According to the National Center for Charitable Statistics, the state of New Mexico has approximately 6,556 charitable organizations or public charities. Some of the most well-known New Mexico nonprofits making their mark in the nonprofit sector are Women’s Intercultural Center Inc, Wings For LIFE International, and The Global Mountain Fund Inc.
Successful nonprofit organizations in New Mexico that have received their 501(c)(3) tax-exempt status enjoy many benefits such as limited liability for directors, access to grants from the government and private foundations as well as credibility with the Internal Revenue Service.
Forming a nonprofit in the state of New Mexico could take anywhere between two weeks to three months, depending on whether or not you’ve filed the relevant forms and followed the process correctly.
The following step-by-step guide will give you an idea of what it entails to start a nonprofit in New Mexico.
1. Select a name for your organization
Once you’ve identified the unfulfilled need in your community and you know exactly how you’re going to address it, it’s time to give your nonprofit or name.
Naming your nonprofit deserves careful consideration as the name becomes the nonprofit’s brand. Additionally, the name is something that will be searched for potential donors and sponsors.
Therefore, your New Mexico nonprofit name cannot imply that your organization is formed for any other purpose other than that which is explicitly stated in the Articles of Incorporation. For additional guidance and naming a New Mexico-based nonprofit, read the Nonprofit Corporation Act.
Alternatively, you may choose to do a name search on the state of New Mexico’s website, and don’t forget to do a domain availability check to ensure that you are able to create a website for your nonprofit when the time comes.
2. Nominate a New Mexico registered agent
All New Mexico nonprofits need a registered agent. They are also referred to as statutory or service of process agents.
Ultimately, their main or primary role is to receive legal paperwork on the nonprofit’s behalf.
Therefore, the registered agents may be considered your business’s point of contact with the state of New Mexico.
You may appoint anyone as a registered agent, including yourself; however, the individual must meet the below requirements:
- They must be a resident of New Mexico
- They must be at least 18 years of age
- They must consent to the appointment
- They must maintain normal business hours
3. Recruit your board members
Every New Mexico nonprofit needs at least one incorporator. The incorporator is the person tasked with signing and filing the Articles of Incorporation for the nonprofit.
Thereafter, you’ll need to nominate a minimum of three directors. The directors cannot be related to each other. When it comes to selecting directors, they do not need to be residents of New Mexico nor do they need to be members of the nonprofit organization in question.
Additionally, the directors will serve their term until successors are elected and qualified.
Lastly, your New Mexico nonprofit needs to have officers. The officers will serve the roles of president and secretary. The same person may hold two more offices, provided this is consented to in the bylaws.
4. Consent to bylaws and conflict of interest policy
There are two essential documents that every New Mexico nonprofit will need to adopt and approve. These are the:
- Conflict of interest policy
The bylaws are a collection of rules put in place to govern the operational procedures of the nonprofit organization. They must be adopted and ratified during the first board meeting. At this time, the Board of Directors will also be nominated.
The next essential document is the Conflict of interest policy. This policy must be adopted and approved as it will ensure that there is no Conflict of interest in the decision-making process.
Every decision taken by the board always needs to be in the organization’s best interest and never for the professional or personal gain of individual members.
While the bylaws do not need to be filed with the state, they must be kept on file and used as a point of reference.
5. Select a New Mexico nonprofit startup corporation structure
The following organizational structures or nonprofits are available in the state of New Mexico:
- Trade and Professional Associations: These types of nonprofits are considered 501(c)6 under the Internal Revenue Code. They are usually business leagues and the likes. Some of the Trade and Professional Associations organizations are retail merchants associations, real estate boards, and Chambers of commerce.
- Social and Recreational Clubs: Under the Internal Revenue Code, these types of nonprofits are described as a 501(c)7. They include country clubs, hobby clubs, garden, and variety clubs, as well as amateur hunting and fishing and sports clubs.
- Charitable Organizations or Charities: These organizations are considered 501(c)3 under the Internal Revenue Code and are exempt from taxation. These organizations are formed for one or more of the following purposes:
- Religious, charitable, educational, literary, scientific
- Fostering national or international amateur sports competition
- Testing for public safety
- Prevention of cruelty to animals or children
Some examples of charitable organizations include food banks, daycare centers, mental health organizations, and environmental groups.
