal advice but can use the agreement instead.

Clarifying Specific Roles and Responsibilities

When starting your LLC, you probably talked about each member’s role in the company. Verbal agreements can’t compare with official agreements and contracts. Since starting a business is a massive risk, it’s better to define the management rules with an operating agreement while at the same time protecting your assets, bank account, business bank account, and business license.

Protecting the Company From Default State Laws

New Mexico default state rules will pertain to your LLC if you don’t have the operating agreement drawn up.[2] However, these state laws will apply even if you have this legal document but don’t specify any guidelines to protect your business. A detailed operating agreement gives you the chance to outline the rules of how you want your company to work while respecting New Mexico’s laws.

Who Needs an Operating Agreement?

Unlike the Articles of Organization, an operating agreement isn’t a part of LLC formation and is not a requirement. However, drawing up an operating agreement can be advantageous.

This legal document is highly recommended for businesses for various reasons, including avoiding these common hiccups:

• Members don’t completely agree on how to run the business

• Members have unclarified roles and responsibilities in the company

• Owners don’t want to avoid falling under default New Mexico state laws in cases of legal disputes

• Owners need a legal document to protect their small business from changes in the law

Drafting Your New Mexico LLC Operating Agreement

Now that we highlighted how important it is to have an operating agreement drawn up, let’s discuss what you must include in this legal document.

There’s no filing fee to pay when drawing the operating agreement because it is not a requirement in New Mexico. However, you do have to ensure that crucial details are included.

Many businesses seek legal advice or opt for an LLC operating agreement template. If you choose to do it yourself, there are a few steps you should follow:

Step 1: Provide Business Information

The first and easiest step when drafting the New Mexico LLC operating agreement is to include basic information, like your business name, location, and registered office address. Here is a more detailed list of information to include in your operating agreement:

• New Mexico business name

• Company Purpose

• Physical address

• Registered agent contact information

• LLC members and owners information

You will include much of the same information in your Articles of Organization, which you’ll need to start your business. You don’t need to include an Employer Identification Number (EIN) in the operating agreement.

Step 2: List LLC Members

The next step is to list the LLC members in detail, providing information about their roles and responsibilities. This process is shorter for single-member LLCs. Some might even think it unnecessary if they’re the sole owner, but the operating agreement proves you own a business and that your assets are protected.

For multi-member LLCs, an operating agreement helps protect the LLC members’ personal assets in case of legal disputes. The following information needs to be listed for each member:

• Member names and addresses

• Entitlements and member contributions

• Membership interest and ownership interests

• Roles and responsibilities of members

Step 3: Decide Member-Managed vs Manager-Managed

Deciding on the proper management structure for your LLC is an important task, considering this decision will impact day-to-day responsibilities. You can choose to be member-managed or manager-managed.

Single-member LLC businesses in New Mexico often choose the former method, giving them total control of managing responsibilities and following the laws and outlines mentioned in the operating agreement. With a member-managed LLC, members are responsible for making decisions for the company.

Multi-member LLCs, on the other hand, often choose the latter option or a manager-managed structure. Owners can bring in a third party, who will make decisions on behalf of the members. However, they won’t have the same privileges, like voting rights.

Generally, LLC members who don’t want to be tied to regular business hours and meetings prefer this approach.

Step 4: Layout Administrative Operations

Operating agreements outline how the business will process different situations. Technically, you can customize this part of the document with guidelines for many scenarios. But there needs to be clear instructions on how to react when a particular situation arises. 

These are the most common processes you need to add:

• Voting rights: Does the company give each member the right to vote equally? Or will voting rights be based on their capital contributions?

• Distribution of profits and losses: How will the company handle distributing profits? Will it be based on capital contributions or another factor?

• Amending the operating agreement: When rules need changing, how will the company decide? Will changes need a unanimous or majority vote?

• Administrative tasks: Who will oversee the business bank accounts, income tax, and annual reports? Who is the point of contact for IRS-related matters?

Step 5: Add and Remove LLC Members

It’s essential to define what happens with membership interests if a new member decides to join your LLC or if a current member wants to leave it. Defining this issue is crucial even for a single-member LLC in case of termination of the company.

Suppose a member decides to leave the company. With the operating agreement, you need to define what happens with their contributions and how they are shared with remaining members. Defining what happens in case of a buyout or indemnification is also important.

Additionally, it’s necessary to define how much membership interest or voting rights a new member gets when they join your LLC.

Create Your Operating Agreement Through a Filing Service

You should understand how important drawing up an operating agreement is by now. Whether you are starting your LLC or haven’t filed for your LLC yet, Swyft Filings can help you. We are the most affordable service, and we can take you through the process of starting the LLC.

If you’re looking for the next step after forming your LLC, our LLC operating agreement service ensures you have a compliant document for conducting business in New Mexico.

Alternatively, start your business off on the right foot and file for your LLC through us today, including our LLC operating agreement add-on in your cart to ensure you complete all your necessary documents at the beginning.

FAQs

Is an LLC operating agreement required in New Mexico?

No, New Mexico state laws don’t require an operating agreement.

How does an LLC operating agreement help protect my assets?

An operating agreement appoints you as your LLC’s owner or member and provides all related liability protections, including personal assets.

Who needs access to an operating agreement once it’s drafted?

Members and owners of your LLC may need access to this document. But if a particular issue arises and the owners allow it, financial and legal professionals and potential investors may need to access it.

How do I edit information on an operating agreement if membership changes?

All members need to agree on editing the operating agreements. You must make a new draft with the changes, signed by the LLC’s owners. For more significant changes, turning to a lawyer for advice is recommended.

What other legal documents do I need to draft my New Mexico LLC?

You must submit the Articles of Organization to the New Mexico Secretary of State office.[3]

Bibliography

1. New Mexico Secretary of State. “Statutes Governing Business in NM Article 19.” Accessed June 23, 2023.

2. New Mexico Secretary of State. “Limited Liability Companies.” Accessed June 23, 2023.

3. New Mexico Secretary of State. “Frequently Asked Questions.” Accessed June 23, 2023