If you are here to learn about forming an Alabama corporation, you likely have already looked at the variety of business types you can choose to form and landed on a corporation. Corporations are one of the more complicated business types. They are treated as an individual entity separate from the shareholders.
In a C corporation, the business is owned by shareholders who elect a board of directors to oversee how it is run. The corporation is taxed as a separate legal entity from anyone else involved. Because it is treated this way, it provides the greatest amount of protection between the business and anyone’s personal assets. The shareholders must also include any earnings in their personal income taxes and often pay additional taxes on these.
In an S corporation, income distribution works a little differently when it comes to taxation. The earnings are split among shareholders and are taxed at that level only, not also separately as a business entity.
Nonprofit corporations are tax-exempt at the corporation level (employees may pay taxes on their earnings). Still, this type of corporation requires significantly more paperwork and must adhere to strict regulations.
How do I form a corporation in Alabama?
Steps to Incorporate in Alabama
- Name Your Corporation
- Appoint Directors
- Choose an Alabama Registered Agent
- File the Alabama Certificate of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary Alabama Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Submit Your Corporation’s First Report
To start a corporation in Alabama, you must file a Certificate of Incorporation with the Alabama Secretary of State office. Note that nonprofit corporations file this paperwork with the county’s probate judge where the corporation’s registered office will be. This is the key event that establishes the formation of your corporation.
Before getting to that point, and after as well, there are several other steps involved. To simplify the process of forming a corporation in the state of Alabama, we’ve put together 10 easy steps for you to form your business:
Step 1: Name Your Alabama Corporation
While giving your corporation a name might sound straightforward, there are several factors to consider during this process. The name must not be too similar to one already in use, must contain a designator indicating what type of business it is, and must not include certain restricted words.
In addition to choosing a name you like and making sure it meets the correct standards, you also want to make sure you can reserve a website domain name that matches and has not already been taken and give consideration to any DBA (“doing business as”) names or trademarks you may want.
Here is the full breakdown of the naming process:
- Brainstorm a list of names that you like and that match your business’s purpose. The more options you have on the list, the better, so you don’t end up with anything during the process of narrowing them down.
- Whichever name you settle on must include the word “corporation,” “incorporated,” or an abbreviation of one of the two.
- Search the Business Entity Records for Alabama to see if your name choices are too similar to current businesses. You will need to eliminate any such names from your list of possibilities. (Note that words or abbreviations in a name that indicate the type of company — LLC, Inc, etc. — are not considered when determining if a name is unique.)
- Unless your business is banking-related, the name cannot include anything suggesting that it is. You also cannot include a professional designation, such as “engineering” or “attorney,” unless you’ve met your state’s requirements for using those words. You will need to eliminate any name choices from your list that do not meet these standards.
- The name cannot suggest that it is associated with any government agency or include anything suggesting that it will be engaged in a business that is illegal.
- Once you’ve narrowed down your list based on the above, the next task is to search for available domain names to ensure you will be able to secure a website domain that matches your business name.
- Consider if any part of your business name or any logos you plan on using should be registered as a trademark or service mark. To learn more about registering these in Alabama, visit the webpage about trademarks on the Secretary of State’s website. You may also want to consider researching trademark registration at the federal level. If the trademarks you wish to use are already in use, this may mean you need to narrow down your list of possible names further.
- If you would like to do business under a name different from your official business name (often called a DBA or “doing business as” name), you will need to file an Application to Register or Renew Trademark, Service Mark, or Trade Name and pay a $30 processing fee. A DBA name is referred to as a trading name in Alabama.
- Once you have settled on a business name, Alabama requires that you reserve this name before filing your Certificate of Incorporation. You can do so by filing a Name Reservation and paying a $25 fee (there may be an additional service fee of $2 to $3 if you file online.) Your reservation will be valid for one year. After that time, if you have not filed your Certificate of Incorporation, you will need to renew your name reservation for an additional $25.
- When you reserve your name, you should reserve the domain name you plan on using with it.
Step 2: Appoint Directors
The board of directors for a corporation oversees the operations of the business. For your business to get off the ground, a board of directors will need to be appointed.
The board of directors is often appointed by the initial incorporators — those involved in filing the initial paperwork for starting the business and who may or may not become shareholders. Note that only one incorporator is required, and only one member on the board is needed, though more is recommended.
Incorporators may be directors and also shareholders. But the three titles are distinct roles within the company. The incorporators are responsible for starting the business and filing the paperwork; the board of directors oversees the business, and the shareholders finance the business by owning shares in the company.