- Civic Needs and Social Welfare Organizations: These organizations are considered 501(c)4 under the Internal Revenue Code. They are developed to improve the common good and overall welfare of people in the community.
Some examples of civic leagues and social welfare organizations include downtown improvement associations, civic groups, and social action organizations.
6. Prepare and file nonprofit Articles of Incorporation
In order to register a nonprofit organization with the New Mexico Secretary of State, you need to prepare and file Articles of Incorporation. The Articles of Incorporation document specific details about your organization, and this information is necessary to verify your nonprofit’s existence.
While the language does vary from one state to the next, there are some basic provisions that the IRS keeps an eye out for, especially when it comes to vetting your application for 501(c)(3) tax exemption.
Therefore, when filing Articles of Incorporation, ensure that it includes the following information:
Every nonprofit organization has a specific purpose. Your New Mexico nonprofit’s specific purpose must be clearly stated in your articles. Think of this as your organization’s mission statement.
- The Dissolution:
Every nonprofit organization has resources, possessions, and assets. The IRS needs to know exactly how you are using these assets and exactly how the assets will be used or what will become of them in the event that your nonprofit is dissolved. Lots of nonprofit organizations choose to leave their assets to other existing charitable organizations.
Additionally, include the following information in your articles:
- The name and address of the nonprofit’s initial registered office
- The name and address of your nonprofit’s registered agent
- The names and addresses of your board members
- The name and address of your incorporator
You may use this to create your articles and thereafter compete and file them following the instructions provided on the Secretary of State website.
7. File an initial report
New Mexico nonprofits are required to file an initial report with the New Mexico Secretary of State Business Services Division. This report is due within 30 days of the date on which the commission issued the nonprofit certificate of incorporation or certificate of authority. You may file the initial report online.
8. Secure an EIN (Employer Identification Number)
An EIN which is an Employer Identification Number is also referred to as an EIN or Federal Employer Identification Number. This number is the equivalent of an individual’s Social Security number.
Ultimately, your nonprofit cannot function without one. So you’ll need to apply for the EIN from the IRS website free of charge.
The EIN serves an essential purpose when it comes to applying for tax exemption, opening business bank accounts, and establishing the necessary credibility with vendors and potential donors.
You may apply for your EIN once your Articles of Incorporation have been approved by the state of New Mexico.
9. Apply for federal tax exemption
New Mexico nonprofit organizations that obtain federal tax exemption are automatically exempt from the state’s sales and corporate income tax. However, this all depends on being granted tax exemption from the IRS.
Some nonprofits do not qualify for federal tax exemption, and they are liable for more or less the same federal and state taxes as for-profit organizations.
In order to have tax exemption in the eligibility, you need to prepare and file your Articles of Incorporation. It’s crucial that your Articles of Incorporation satisfy the IRS provisions for specific language and include the organization’s purpose and dissolution.
Therefore, the Articles of Incorporation should explicitly state that your nonprofit’s income, activities, and assets are 100% dedicated to the nonprofit’s purpose or one or more of the tax-exempt purposes recognized by the Internal Revenue Service.
New Mexico nonprofits need to complete IRS Form 1023 and submit it to the IRS for federal tax exemption. Small business organizations in New Mexico are free to complete and file IRS Form 1023-EZ which is a simpler and shorter application.
The IRS will receive, vet and accept your application provided there are no issues with it. Thereafter, they’ll send you a determination letter stating that your New Mexico nonprofit is one of the existing organizations that are exempt from federal taxes.
You can now enjoy all of the benefits of tax-exempt organizations, including limited liability, credibility with the IRS, tax-deductible donations, and access to government and private grants.
10. Apply for New Mexico state tax exemption
Once your nonprofit corporation has obtained federal tax exemption, it’s also automatically exempt from state income tax, corporate income, and franchise tax.
