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Once you have some great business idea in your head, you start thinking about how to bring it to life. Business and marketing plans aside, you are pondering what legal framework will best suit your new venture. Many startuppers cut corners and stay with disregarded entities that need no formation. However, a safer path that encounters future business perspectives is to form an LLC.
A relatively new legal structure as compared to other entity forms, a limited liability company is the modern businessmen’s fave. It’s widely appreciated for its:
Unique hybrid nature.
Yet another aspect to consider when you’ve made up your mind about an LLC is where to file a company. At this point, many businessmen-to-be refer to the most popular business states in the US such as Delaware and New Mexico.
Hitting the “Top Ten Best US States for Business” ranking, both states are consistently welcoming new enterprises on board. How does Delaware perform vs New Mexico? Which of them is a better place for your business? Our quick overview will help you decide.
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New Mexico vs Delaware LLC Formation: How They Stack up
What makes some of the US states more inviting for entrepreneurial activities than others is the favorable economic atmosphere and business-friendly regulatory environment they create. Both New Mexico and Delaware excel in this concern.
For decades, Delaware has been a corporate state. One of the smallest US states, it has made home to thousands of corporations now. Delaware is dedicated to bigger companies with:
State regulations strongly maintaining a corporate business;
Outstanding privacy rules;
Specialized court for business cases, .
New Mexico, on the other hand, is a sweet spot for private ventures and small businesses. Ensuring all the prime benefits and values of LLCs, including corporate veil and flexible taxes, the state comes up with fairly low formation and maintenance costs making it attractive for all cost-conscious entrepreneurs and startuppers on a budget.
Rather different at a glance, these two states share common features in key aspects. So, let’s dig deeper into their similarities and differences.
Delaware vs New Mexico LLC: Similarities
New Mexico and Delaware have a few commonalities in the areas that are essential for any type of business:
Focus on privacy: Both Delaware and New Mexico stand on guard of the entrepreneur’s privacy. None of the states requires business owners to disclose their identities. When filing an entity, you just need to specify a registered agent and an LLC organizer’s name. This could be one and the same person, which is not listed as an LLC owner. Anonymity is a big plus for LLC owners who want to steer away from creditors and for investors who seek privacy most of all. And in these states, you can form a truly anonymous LLC;
Safeguarded assets: Both states offer strong asset protection laws securely protecting personal owner funds and property against business liabilities. At the same time, subject to having an Operating Agreement in place, you can also shield your assets from the actions of other LLC members. Notably, an Operating Agreement in Delaware is a law requirement, and you should register it along with the LLC statute;
Flexible business management: While having default laws you could rely on when managing your business, Delaware and New Mexico give priority to an Operating Agreement in business management. In other words, both states support a more individual approach to company governance and operational control, leaving these tasks to the LLC members;
Running business out-of-state: With anonymity regulations in place, neither New Mexico nor Delaware has any restrictions or requirements on the business owner’s residence. Likewise, they have no strict rules for holding regular meetings inside the states. That’s why many companies registered in these states are owned by non-residents and even foreigners;
No general business license required: Unlike most other US states, Delaware and New Mexico don’t call for a compulsory general business license to operate in their jurisdictions. Not only does it save you the license registration and maintenance trouble, but also it saves you from paying annual license fees.
New Mexico vs Delaware LLC: Differences
Further, we’ll enlist the major regulatory and statutory differences between the two states so that you understand the impact of these aspects on your business:
Privacy loopholes: In Delaware, you’ll have to submit the list of initial LLC directors to the Secretary of State, thus putting the anonymity shield at stake. Besides, Delaware shares info on corporate income taxes via the IRS. None of this will happen in New Mexico, though;
Formation fees: While New Mexico boasts by far the lowest filing fees across the country, Delaware, vice versa, is not that cost-effective, especially for smaller entities;
Annual reports: Neither Delaware nor New Mexico has annual report requirements, thus, skipping some bureaucracy present in other states. However, New Mexico goes even further and has no annual fees and franchise taxes at all while Delaware will charge LLC with a compulsory annual tax;
Litigation: One of the biggest draws of Delaware that you won’t find in New Mexico is its Chancery Court that specifically operates to address business lawsuits and disputes and is supported by well-defined corporate case laws.
Creating an LLC in New Mexico vs Delaware: Pluses and Minuses to Consider
Still not sure whether to choose Delaware or New Mexico? To figure out if these two states are worth the hype around them and give you a better view of individual details inside each state, we’ll scrutinize the benefits and drawbacks of forming a limited liability company in each of them.
New Mexico LLC Pluses and Minuses
We’ll summarize the pluses and minuses of opening and maintaining an LLC in New Mexico in a table below so that you could cast a glance and see how they contrast. Then, we’ll review each point in detail to show what stands behind it.
