Last Updated on September 13, 2020

The Limited Liability Company (LLC) is a popular entity structure for many start-up businesses in Alabama. The business structure of the LLC 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, the LLC is a separate legal structure, protecting the business owner’s personal assets.

Related: How Does an LLC Protect You?

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.

Forming an LLC in Alabama can be both affordable and is simple enough for most people to start on their own.  That said, it’s not a bad idea to have a legal professional like IncFile or IncAuthority.

Related: Should you use a Formation Service, Hire an Attorney or Do it Yourself?

To officially form an Alabama Limited Liability Company, the Certificate of Formation has to first be filed with the Office of the Judge of Probate and the Business Entities Division of the Alabama Secretary of State.  The LLC files with the Probate Judge in the county where the LLC where your LLC is located.  The Alabama LLC filing fee varies by county from $50 – $73.25.  Contact information for Alabama Probate Judges. An additional state filing fee of $100 for the LLC registration plus $10-$28 for the name registration will also be due to the Secretary of State.  The name registration must be done before filing the LLC.

Expect the LLC approval process to take around two weeks (3-4 days for the Judge of Probate and ten days for the Secretary of State.  Expedited processing is available for an additional $100, which will reduce the Secretary of State’s filing time from 10 days down to 3 days.

If you have questions, contact the Alabama Secretary of State – Business Services Division. Their phone number is 334-242-5324. 

business.services@sos.alabama.gov
http://sos.alabama.gov/business-services

Step-by-Step Guide to Forming an LLC in Alabama

To form an Alabama LLC, follow the steps below:

Step 1: Fill out the Certificate of Formation

You can either download the Alabama LLC Certificate of Formation form (called the Articles of Organization in many states) or file online with the Alabama Secretary of State.  If you chose to fill in the PDF, note that it cannot be handwritten and must be typed out. 

Step 2: Enter the Name of the LLC

Here you will enter the legal business name of the LLC.  Each LLC in Alabama must have a unique LLC name that isn’t already registered.  Before filing, the LLC’s trade name has to be reserved by the Secretary of State.  If you haven’t checked to see if the name you want is available, first see how to do a business entity search.  The name can be reserved by filling out the Alabama LLC Name Reservation Request Form for $10 with standard processing, which will take about one week.  The other option is to file online, which will cost $28 and is processed immediately. Filing online also makes the Certificate of Name Reservation certificate available immediately, which is required before submitting the Alabama Certificate of Formation.

The company name chosen must not imply a business purpose that is different from what the business does and must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC.

Be sure to attach a copy of the Certificate of Name Reservation certificate that came from the Secretary of State.

Before selecting a name, you may also want to see if the domain name is also available.

Step 3: Enter the Form Preparer’s Information

Include the name and address of the individual or company preparing the Certificate of Formation.  This name does not have to be any of the LLC members.

Step 4: Enter the Name of the Registered Agent

To have an LLC in Alabama, there must be a registered agent assigned to the LLC. A registered agent is a person or entity with a physical address in the state of Alabama 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.

The registered agent can be the business owner, a resident of Alabama with a physical address, or a company that provides resident agent services.

Even though the business owner can be the registered agent, their name and address become public record, and with that comes a loss of privacy. Privacy is an essential consideration for some entrepreneurs, especially when they are doing business from home.

Related: Do I Need a Registered Agent in Alabama?

Remember, the address has to be a physical street address since PO Boxes are not allowed.

Include the name of the Alabama registered agent, the registered office address, and a mailing address if a different address is used for mailings.

Alabama LLC Registered Agent

Step 5: Certification

The next question asks the undersigned to certify that there is at least one member of the limited liability company.  There is nothing to do here.

Alabama LLC Certification

Step 6: Special Entity Selection

This question is optional and will only be used if the LLC intends to form as a Series LLC or a Professional LLC.

These are not common selections.  A Series LLC provides liability protection across multiple asset groups or business lines, each of which should be protected from liabilities from the other series. The Series LLC is more common with real estate companies.  A Professional LLC is only for licensed professionals, like accountants, doctors, lawyers, etc.

Alabama LLC Entity Selection

Step 7: Effective Filing Date

This is an optional field should you want to delay the formation date of the LLC.  By default, the LLC has officially formed on the date the Judge of Probate files the Alabama LLC Certificate of Formation.  A common reason for a delayed effective date is when the LLC is being formed at the end of a calendar year, and delaying the start will keep from having to file a tax return for only a few weeks of operation.

Most people will leave this section blank.

Alabama LLC Delayed Filing

Step 8: Additional Attachments

Last, include any additional attachments, often used to identify all of the members of the LLC.  This is optional and not used by most LLCs.

Alabama LLC Additional Attachments

Step 9: Sign and Date

Step 10: File the Certificate of Formation

  1. Make two copies of the signed Alabama LLC Certificate of Formation and Name Registration certificate.
  2. Either mail or drop off the original and two copies to the Recording Office of your county’s Judge of Probate office in the county where the LLC’s registered is or will be located.  Do not send it to the Secretary of State.
  3. Include payment with two separate checks or money orders.  The Secretary of State can be paid with the credit card form, but some counties will only take checks or money orders.
  4. Be sure to keep a copy for your records.

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Tasks after forming your 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. 

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 have a full understanding of their roles and responsibilities, which could lead to costly disputes in the future.

Learn more about when an LLC needs an operating agreement and download an  Alabama operating agreement template

Obtain an EIN

The EIN or Employer Identification Number is a unique 9-digit number assigned by the Internal Revenue Service (IRS) to identify a business for tax purposes. This number is similar to a social security number for an individual, except for a business entity.

The EIN will be needed in order to open a bank account, register for business licenses and permits, file tax returns, pay payroll taxes, and more. 

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the significant benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this is referring to the way the LLC is taxed, not the legal structure.

Related: How can an LLC be taxed?

By default, the taxation of an LLC is called pass through taxation, which means the profits or losses of the LLC flow through to the members.

Single-member LLCs will, by default, be taxed as a sole proprietorship. The members can also elect to change the taxation to a C-corporation or an S-corporation.

Multi-member LLCs will be default be taxed as a partnership. The members can also elect to change the taxation to a C-corporation or an S-corporation.

In general, the difference between being taxed as a corporation and being taxed as a sole proprietorship or partnership the profits and losses are passed to the member’s federal income tax returns based on their percentage of ownership.  As a result, the owner will pay self-employment taxes on all business profits.  As an alternative, electing to be taxed as a corporation allows the members to take a reasonable salary and then pay payroll taxes.  Any remaining profits are distributed and aren’t subject to payroll taxes, resulting in potential tax savings.  

Before electing how your LLC will be taxed, be sure to talk with an accountant to assess which one will be best for you. 

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 age of the LLC, 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 a variety of business licenses and permits to register for before starting. Some common registrations include:

  • Business License – Some cities require businesses to obtain licensing before they can start. In some cases, even home-based businesses must have licensing in order to operate legally. 
  • 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, registration with the Alabama Department of Revenue will be necessary.

Related: What Business Licenses are Needed in Alabama?

File the Initial Report and Initial Privilege Tax Return

Within 2.5 months of registering an LLC, the Alabama Initial Report and Initial 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. 

File Annual Reports

Each year, Alabama LLCs are required to file an Alabama LLC Annual Report Form (AL-CAR) and Alabama Business Privilege Tax Return to pay the privilege tax to the Department of Revenue.

Related: How to File an Alabama LLC Annual Report