11. Other applicable permits and licenses
Nonprofits in New Mexico are not required to have a state-wide business license to operate in the state. However, depending on the county or town you’re located in, a license or permit may be required. Be sure to check with your town’s business licensing division to determine the requirements for your organization.
Additional state registration and reporting requirements
In order to participate in charitable solicitation fundraising activities or raise funds for your New Mexico nonprofit, you may need to register with the New Mexico Office of the Attorney General. Refer to the New Mexico Office of the Attorney General for further information regarding charitable registration for your nonprofit organization.
12. Submit an annual report
New Mexico nonprofit annual reports are due within five months and 15 days after the close of the fiscal year. If the nonprofit’s fiscal year ends in December, then the due date will be May 25th.
Annual reports will be public records and therefore must include essential nonprofit information such as the nonprofit’s registered office address, the address of the registered agent, and the names of all of the officers and directors on the board.
The annual report may be filed on the New Mexico Corporations and Business Services website.
Costs of starting a new nonprofit in New Mexico
The filing fees below apply to all New Mexico nonprofits:
- Articles of Incorporation: $25 + optional $100-150 expedite fee
- Initial Report filing fee: $10
- Application for federalincome tax exemption or 501(c) status: $275 or $600 IRS fee
- New Mexico charitable registration: $0
After you’ve started your nonprofit, there are a few necessary steps that you should take to keep your organization running smoothly. Let’s take a closer look at them below:
Open a business bank account
- Maintain accounting and tax filing
- Ensure that your personal assets are kept separate from your nonprofits’ assets
To open a bank account, you will need to provide:
- Your EIN
- A copy of your articles of incorporation
- A copy of your organization’s bylaws.
Hire a business accountant
- Simplify payroll and bookkeeping
- Prevent your nonprofit from avoiding penalties and tax errors
- Manage your nonprofit’s funding
- Focus on growing your nonprofit
- Manage risks
You may opt for General liability, Personal liability, or Worker’s compensation insurance.
Build a website
As we mentioned earlier, you may want to create a website for your organization to legitimize your business or give it more credibility. A dedicated website is also one of the best ways to share your nonprofit’s vision, mission, and story with supporters. Consequently, it’s also a great way to announce upcoming events and goals.
Sign legal documents
One aspect that tends to get overlooked is signing legal documents in your personal capacity instead of as an authorized representative of your nonprofit.
If you’ve appointed yourself as a registered agent of the nonprofit, then the following tips will help avoid personal liability:
- State the registered name of your nonprofit
- Use your name and signature
- State your position/role in the organization as its authorized representative
When signing legal documents on behalf of the nonprofit, it is important that you do so in your capacity as the registered agent, as opposed to your capacity as an individual.
Example: Instead of signing your name only, state the name of the nonprofit and then your name and position within the organization before signing.
Just like for-profit organizations, nonprofits do also have stakeholders. Of course, the most valuable stakeholders in a nonprofit organization are the employees. The employees spend the most amount of time working towards the organization’s mission and therefore are an integral part of the decision-making process.
It’s crucial that nonprofit organizations remain compliant with both internal rules of conduct as well as external regulations and rules. Since nonprofits are granted 501(c)(3) tax exemption, they are held to a high standard by the federal government. The IRS compliance guide is a great resource to ensure that your nonprofit remains compliant and therefore does not have any of its privileges revoked moving forward.
Nonprofit organizations, just like for-profit organizations, need a business plan. The business plan will give potential sponsors and donors a reason to invest in your course. This is because your business plan needs to clearly state the purpose of your organization and what you plan to achieve. Additionally, a business plan is a great way to include a financial plan explaining how you’re going to collect funds and distribute them to further your cause.
A fiscal sponsorship or physical sponsor is a nonprofit organization that offers oversight, administrative services, and financial management to help build the capacity of another nonprofit organization. The fiscal sponsorship directory will help you find fiscal sponsors and form great partnerships with other organizations by state and city.
All nonprofit organizations are now required to register and file reports electronically via NM-COROS. This electronic filing system allows nonprofits to complete all filing and registration requirements, including completing the electronic registration form, filing annual reports, uploading documents, and getting immediate confirmation of receipt.