New Mexico LLC Pluses
New Mexico LLC Minuses
No annual fees and filings
Strict street address requirement
Low LLC fees and costs
The asset protection needs to be enforced
No residency requirements
Postponed LLC start date
New Mexico Pros
No-show ownership: New Mexico is one of the US states that have no requirements for disclosing the names and addresses of the company owners and managers, which means their personal data will be kept secret and away from public records. It’s a big plus for real-estate investors, holding companies, e-commerce entrepreneurs, and privacy-focused investors who seek to participate in the business and stay anonymous;
No annual fees and filings: Most US states have annual filing requirements and fees. Yet, it’s not the case with New Mexico. To support small businesses, the state has eliminated the annual report requirements and has no annual fee for LLCs to be paid accordingly;
Low LLC fees and costs: LLC formation in New Mexico is by far the most affordable throughout the states. With a filing fee of $50 and no compulsory general licensing, your formation costs will be kept below $200 as compared to about $500 on average in most other states;
No residency requirements: New Mexico LLCs are popular among out-of-state filers since it has no limitations for the company owner and manager residency. Thus, you can register an entity in the state and live elsewhere outside the state including in foreign countries. Mostly it’s due to owner and manager anonymity. Thus, forming an LLC in New Mexico is as easy as filing an LLC statute with the state and designating a representative agent;
Postponed LLC start date: When submitting the Articles of Organization in New Mexico, you have an option of choosing an effective date within a 90-day period after filing. It’s a nice option if you file in the end of the year and can move forward some of your fees and payments that will become due as soon as your entity is officially established.
New Mexico LLC Cons
Tricky taxes: Though New Mexico has no compulsory annual payments for LLCs, these rule only works for entities applying pass-through taxation. Meanwhile, LLCs taxed as corporations are exposed to a $50 franchise tax annually. Even if you are not involved in commercial activity, you’ll still have to pay this levy. Speaking of sales, a 5% sales tax rate in New Mexico is on the lower side. Yet, you’ll have to cover local tax requirements when paying sales taxes to the state, so the average final rate will result in over 7%;
Strict street address requirement: To run an LLC in New Mexico, you should register it under a physical street address in the state, which might be a problem for out-of-state filers. You can use the representative agent’s address for that purpose, though, or a virtual office address;
The asset protection needs to be enforced: To make use of the asset protection ensured by the LLC to the full and shield your assets from other LLC members, you need to execute an Operating Agreement that has a priority over default laws when settling disputes or addressing lawsuits.
Delaware LLC Pluses and Minuses
Here, again, let’s outline the major advantages and disadvantages of Delaware LLCs in a table and then review them in detail.
Delaware LLC Pluses
Delaware LLC Minuses
Favorable LLC laws
Mandatory annual LLC tax
Enhanced asset shield
Higher expense burden for out-of-state filers
High LLC filing cost
Specialized business court
No-frills LLC registration
Delaware LLC Pros
Favorable LLC laws: You’ll be impressed to learn that Delaware enlists more legal entities in the state than individuals. Mostly, it’s thanks to the fairest and most supportive business laws ensuring new entities inflow. Business owners will enjoy anonymity and the ultimate privacy in the state since there are no rules for revealing their personal info. Likewise, there are no restrictions on the company officers. Neither LLC members nor its managers have to be DE residents to control and operate the business. Delaware’s legal requirement for an Operating Agreement further enhances the entrepreneur rights in the state and shows how the state treats contractual relationships;
Enhanced asset shield: By forming an LLC in Delaware, you’ll not only protect your personal assets but also get added protection for the LLC assets. A charging order regulation limits the creditor and collector’s rights to seize the company’s funds and property to offset the debts or overdue financial commitments. Those aspects are controlled by the court in each separate case;
Tax incentives: Along with business-friendly statutory regulations, Delaware comes up with attractive tax incentives. Doing business outside the state, you won’t have to pay income taxes in DE, thus, avoiding the dual taxation burden when expanding your business. What’s more, Delaware has no sales tax and charges no levies over profits obtained from intangible assets and intellectual property rights;
Specialized business court: To further maintain its supportive business laws, Delaware has an exclusive court system. As we’ve already mentioned, the DE Chancery Court is its biggest claim to fame. A dedicated court ensures that business disputes and lawsuits are addressed and resolved in the quickest and most efficient manner. All cases are considered by qualified judges with great expertise in corporate litigation;
No-frills LLC registration: Filing an LLC or incorporating in Delaware is a doddle. With no voting or meeting requirements in force, the state has minimized formalities and expedited the whole process to the maximum.
Delaware LLC Cons
Mandatory annual LLC tax: In DE you won’t have to file annual reports and keep an eye on reporting deadlines. At the same time, you won’t be free from paying an annual LLC tax to the state, which stands on the higher end of the price range at $300. In other states, annual reporting fees are much lower;
Higher expense burden for out-of-state filers: Delaware charges no income taxes for out-of-state businesses when forming an LLC in Delaware and residing or conducting business in another state. Still, you’ll have to register a foreign LLC in your home state and pay other business-related charges and expenses there;
High LLC filing cost: Forming and running an LLC in Delaware is quite expensive, especially if you run a small private company. Though an LLC registration fee hits the midground, other regular state payments and tax rates are quite high and might hit limited business budgets.
New Mexico LLC vs Delaware LLC: Taxes and Fees
To give you an idea of how much it will cost you to start and run an LLC in each of these two states, we’ve made a quick table comparing the major charges and fees you’ll be exposed to when setting up a legal entity in Delaware or New Mexico.
Fees and Taxes
LLC Filing Fee
None for pass-through LLCs, $50 for LLC taxed as corporations
Certificate of Good Standing
Registered Agent change
Sales tax rate
Historically, Delaware has been a more welcoming spot for corporations, and the same is true today. Higher filing and state maintenance costs make it a better option for bigger companies and holdings and a quite expensive choice for smaller firms. Besides, the DE Chancery Court is of great use for corporations and is not that important for LLCs.
New Mexico, on the other hand, is much more affordable and offers favorable regulations and protections for LLCs. Starting and running a business won’t cost you a fortune. In the meantime, you can rest assured your personal info will be kept anonymous.