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If you’re planning to launch a business in Alabama, congratulations! You’re looking forward to creating a business strategy and brand, and to finding your first customers. But, there are certain steps you’re not so enthusiastic about. Like filling out official forms and figuring out your taxes.
We understand this part of forming your business can be confusing. But until you put the paperwork behind you, you won’t be able to build the business of your dreams. For many new business owners, this means forming an Alabama limited liability company.
We can make the LLC Alabama process smoother and let you focus on what’s important — growing your business. Let’s take a closer look at how to form an LLC in Alabama and how we can help.
To show you how an Alabama LLC is created, we’ve broken down the formation process into five steps. These steps will show you how to start an LLC in Alabama. These are integral to registering your LLC Alabama with the Yellowhammer State. This means filing the right documents with the Secretary of State’s office. In addition to having the right tools to keep your business running smoothly.
There’s no need to feel overwhelmed by these requirements. At ZenBusiness, we offer a variety of formation and compliance services. We help take some of the stress of forming an Alabama LLC off of your plate.
If you’ve already been brainstorming the perfect name for your LLC in Alabama, there are a few things to keep in mind. First, you’ll need to comply with the state’s naming requirements. They are:
How can you tell if the name you’d like to use for your LLC in Alabama is already taken? To find out, search for your preferred name using the Secretary of State’s Business Entity Search tool. If you’re unfamiliar with these systems, never fear. Take a look at our guide to Alabama business entity searches and we’ll walk you through the process.
Unlike other states, Alabama requires you to submit a “Name Reservation Request Form for Domestic Entities” with your Certificate of Formation, the official paperwork that creates your LLC in Alabama.
If you’ve found the right name but aren’t quite ready to officially form your Alabama LLC, you can go ahead and submit that name reservation form prior to filing the Certificate of Formation. This will reserve the name with the state for up to a year.
Previously, Alabama forced new businesses to file this name reservation form with the state a few weeks before even forming their business. However, as of 2021, this form can be submitted along with your Certificate of Formation instead of submitting it ahead of time.
If you need help, we have a business name reservation service that can handle it for you. As part of the service, we also check to see if the desired name for your LLC in Alabama is available.
When you’re pondering the right business name. It’s a good idea to consider whether you can secure a matching domain name.
If the name you pick for your LLC doesn’t always convey the vision you have for your business, you can file an Alabama DBA, or “Doing Business As” name application with the state. This allows you to operate your business under a name other than the LLC’s official name, all while filing state formation and compliance documents under the official registered LLC name.
If you’re starting a business for the first time, you may not be familiar with the term registered agent. The state of Alabama requires appointing and maintaining a registered agent, who can be a person or business entity that accepts service of process on behalf of your Alabama LLC.
Because of the nature of their role, registered agents need a physical address in the state of Alabama (a P.O. box won’t work). This location is referred to as your “registered office.” Additionally, your Alabama registered agent must be available to receive official paperwork at that address during standard business hours (Monday to Friday, 9 a.m. to 5 p.m.).
Many business owners assume they will serve as their own registered agent, using their business location as the registered address. Unfortunately, there are several reasons this choice might not prove advantageous in the long run:
Thankfully, there’s an easy and affordable solution: You can hire a commercial registered agent service to perform this role for your LLC. We offer registered agent services in Alabama, offering the consistency and accountability you need.
We’ll receive any documents on your behalf and scan them to our online portal, where you can review and respond to them instantly. Forget worrying about always being available: Let us take on that responsibility, allowing you to focus on growing your business.
When forming an LLC in Alabama, one document makes your business official, a Certificate of Formation. Of all the red tape you’ll have to overcome, this is the paperwork that matters most.
In the past, starting an Alabama LLC required sending a copy of your application for a Certificate of Formation with the probate judge in the county where you’re starting your business. Thankfully, this requirement is now officially gone from Alabama law with the passage of Act 2020-73, which went into effect January 1st, 2021.
The same act also changed the “Name Reservation Request Form for Domestic Entities” requirement, so all you need to do is to fill it out and file it along with your Certificate of Formation.
Filing official government documents like this can be intimidating and/or confounding for many people, which is why we’re here. With our business formation plans, our professionals handle the filing for you to make sure it’s done quickly and correctly the first time.
If you do take advantage of our services, all of your LLC’s documents will be uploaded to your ZenBusiness dashboard, where you can keep it and other important paperwork digitally organized.
In addition, our customized business kits give you somewhere to make sure your physical paperwork like your operating agreement, member certificates, contracts, compliance checklists, transfer ledger, etc. are safely stored.
An operating agreement can be critical in helping LLCs succeed, both in the early stages of the business and throughout the company’s existence. In basic terms, this document lays out the rules by which the company will operate. Including management procedures and the roles and responsibilities of specific members.
Alabama does not ask new LLCs to submit their operating agreements to the state. But having a comprehensive operating agreement for your Alabama LLC can be extremely helpful, especially when changes and challenges arise.
This is true even if you’re the only member of the LLC, positioning your new business for sustained success. Here are just a few ways that an operating agreement can help you and your new business:
Moreover, without an operating agreement in place, your LLCs will be governed by the state’s default rules. These default rules may not reflect the reality of your business. If you’re unsure as to how to start creating an operating agreement for your Alabama LLC, we offer a customizable template to help get you started.
While you’ve filled out plenty of paperwork for Alabama’s government, you’ll probably still need to register your business with the federal government. The Internal Revenue Service (IRS) has a numeric system for tracking business entities, creating ID numbers for companies to use for tax purposes.