It is often advisable to hold a meeting with other incorporators to appoint directors and hold directors meeting to approve corporate bylaws, determine the share structure, and so on before filing the Certificate of Incorporation. That way, your business starts on the right foot with plans clearly in place.
Step 3: Choose an Alabama Registered Agent
A registered agent is a person or entity that agrees to receive service of process on behalf of the corporation. Service of the process includes legal documents such as court summons and so on. You are required to name a registered agent when you file the Certificate of Incorporation. In Alabama, a registered agent must meet the following criteria:
- Be an individual or corporation with a street address (not a P.O. box) in the state of Alabama.
- A corporation cannot serve as its own registered agent.
- A director or an officer on the board may serve as a corporation’s registered agent.
Step 4: File the Alabama Certificate of Incorporation
Once you’ve done all of the groundwork of selecting and reserving a name, choosing a registered agent, and appointing directors, you are ready to file your Certificate of Incorporation.
Note that different states have different names for this document. While it is called the Certificate of Incorporation in Alabama, it may be called the Articles of Incorporation in other places. These are the same thing.
This document officially registers and establishes your business with the state. In this document, you will need to include:
- The name of your business
- A copy of your name reservation certificate
- The street address of your principal office (and mailing address if it differs)
- The name of your registered agent or registered agent service, along with their street and mailing address
- Your business’s purpose
- The amount of stock your corporation is authorized to issue; a tax or legal professional can help you determine what’s best for your particular needs
- The names of incorporators, along with street and mailing addresses for each
- Signatures of incorporators
You then send the completed form, one copy, a self-addressed stamped envelope, and a $100 filing fee to the Alabama Secretary of State’s office.
Secretary of State
P.O. Box 5616
Montgomery, Alabama 36103-5616
If you are filing the Certificate of Incorporation for a nonprofit, you must file with the probate judge in the county where you will be doing business, include an additional copy of the form, and may need to include an additional fee for the county.
Step 5: Create Corporate Bylaws
Before you get up and running, you will also need to establish corporate bylaws. The bylaws establish all of the rules and day-to-day activities of your business. Not only is this a good idea, but also it is required by the state of Alabama for all corporations. Your corporate bylaws should include:
- A clear statement of your business purpose
- A list of officers and the rights, responsibilities, and qualifications of each
- A list of the board of directors and the rights, responsibilities, and qualifications of each
- Details of your management structure and the duties of each officer
- Annual meeting scheduling and goals for directors, shareholders, and officers
- How ownership and shares are distributed and how the stock is sold or transferred
- How changes are made or voted on
- Details of any committees and their responsibilities
- How conflicts of interest are to be handled
Since the bylaws are a legally binding document, it is a good idea to seek assistance when creating them. You can, however, find templates online to get yourself started. While you are not required to file your bylaws anywhere, you are required to keep them in a safe place with any other corporate records. It’s often a good idea when starting to set up a corporate records book where you can keep all of your corporation’s important papers, including bylaws, minutes from meetings, and stock certificates.
Step 6: Draft a Shareholder Agreement
Another important document to draft is a shareholder or stockholder agreement. This document outlines the rights and responsibilities of all shareholders and should include:
- The names of all shareholders and their contact information (addresses, phone numbers, etc.)
- Shareholder responsibilities, including rules about how officers are appointed and any actions that shareholders are allowed to take on behalf of the business
- Shareholder voting rights, including whether a simple majority or higher percentage may be required for certain decisions
- How changes to the original shareholder agreement may be made
- How stock can be sold or transferred
- The financial obligation and time commitment for each shareholder
- A clear outline of how dividends are distributed
- A plan for the distribution of assets should the business close
Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.
Step 7: Issue Shares of Stock
One of the requirements for starting a corporation is issuing stock. When you filed your Certificate of Incorporation, you stated the number of stock shares that were authorized. The number of shares you issue should always be less than or equal to this number.
To get your company off the ground, you need funds. This is called capital. It’s a good idea to determine how much capital you need and then divide this value among stock shares that you can issue to your shareholders. Note that when initially issuing shares, some may be issued as compensation for helping start the business. As a result, the shareholder they are issued to does not contribute monetary capital for them.
Each share is only issued once. However, after being issued, they can be traded and sold. All issued shares must be documented in the company’s annual report.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, managers, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Companies that issue public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. You should also check with the Alabama Securities Commission to see what is required at the state level.
Step 8: Apply for Necessary Business Permits or Licenses
The next step in the process is making sure all business permits and licenses are obtained.
You must obtain a business privilege license from the probate judge in every county where you will do business in Alabama. Annual licenses are valid from Oct. 1 through Sept. 30 each year. Fees vary by county. You may need to check with your local city to see if any permits or licenses are required at the city level.
