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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.

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.

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