This nine-digit number is called an Employer Identification Number (EIN), and you’ll more than likely need one, even if your LLC is single-member. But if you have other members (owners) in your LLC or hope to employ anyone, you’ll need to get an EIN as soon as possible.
Even if you don’t technically need an EIN to meet your tax obligations, it could be a good idea to get one for the following reasons:
You can get your Alabama LLC’s EIN through the Internal Revenue Service website, by mail, or by fax, but if you’re unfond of dealing with that particular government agency, we can get it for you. Our EIN service is quick and eliminates the hassle.
Once you’ve secured your tax ID number, you’ll be able to open a business bank account. Having separate accounts for your business and your personal banking is critical not only for taxes, but for liability purposes.
Mixing the two can not only make your taxes more difficult, but it could also be used against you if someone takes you to court to challenge whether you and your LLC are truly separate entities.
The good news is that we offer a discounted bank account for new businesses. It allows unlimited transactions, online banking, a debit card, and more. When you want to authorize others in your business to use the account, we offer a banking resolution template to simplify the process.
For further help managing your new business’s finances, try the ZenBusiness Money App. It can help you create invoices, receive payments, transfer money, and manage clients all in one place.
The state fees for forming an Alabama LLC can range from around $200 to $225, depending on factors such as whether you choose to reserve your business name.
Note that fees change over time, so check the Alabama Secretary of State website for the most recent fee schedule.
If you’re reading this guide, you may already be familiar with the benefits of the LLC business structure. But if you’re still learning various kinds of business entities, you might want to know more about LLCs’ advantages, both in Alabama and nationwide.
There’s a reason that roughly 90% of our customers decide to form LLCs: They offer an attractive mix of simplicity and protection. Whereas corporations are subject to many regulations, LLCs provide a more streamlined approach to being in business. At the same time, LLCs provide important legal separations between businesses and their owners.
Here are some key benefits that LLCs offer:
As you can see, an LLC is a great business structure for many kinds of ventures.
You have some decisions to make about how the federal government will tax your LLC. If you’re the only member of the LLC, its default tax status with the IRS will be a “disregarded entity,” meaning you’ll pay personal income tax on the money you earn. If you have partners, your LLC will be regarded as a “partnership” by default: Each member will pay income tax on their share of the profits. In both cases, the business itself doesn’t pay federal income tax.
However, you could also elect to file your company’s taxes as a corporation. Some owners of larger LLCs choose an S corp or C corp tax classification for their companies, for example, because doing so could allow them to save money on self-employment taxes. A tax professional can help you determine what’s best for your LLC.
However you choose to be taxed at the federal level, your business will likely need to pay taxes on more than just your income. Employment taxes are an important source of revenue for the federal government, and you’ll need to withhold money from employee paychecks to pay them. As an LLC owner, you’ll also have self-employment tax to look forward to.
At the state level, Alabama LLCs are subject to something called the Alabama business privilege tax. Calculating your true tax burden can be difficult because the business privilege tax rate varies depending on your business’s “net worth.” Net worth represents a mix of assets, income, and liabilities and is calculated by completing this form, submitted annually. Newly launched LLCs must also complete an initial privilege tax return within two and a half months of being formed to indicate the entity’s initial assets.
Plus, your business’s nature may demand additional state taxation, such as a sales and use tax for retail companies. On top of that, cities and counties may charge you for doing business within their borders.
If you’re feeling overwhelmed, you can sign up for a free accounting consultation when you purchase one of our business formation plans.
The state completely revamped it’s business entity submission and approval process a few years ago with the goal of reducing its seven-month processing timeline. Now, you can expect your filings to be approved or rejected in a few business days. The state also allows expedited filing if you are in a time crunch.
If you’re in a hurry to form your LLC and don’t want to jump through the hoops of the state’s expedited filing processes, we can handle it for you with our faster filing speeds service.
Alabama does not require LLCs to file their operating agreements with the state.
In Alabama, all business entities (including LLCs) are subject to the business privilege tax mentioned above. The rate you pay is determined by your business’s net worth as computed using the state’s formula, with a minimum payment of $100 and a maximum of $15,000 (except for certain financial institutions). The tax structure you choose won’t affect how much this tax will cost you.
Additionally, because Alabama recognizes the federal S corporation designation, your LLC will not have to pay state corporate taxes if you’re designated as an LLC or S corporation with the IRS. Instead, individual members will pay income tax on the money earned from the business. If you decide to have your LLC taxed as a C corporation, you would have to pay Alabama’s corporate tax, however.
Accordingly, the question of whether to file as an LLC or S corporation or C corporation really depends on which will reduce your federal tax burden. While the default designation with the IRS would be a disregarded entity or partnership (depending on whether you have more than one member), filing as an S corporation or C corporation could have tax benefits.
You’ll need to make sure your LLC has all the licenses and permits it’s required to have by law. Unfortunately, because licensing varies by industry and location and can occur on the federal, state, and local levels, there’s no central place to check to see if you have all the licenses and permits you need. You’ll have to do some research.
If you don’t have the time or inclination to do all this research, or if you just want the peace of mind to know that your business has all the licenses and permits it’s legally required to have, our business license report service can do the work for you.
The process of transferring ownership of your LLC should be clearly specified in the operating agreement you develop for your business. Protocols for adding and removing members and selling or transferring ownership can be articulated in this document, preventing conflict and unforeseen consequences.
Before starting the dissolution process, the members of an LLC should vote to dissolve it. For the subsequent steps please refer to our Alabama business dissolution guide.