If you’re planning to launch a business in Alabama, you’re probably looking forward to certain aspects of the process. There’s the excitement of crafting a business strategy, creating a brand-new website, and finding your first customers.
On the other hand, there are probably certain steps you’re not so enthusiastic about — or are genuinely dreading. If you’re like most entrepreneurs, you’re not exactly thrilled about the red tape involved in getting your business up and running. From filling out official forms to figuring out your taxes, the basics of starting a business can seem frustrating at first.
We get it: You didn’t decide to start a business just to deal with government bureaucracy. But until you put the paperwork behind you, you won’t be able to build the company of your dreams. That’s why we created this comprehensive guide, giving you the guidance you need to form your new LLC.
We’ll walk you through the details of the process in Alabama, from reserving a name to creating an Operating Agreement. After that, we’ll share some strategic tips for Alabama small business owners, including key insights related to taxation at the state and federal levels. As we go, we’ll explain how a partner like ZenBusiness can make the process smoother and deliver serious value for your company.
Ready to learn the keys to starting an Alabama LLC? Keep reading.
The 5 steps to form an LLC in Alabama:
To get your business up and running, you’ll need to complete a series of official actions. When taken together, they can seem a little daunting, so we’ve separated the process into five distinct steps.
The first three of these steps are integral to registering your business with the state of Alabama. You’ll need to submit some key documents to the Secretary of State’s office to establish your business formally. These steps include reserving a name for your LLC, choosing a registered agent, and filing a Certificate of Formation.
The fourth step is creating an Operating Agreement to govern your LLC’s structure and practices, while the fifth is applying for an Employer Identification Number (EIN). Once you’ve completed all five requirements, you’ll be in great shape to start serving customers.
There’s no need to feel overwhelmed by these requirements. Below, we’ll break everything down into five simple steps. By taking care of each component, you’ll have your new LLC in no time.
Step 1: Name Your Alabama LLC
Maybe you’ve already been brainstorming the perfect name for your business. Perhaps you’re sort of indifferent about titles and just need a company name.
However you feel about naming your business, you’ll need to comply with the state’s rules and reserve a name before forming your company. In Alabama, LLCs must abide by the following naming requirements:
- Your name must include the words “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.”
- Your name must not be in use by another business in the state of Alabama.
- Some words require special permission to use (e.g., “insurance” or “engineer” would require proof of specific licenses).
How can you tell if the name you’d like to use is already taken? To find out, search for your preferred name using the Secretary of State’s Business Entity Search tool.
Once you find an available name that works for your business, you’ll need to complete a Name Reservation Request Form. We recommend that you do so online, for a cost of $28 or $27, depending on whether you subscribe to the state’s web platform.
While you can submit the form by mail for $25, you’ll have to wait far longer for the state to issue a confirmation of your name reservation. And because you can’t submit a Certificate of Formation (see step three) without a Name Reservation Certificate, you’ll be stuck waiting until yours arrives.
A few other things you’ll want to think about when it comes to your Alabama LLC name:
- DBA: A DBA or “Doing Business As” is another name you can register to use for your business. Use the Secretary of State’s Business Entity Search tool to ensure your name isn’t already in use.
- Trademark: Visit the United States Patent and Trademark Office website to see whether your business name or logo is federally trademarked. On the federal level, you can ensure your trademark is available across the U.S. but can be much harder to acquire. On the state level, you’re able to apply much quicker and easier.
- Domain name: Something else to think about with your LLC name is the availability of website domains. Do a domain name search to see if you’ll be able to use your business name through some sort of domain as well. ZenBusiness can help you reserve your website domain name once you’ve made your choice.
Step 2: Appoint a Registered Agent in Alabama
If you’re starting a business for the first time, the term “registered agent” may not be familiar. Among the general public, registered agents are generally unheard of. Yet, they perform an important role on behalf of businesses, and you’ll absolutely need one to launch your LLC. Essentially, the state of Alabama needs a person or business entity to be accessible on behalf of your LLC to receive official documents. If your company is sued, for example, a process server would need to deliver the associated paperwork to your registered agent in person. Similarly, registered agents often receive important notices or tax documents on behalf of the businesses they serve. 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:
- If you’re ever sued, you’ll be served paperwork at your place of business. This could create embarrassment in front of your employees and customers.