If you will be administering any professional services — such as law or medicine — you will need to maintain licensure from the appropriate agency. Unfortunately, there is no one-stop-shop for licenses and permits, so you will need to be diligent and do a careful search specific to your county, city, and the type of business you are running.
Step 9: File for an EIN and Review Tax Requirements
Since corporations are treated as unique entities separate from the people involved in them, they require an Employer Identification Number (EIN). This number acts like the corporation’s Social Security number for tax purposes.
Remember that corporations must pay their own taxes separate from any taxes paid on shareholder earnings. This must be done at the federal and state levels by submitting the appropriate return each year. In Alabama, all corporations additionally pay a privilege tax with their annual report.
Step 10: Submit Your Corporation’s First Report
By April 15 each year, corporations must submit form CPT, the Alabama Business Privilege Tax Return and Annual Report for the appropriate tax year. This form specifies the privilege tax that the corporation must pay the state and provides a place for annual report details. The first of these reports, the initial privilege tax return, is due two and a half months after the corporation is formed. Instructions for filing are here.
You will be assessed an additional $10 for the report portion in addition to paying the relevant tax. This form and associated fees are sent to the Alabama Department of Revenue.
How much does it cost to start a corporation in Alabama?
The exact cost for starting a corporation in Alabama can vary based on the size and type of the business and which county it is located in. At a minimum, you will need to pay the $100 fee for filing the Certificate of Incorporation, the $25 fee for reserving your business name, and the fee for registering with the county probate judge (which is usually at least $50.) Additional fees may include:
- $2 to $3 additional processing fee for any forms filed online
- Registered agent service fees
- Fees for copies of documents from the Secretary of State
- Fees assessed for amendments or other business filings
- Fees associated with licenses or permits
- $10 annual report fee, plus privilege tax
ZenBusiness can assist with many of the required steps for a low annual fee.
What are the benefits of a corporation in Alabama?
There is a whole host of benefits associated with starting a corporation in Alabama. When it comes to the corporation business type, the benefits include:
- Protection of personal assets
- Legal recognition as a separate entity within and outside the U.S.
- The ability to issue stock (which can help with funding and capital)
Alabama is a great choice on its own for businesses. It has one of the lowest property tax burdens in the country, and the cost of doing business in the state is lower than a lot of other places. There is also great infrastructure, including a seaport, interstate, rail, and airports.
However, there may be disadvantages to starting a corporation, so it’s worth making sure that this is the right business type for you. Among the disadvantages are the tax structure (profits are taxed at the corporation and personal income tax levels), and there is a lot more red tape and paperwork involved than other structures, such as LLCs.
How is an Alabama corporation taxed?
How exactly your corporation is taxed in Alabama depends on whether it is a C corporation, an S corporation, or a nonprofit.
C corporations are treated as separate entities and must file their own tax return. In addition to this, all owners and shareholders file their own tax returns for earnings and dividends. This results in essentially double taxation. While that might seem less than ideal, there are some benefits to this tax structure, including more flexibility in what can be deducted.
S corporations, on the other hand, are pass-through entities. All profits are passed through to the owners, who must pay on their individual income taxes.
Nonprofit corporations are exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary.
Visit the Alabama Department of Revenue’s business webpage for more information about additional taxes your corporation may be responsible for, including sales and use tax.
Alabama Corporation FAQs
- Does running a corporation in Alabama involve more paperwork than running other types of businesses?
Because corporations are more complex in structure, they often come with more paperwork than a simpler business model, such as an LLC. This includes shareholder agreements, reports, and meetings that must be documented.
- What is the difference between an LLC and a corporation in Alabama?
LLC stands for limited liability company. This type of business structure is a pass-through entity for tax purposes, and it is useful in keeping the owners’ assets separate from business assets. However, LLCs do not have a board of directors and do not issue shares.
- How do I change my corporation’s name in Alabama?
To change your corporation’s name in Alabama, you need to file an amendment by completing this form and filing it with the Secretary of State with a $50 filing fee
- How do I dissolve a corporation in Alabama?
To dissolve a corporation in Alabama, you must file the Articles of Dissolution and pay a $100 processing fee. You must also follow any rules set out in the corporate bylaws for the distribution of assets.
- Can I form my Alabama corporation online?
The process can be started online using the AlabamaInteractive.org filing services site; however, finalizing it will require delivering physical documents to the state.
- Does Alabama require a business license?
Businesses are required to obtain a business privilege license through the probate judge in each county they conduct business. You can read more about licensing for Alabama businesses here.
- Does Alabama accept federal extensions for corporations?
Yes. When extensions are granted for federal purposes, they are also granted for Alabama.