New Mexico LLC Operating Agreement
The operating agreement is a legal document that outlines the rules and structure of your New Mexico LLC. When signed by all members, the operating agreement is legally binding and formalizes important functions of your LLC, including voting, transfer of membership interest, allocating profits and losses, and dissolving the business, should that ever happen.
Since the operating agreement is an internal document, you don’t need to file it with the New Mexico Secretary of State. However, having a written operating agreement on file is vital for your New Mexico LLC. Creating an operating agreement isn’t easy, so Northwest offers a range of free, attorney-drafted operating agreement templates to get you started.
Why should a New Mexico LLC have an operating agreement?
A New Mexico LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.
While there is no state law requiring a written operating agreement, adopting one is an extremely important step for New Mexico LLCs. Below are four reasons why.
1. Your operating agreement proves you own your LLC.
New Mexico is a great state for privacy protection when it comes to LLCs—you are not required to list the members or managers of your LLC on the New Mexico Articles of Organization. However, this means you’ll need to have members documented in an operating agreement to prove LLC ownership.
At times when you need to prove you own your LLC, like when you open a business bank account, having an operating agreement that lists all members’ names and addresses will come in handy.
2. An operating agreement can help reinforce limited liability status and protect assets.
To reap the benefits of limited liability status (and New Mexico’s ultra-strong asset protection laws), an LLC has to be able to show that it is a separate legal entity from its members. Following the rules and procedures set out in your operating agreement can help you prove that your LLC is a separate entity with its own set of rules and policies. This helps guard your LLC’s limited liability status, in case you ever face a lawsuit.
3. An operating agreement can help all members stay on the same page.
Differences of opinion are common when running a business. Though your members may have verbally agreed on your LLC’s rules, it’s important to get those rules down in writing. That way, when disputes arise, your operating agreement can help you determine the best course of action.
4. An operating agreement can override New Mexico’s default laws.
Any procedures not covered in your operating agreement will be governed by New Mexico’s default LLC laws. These laws might not be ideal for your LLC. For maximum control over your LLC, you’ll need an operating agreement that is tailored to your LLC’s needs.
New Mexico Case Law
We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*
“Consider the case of Buke LLC, where the members disagreed about the proper use of its assets. To the credit of the members in Buke, the did actually adopt an operating agreement, however, as the opinion demonstrates, all the members did not uniformly understand the operating agreement. One side believed the managers of the LLC could use a variety of LLC assets to further LLC purposes, and the other side believed the use of certain assets required approval of the members prior to being used by the managers. Looking to the clean and unambiguous terms of the LLC’s operating agreement, the court found in favor of the side understanding that the managers could use the assets.
“Had the members taken the time to plan ahead, discuss potential pain points, and distill their understanding into a written operating agreement, and continued to periodically review and maintain that operating agreement, then this dispute could have remained an internal misunderstanding that was easily resolved by looking to the operating agreement.”
What is included in a New Mexico Operating Agreement?
Your operating agreement should cover every “big-picture” situation your LLC is likely to face, from allocating profits and losses to dissolution. While technically your operating agreement can include anything not prohibited by New Mexico’s state laws, there are certain things that every LLC operating agreement should cover, including:
- Transfer of membership interest
- Voting rights and decision-making powers
- Initial contributions
- Profits, losses, and distributions
- Management
- Compensation
- Bookkeeping procedures
- Dissolution
FAQs
Is an operating agreement required in New Mexico?
There is no New Mexico state law requiring operating agreements, but having a strong written operating agreement is crucial for providing maximum protection of your assets and helping to protect your limited liability.
Do I have to file my operating agreement in New Mexico?
No. Your operating agreement is an internal document, which means it is not on the public record and does not need to be filed with the state. However, New Mexico’s Limited Liability Company Act (NM Stat § 53-19-19 (2019)) states that all New Mexico LLCs are required to to keep a copy of the current and every prior operating agreement, along with any amendments, on file at their primary business location.
Does a single-member LLC need an operating agreement?
Yes! While it may seem unnecessary to draft a written agreement for your one-person LLC, adopting an operating agreement allows you to open a business bank account, override New Mexico’s default LLC laws, better protect your LLC’s assets, and—the big one—help protect your limited liability status. Without an operating agreement, a single-member LLC could seem dangerously similar to a sole proprietorship, a business type that does not have limited liability protection.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.