- You’ll be required to stay at your registered office during standard business hours. This could be a tricky requirement if you plan to travel for work, let alone take a long vacation at any time in the future. Even the occasional sick day could cause a problem.
- If you change your business address (say to move to a larger or better location), you’ll need to update your registered office with the state — an easy process to forget and an annoying one to complete.
Thankfully, there’s an easy and affordable solution: You can hire an outside registered agent to perform this role for your LLC. ZenBusiness offers registered agent services in Alabama, offering the consistency and accountability you need at surprisingly low prices. 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.
Step 3: File Alabama Certificate of Formation
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.
- The name of your new LLC as you reserved it (you’ll need to attach a copy of your Name Reservation Certificate).
- The name and address of your registered agent.
- The name of the person who prepared the form (either your name or someone else on your behalf).
You’ll be asked to indicate if the new business will be a “Series” or “Professional” LLC. These terms refer to specific kinds of businesses, so they likely don’t apply to your new venture if you haven’t already heard of them.
Once you have the form completed, you’ll be ready to print and sign it. Simple enough, right? Unfortunately, Alabama’s submission process is somewhat complicated.
To submit your Certificate of Formation, you’ll need to mail it to the Office of the Judge of Probate for the county of your registered office.
For instance, if you were starting an Alabama LLC in Montgomery County, you would want to mail your Certificate of Formation to:
PO Box 1667
Montgomery, AL 36102
Contact the Office of the Judge of Probate to determine what fees they charge for processing a Certificate of Formation for a new LLC. This is what they’ll charge you to forward your Certificate of Formation to the Alabama Secretary of State’s office. The minimum fee is $50, and many counties charge significantly more.
Once you have this information, send the following by mail to the Office of the Judge of Probate:
- One signed, original Certificate of Formation (including a copy of the Name Reservation Certificate).
- Two copies of the signed Certificate of Formation.
- Payment for the fees charged by the Office of the Judge of Probate (typically by check).
- A separate check made out to the Secretary of State or a completed credit card authorization for $100 or $200 (you can pay the higher amount for expedited processing).
We get it: This system is not ideal. But because the process moves at a snail mail pace, the sooner you get started, the better.
Step 4: Create an Operating Agreement
Operating Agreements can be critical in helping LLCs succeed, both in the early stages of the business and across the company’s life. In basic terms, these agreements delineate the rules by which the company will operate, including management procedures and the roles and responsibilities of specific members.
You might be surprised to learn that something so essential is not technically required: Alabama does not ask new LLCs to submit their Operating Agreements to the state. But having a clear LLC Operating Agreement 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 Operating Agreements can help you and your new business:
- Operating Agreements substantiate your LLC as separate from your personal assets in the eyes of the courts. This could come in handy if your business incurs debt or legal liabilities.
- Operating Agreements can prevent and resolve conflict among LLC members by clearly specifying how decisions will be reached in the event of disagreement. In the absence of these clear rules, arguments can drag on destructively.
- Operating Agreements can set clear protocols for adding or removing members. If someone wants to leave the business or a new partner wants in, you’ll have a fair process in place.
- Operating Agreements can designate specific roles and ownership privileges and outline specific ownership stakes. Without one, all members are assumed to have equal ownership by default.
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 one member works on the venture full time, for example, they won’t necessarily have greater power than passive members. To be truly in control of your business, you’ll need an Operating Agreement tailored to your vision.
Step 5: Apply for an EIN
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. True, certain one-member LLCs without employees can skate by without an EIN. But if you have business partners or hope to employ anyone, you’ll need to get an EIN as soon as possible. And 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’ll need one to do business banking: Virtually any financial institution will require an EIN if you intend to open a bank account connected with your LLC.
