Guide to Starting an LLC in Alabama
Starting a business in Alabama can be a great way to make money and achieve your entrepreneurial dreams. However, before you can start your business, you need to decide what type of business structure it will have. One option is to create an LLC in Alabama. This article will provide information on how to do this. So, if you’re ready to take the next step in starting your business, keep reading!
The Limited Liability Company (LLC) is a popular entity structure for many start-up businesses in Alabama. The LLC’s business structure is created under state law and provides personal liability protection, and has the potential to save money on taxes. With a little research, you can learn how to form an LLC in Alabama without an attorney.
Unlike a sole proprietorship or partnership, where the small business owner can be held personally liable for lawsuits against the business. Since the LLC is a separate legal structure and the business is sued, the business owner’s personal assets are generally protected.
Related: What are the benefits of an LLC in Alabama?
In addition to liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Related: Guide to starting a business in Alabama
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Steps to Form an Alabama LLC
Starting a business is never an easy task, but it can be especially overwhelming if you’re not familiar with all the steps involved. If you’re looking to start an LLC in Alabama, here are a few basic things that you’ll need to take care of before you can officially register your business.
Step 1: Name Your LLC
The first step to forming an LLC in Alabama is choosing and reserving a unique name that isn’t already registered by another business with the Alabama Secretary of State.
If you haven’t yet checked to see if the name you want is available, see how to do an Alabama business entity search.
A business name can be reserved by filling out the paper Alabama LLC Name Reservation Request Form, which will take about one week with standard processing or file online for immediate processing. Depending on the filing, the cost of the name reservation is $25-$28. After applying, a Certificate of Name Reservation certificate will be provided, which is required before the Alabama Secretary of State will allow the processing of the LLC paperwork.
Alabama LLC Name Guidelines
Under the Alabama Limited Liability Company Act, there are a few guidelines to be aware of when selecting an LLC name in Alabama.
– The business name must be different from any other name that is registered with the Secretary of State’s office.
– The company name must not imply a business purpose that is different from what the business does.
– The business name must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC.
– Unless the business is licensed by the state, words such as bank, insurance, attorney, etc., can’t be used.
Step 2: Appoint an Alabama Registered Agent
To have an LLC in Alabama, a registered agent must be appointed. A registered agent is a person or an entity with a physical street address in Alabama (PO Boxes aren’t allowed) who is available during normal business hours for service of process. The agent will be the central point of contact to receive important legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
Provided the owner lives in Alabama, they can act as the registered agent. While there is no additional cost to do so, many people instead choose to hire a registered agent service because the registered agent’s name and address becomes public record (which is usually one of the LLC members), and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when they are operating a side business or running a home-based business, as they may not want to be listed. Hiring a commercial registered agent service like Northwest Registered Agent will help keep the owner’s names from being publicly listed.
Related: What are the requirements for a registered agent in Alabama?
Step 3: File the Alabama Certificate of Formation
The paperwork to create an LLC in Alabama is the Certificate of Formation (called the Articles of Organization in many states).
Unlike most states, you can’t directly register with the state online. The Certificate of Formation can be downloaded and mailed in or uploaded to the Alabama Secretary of State’s website.
If you choose to mail in the form, the PDF cannot be handwritten and must be typed out. Also, be sure to attach the Name Reservation Certificate from Step 1.
Expect the LLC approval process to take around one week. Expedited processing is available for an additional $100, which will reduce the Secretary of State’s filing time to around 3 business days.
Related: How to Fill out the Alabama Certificate of Formation
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What To Do After Setting Up Your Alabama LLC?
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
File the Initial Report and Initial Privilege Tax Return
Within 2.5 months of registering an LLC, the Alabama Initial Report and Initial Business Privilege Tax Return (Form BPT-IN) must be filed. The Privilege Tax is assessed on businesses for the “privilege” of operating in the state of Alabama. Learn more about the Business Privilege Tax from the Alabama Department of Revenue.
Prepare an Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Alabama LLC operating agreement template
Obtain an EIN
If the LLC will hire employees or is owned by more than one member, an EIN is required.
The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
If an Employer Identification Number isn’t required, the LLC can either use the owner’s social security number or register for an EIN.
Related: How to register for an EIN in Alabama
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Depending on the LLC age, an Alabama Certificate of Compliance may be needed to prove the LLC is active and in good standing with the state.
Related: How to Open a Business Bank Account for your LLC
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax Permit – In order to sell products and certain services in the state, registration with the Alabama Department of Revenue will be necessary.
Related: What Business Licenses are Needed in Alabama?
File Annual Reports
Each year, Alabama LLCs must file Form PPT, the Alabama LLC Annual Report, and Alabama Business Privilege Tax Return and pay the privilege tax to the Alabama Department of Revenue. The tax is based on the LLC’s net worth, with an annual minimum tax of $100.
Related: How to File an Alabama LLC Annual Report
Alabama LLC FAQs
How much does it cost to form an LLC in Alabama?
There cost to form an LLC in Alabama includes the Certificate of Formation filing fee of $200, plus the name reservation filing fee of $25-$28.
Is there a yearly fee for an LLC in Alabama?
Each year, the Alabama Business Privilege Tax is due and will cost $100 at a minimum.
How long does it take to start an LLC in Alabama?
It normally takes 7-10 business days for an LLC to be approved in Alabama, though for an additional fee, one business day processing is available.
Can I be my own registered agent?
Anyone can act as an Alabama registered agent, provided they are an adult and are generally available at a specified address in the state during normal business hours.
If I have an LLC, is a business license required?
It’s sometimes thought that the LLC and business license are the same in Wyoming, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business.
A business license or permit, on the other hand, is approval from a government entity to operate legally. Different types of licenses are required depending on where the business is located and what the business does.