Are you looking to form a professional limited liability company (PLLC) in Alabama, but you’re not sure how the formation process works? There are several important steps when it comes to creating an Alabama PLLC that is compliant and able to do business in the state.
The professional limited liability company (PLLC) is a specialized type of LLC that is intended for licensed professionals to offer their unique services. A PLLC in Alabama is an LLC formed for the purpose of providing “any type of service that may lawfully be performed only pursuant to a license issued by a state court, state regulatory licensing board, or other like agency pursuant to state laws.”
The Alabama PLLC is typically more popular than a professional corporation (PC) because it’s a more flexible business type, but it still includes the personal asset protection and professional qualifications that make the PSC valuable.
PLLCs in Alabama have relatively simple formation and maintenance requirements, several options for how they want to be taxed, and flexible management. From one-person businesses to multi-member PLLCs with several owners, the PLLC is a popular choice for a reason.
An important detail of the PLLC that differs from a traditional LLC is that liability protection is not shared across all members of the company. For example, if you operate a PLLC for physicians, your business structure does not shield each individual member from malpractice suits. Instead, each member is liable for their own malpractice insurance, and no member is liable for another member’s malpractice.
Your PLLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In Alabama, a professional limited liability company can have the initials “PLLC”, “L.L.C.”, “LLC”, “P.L.L.C.,” or the phrase “professional limited liability company” in their name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of professions (like “law office”) unless you’re operating that business type.
Another aspect to consider is including language that explains what your business does. For example, if you’re a doctor, put the word “physician” or the initials “MD” in your PLLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your PLLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming a PLLC is to not get too attached to any one business name until you know that it is available for use. An Alabama business is required to reserve its name prior to filing a certificate of formation as described in Step Three below. You can confirm whether your desired name is available by searching Business Entity Records on the Alabama Secretary of State’s website. To reserve a name, you can complete and mail a Name Reservation Request Form to the Alabama Secretary of State along with the $10 processing fee ($25 for expedited processing). You can also submit a name reservation request online for a $28 fee (non-subscribers).
Every PLLC in Alabama is required to designate a registered agent, which is the individual or business entity that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Alabama Business and Nonprofit Entities Code, each filing entity, including PLLCs, are required to designate and maintain a registered agent and a registered office in the state of Alabama. This registered agent is “an agent of the entity on which may be served any process, notice or demand required or permitted by law to be served on the entity.”
Without a registered agent, you could lose your good standing with the state of Alabama, and the state also has the right to dissolve your PLLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend hiring a dedicated registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Once you are ready to form your Alabama professional limited liability company, you will fill out the Limited Liability Company (LLC) Certificate of Formation.
This is THE document that will register your PLLC with the state. You’ll want to ensure all of the following information is correct on the form:
One signed original and two copies of the completed Certificate of Formation must be mailed to the Judge of Probate’s office in the county in which your PLLC’s registered office will be located, along with the Name Reservation Certificate and appropriate county and state filing fees.
After the Certificate of Formation is filed, the Judge of Probate’s office will send the state filing fee to the Alabama Secretary of State with a certified copy of the Certificate of Formation.
The state of Alabama charges a $100 fee to form a PLLC. For expedited processing, the state filing fee is $200. You are also required to pay county filing fees, which can be determined by contacting the Judge of Probate’s office in the county in which your PLLC’s registered office will be located.
The time it takes for the Judge of Probate’s office process your Alabama PLLC formation paperwork varies by county. You should contact the Judge of Probate’s office for an estimate once all required paperwork is in order and filed correctly.
After you register a PLLC in Alabama, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for a copy of this document. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your operating agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your operating agreement, or you can create one from a free template online. You can read more about operating agreements here, but some of the basic information you’ll want to have includes:
The vast majority of PLLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important PLLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
All PLLCs in Alabama are subject to the Business Privilege Tax. Most PLLCs will also need to pay sales, use and business taxes. For help determining which taxes might apply to your business, you can visit the Alabama Department of Revenue’s “My Alabama Taxes” website, or “MAT.” Businesses can use MAT to file returns, pay taxes, and send messages to the Alabama Department of Revenue.
Depending on where in Alabama your business is located, you may also need to pay some local taxes. Depending on where in Alabama your business is located, you could also need to pay some local taxes. The four largest cities in Alabama each provide online resources for businesses: Birmingham, Montgomery, Mobile, and Huntsville.
Business privilege licenses, which include both state and county licenses, are required for most businesses in Alabama and can be obtained from local probate offices. Given the nature of a PLLC, you will need to obtain at least one business privilege license in order to legally operate your business in Alabama.
We recommend reviewing the Alabama Department of Revenue’s Quick Reference Guide for a list of licenses that may be required for your PLLC. Additional information and resources on business licensing are also available on the Alabama Department of Revenue’s website.
If you would prefer to have a professional handle the paperwork for you, consider hiring an online business formation service.
Because of the often-complex nature of professional limited liability companies, some of our favorite service providers don’t offer PLLC formations, but there are still plenty of quality companies that do provide this service. A couple of our favorites for PLLC formation are LegalZoom and MyCorporation.
Another option would be to hire a business attorney to handle your PLLC formation. While this is certainly a more expensive route than using an online formation service, a lawyer’s expertise could come in handy when you’re forming a specialized business structure like this.
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Workers’ compensation insurance is required for any PLLC that has more than five full-or part-time employees (including officers). For more information on workers compensation liability insurance requirements, you can visit the Alabama Department of Labor’s website. Though not required, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies pertaining to the profession practiced by your PLLC.
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year.
Various forms that may apply to your business, including those used for incoming reporting, can be found on the Alabama Department of Revenue’s website.
Alabama requires that all PLLCs file a one-time Business Privilege Tax Initial Tax Return within two and a half months after qualification. Thereafter, a Business Privilege Tax Form and Annual Report is due every year on an ongoing basis. These forms can be found on the Alabama Department of Revenue’s website. The purpose of the Annual Report is to ensure the Secretary of State has the most current information on your PLLC, including the actual nature of your business in the state of Alabama.
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to best manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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