- You’ll need one to obtain financing: If you ever need a business loan or hope to take on outside investment, you’ll have to have an EIN to receive any capital.
- EINs can prevent identity theft: If you don’t have an EIN for your business, you’ll need to provide your own Social Security number instead. Putting your Social Security number on a ton of forms could prove problematic.
Thankfully, getting an EIN isn’t difficult at all. You’ll just need to complete the online application through the IRS website, which won’t take long. Once you’re done, your new EIN will be generated instantly. Just remember to hold on to that number because it will come in handy on plenty of occasions.
How much does it cost to start an LLC in Alabama?
As we’ve mentioned already, the total cost of forming your Alabama LLC can vary considerably depending on the county in which your business’s registered address is located. The minimum amount the Office of the Judge of Probate will charge will be $50, and many counties’ fees are closer to $200. That being said, here are the minimum fees you’ll encounter as you complete the paperwork necessary to start your new LLC.
- Name reservation fee: Alabama requires you to reserve your LLC name prior to filing your Certificate of Formation. If you file your name reservation online, you’ll pay $28 (or $27 for subscribers of the state’s web platform). If you file by mail, you’ll pay $25, plus the price of postage.
- Certificate of Formation fee: You’ll need to pay $100 for standard processing and an additional $100 for expedited processing. You’ll also need to pay for postage and the copies necessary to complete the state’s process.
What these totals do not reflect, however, is the amount of time you’ll spend engaged in the process of completing this paperwork along with any ongoing paperwork like your annual report. When you’re supposed to be dreaming big, you’ll be stuck thinking about the fine print and a system dependent on snail mail.
What are the benefits of an LLC in Alabama?
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:
- Your personal assets are separate from your business: If your business incurs a debt, your personal wealth will be shielded from creditors.
- Your business’s legal liability is distinct from your personal liability: If your LLC is sued, you won’t personally be the target of a lawsuit or accountable for any judgment awarded
- You won’t be exposed to double taxation: Unlike corporations, LLCs typically don’t owe federal taxes as entities. Their members pay income tax on money earned from the business. Accordingly, LLC earnings are typically taxed just once at the federal level, rather than twice. That being said, Alabama LLCs do have to pay a business privilege tax to the state (more on that below).
- You’ll have far fewer management obligations: Corporations have to elect a board of directors, appoint officers, and comply with other regulations concerning how the business is run. LLCs are free to choose any management structure that suits them.
- You don’t have to do so much paperwork: Compared to corporations, LLCs have very minimal reporting and filing requirements. You can forget about complex bookkeeping and focus on more appealing aspects of your business.
As you can see, an LLC is the perfect business structure for many kinds of ventures.
How is an LLC taxed in Alabama?
As in any other state, Alabama businesses are subject to taxes at the federal, state, and local levels. While your business’s nature and success will dictate which taxes you’ll need to pay, we can offer a brief overview of taxes to keep in mind as you launch your business.
First, 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.
However, you could also elect to file your company’s taxes as a corporation. Some business owners choose an S corp or C corp tax classification for their companies, for example, because doing so allows them to save money on self-employment taxes. This choice isn’t advantageous for most LLCs, however, and requires additional documentation.
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. If you work for yourself, on the other hand, you have the 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.
Alabama LLC FAQs
- What is the processing time to form my Alabama LLC?
As we described above, Alabama takes an old-school approach to receive and processing Certificates of Formation. First, you’ll need to mail your forms to the Office of the Judge of Probate in the county of your business’s registered address. Next, that office will need to send your paperwork along to the Secretary of State. Based on the pace of the postal process, you can count on at least a couple of business days of delay.rnrnAdditionally, the Secretary of State’s office makes no explicit guarantees regarding the processing time for new Certificates of Formation. You can pay an additional $100 fee to expedite the process, but that payment doesn’t ensure that your filing will be processed within any specific timeline. Expediting may still be a good idea, but the processing time will ultimately depend on the bandwidth of state employees. rnrnGenerally speaking, your Certificate of Formation will be processed within approximately two weeks, although some requests might be processed sooner. To check if your LLC has been officially approved and added to Alabama’s records, you can search for it on the state’s website.
- Do I need to file my Operating Agreement with the state of Alabama?
Alabama does not require new LLCs to file their Operating Agreements with the state. In the eyes of state officials, these documents are considered important internal guidelines but not necessary for registering with the government.rnrnBut while Alabama may never ask you for it, you should still create an Operating Agreement for your new LLC. In terms of protecting yourself and the future of your company, doing so is highly advisable. This is true even if you’re launching your LLC alone: Operating Agreements can significantly benefit single-member LLCs in addition to those with multiple owners.rnrnAs discussed earlier, an Operating Agreement specifies your company’s management structure and practices, designating the privileges, powers, and responsibilities of the individuals involved. This agreement generally includes clear instructions on how to proceed if certain outcomes occur, such as members leaving or joining an LLC. rn rnThankfully, you don’t need to pay an expensive attorney to draft up an Operating Agreement that perfectly suits your business. With our Operating Agreement services, our experts can help you adapt existing legal templates to fit your new company’s needs. Learn more about this benefit today, and see how easy and affordable this key step can be.
- What tax structure should I choose for my Alabama LLC?
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.rnrnAdditionally, because Alabama recognizes the federal S Corp designation, your LLC will not have to pay state corporate taxes if you’re designated as an LLC or S Corp 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 Corp, you would have to pay Alabama’s corporate tax, however.rnrnAccordingly, the question of whether to file as an LLC or S corp or C corp 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 Corp or C corp could have some serious tax benefits.rnrnIf you’re interested in learning more about your tax filing options, reach out to our team of experts about our business tax filing services. We’ll help you make sure you’re completely compliant and keeping as much of your money as possible.
- Does Alabama allow a Series LLC?
Alabama does permit the “Series LLC” business structure, an option some entrepreneurs may not yet know about. This route is only available in a minority of states but could prove advantageous for certain businesses.rnrnA Series LLC allows for several distinct business entities to be formed under the umbrella of a single “parent” company. Each company in the series can have its own assets, management structure, and operating practices. Importantly, each series has its own legal and debt liabilities, ideally shielding the other series and the parent company. rnrnFor example, a property management company might employ a Series LLC to organize individual properties as distinct entities under one umbrella. If the company associated with one property were sued, the parent company theoretically could not be targeted in the complaint.rnrnIf you want to create a Series LLC, you’ll need to indicate that on your Certificate of Formation.
- Which licenses and insurance are required for an LLC in Alabama?
The state of Alabama requires LLCs to procure business licenses, permits, and insurance before beginning operations. You can find specific licenses needed via the Alabama Department of Revenue’s site.rnrnIn any case, we recommend hiring a professional service like ZenBusiness, which will provide you with a comprehensive package of all the licenses and insurance required for your Alabama LLC to ensure your business remains in good standing.
- How do I dissolve my Alabama LLC?
To terminate an LLC in Alabama, you’ll need to complete an Articles of Dissolution form and submit it to the Office of the Judge of Probate in the county where you submitted your Certificate of Formation. The Judge of Probate will then transmit a copy of the Articles of Dissolution to the Secretary of State, which will reclassify your LLC as a dissolved entity.rnrnThe state filing fee for submitting the Articles of Dissolution is $100, and you’ll also need to pay the filing fee of the Judge of Probate’s office. Contact the Judge of Probate’s office to find out how much they’ll charge for processing these documents.
- How do I transfer ownership of an LLC in Alabama?
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 should be fully articulated in that document, preventing conflict and unforeseen consequences.rnrnOnce you transfer ownership, however, you’ll need to update your Certificate of Formation to include new members and remove old ones. To do this, you’ll need to complete a Certificate of Amendment specifying the change in membership.rnrnYou’ll need to mail your certificate to the Office of the Judge of Probate in the county where your LLC was formed, paying that office’s processing fees. You’ll also need to pay a $50 state filing fee for the form.