The limited liability company (LLC) has been an incredibly popular business structure for decades, but in the grand scheme of things, it’s still a relatively recent addition to the American business landscape.
There are actually still new variations of the LLC popping up across the country, with the most popular one being the series LLC.
The series LLC is only available in certain states, including Alabama. A series LLC is a collection of LLCs that are grouped under one parent LLC. This enables businesses to separate different parts of the company into separate LLCs, allowing them to isolate the liabilities of each segment from the others.
Because the series LLC is still relatively new in some states, we get a lot of questions about what exactly the series LLC is, and how you can form one. That’s why we decided to write these articles, which break down how the series LLC formation process works in each state.
If you’re interested in forming a series LLC in Alabama, read on to find out how it’s done.
That said, if you’re looking for a time-tested way to protect yourself and personal assets as a business owner, the traditional LLC is the way to go. You can either form it yourself or through an online LLC service.
What Is a Series LLC?
Let’s start by briefly covering what a series LLC actually is. In general, a series LLC is exactly what it sounds like ― it’s a collection of LLCs that operate under the umbrella of a master LLC.
While each LLC in the series is part of the larger company, this business structure also keeps each LLC financially insulated from the others. In theory, this means that a lawsuit against one of the LLCs should have no effect on the others in the series.
Each LLC in a series has the same limited liability protections that a standard LLC has, meaning that if you’re sued, creditors can only come after your business assets rather than pursuing your personal possessions. While a series LLC does still protect your personal car, house, bank accounts, etc., it also protects the other LLCs in the series from the lawsuit.
In other words, creditors can only pursue the assets of one LLC, rather than the entire series.
How Can I Form a Series LLC in Alabama?
Choose a Name for Your Series LLC
The first step to forming any type of LLC is to first select a name for your new business. It’s important to note that Alabama has a special requirement for LLC naming, which is that you’ll need to reserve your business name before you can form your series LLC.
Other than that distinction, the guidelines for naming a series LLC in Alabama are the same as in any other state. You should choose a name that is memorable, and also one that briefly describes what your business does, or what your organization stands for. You will also need to run a business name search to make sure your chosen name is available in Alabama, and isn’t already being used by another company.
Also, you’ll need to include either the phrase “limited liability company” or the letters “LLC” in your business name. Finally, you cannot include any terms that refer to specific business types ― like “bank” or “hospital” ― unless you actually run one of those businesses, and you also can’t use any words that refer to other business types ― such as “incorporated” or “inc.”
For more info on naming an LLC ― whether that’s a series LLC or a traditional LLC ― check out our comprehensive guide to naming an LLC.
Designate a Registered Agent
Next, you’ll need to choose a registered agent for your series LLC. The registered agent must have an office located in Alabama, and they must be available to receive document deliveries from the state during all standard business hours.
You don’t need to worry about designating different registered agents for each segment of the LLC, as you can have the same registered agent for every LLC in the series if you want to.
Prepare and File the Certificate of Formation
In Alabama, the document used to form a series LLC is the same as the form used for a traditional LLC. The only difference in the preparation of this document is that you’ll need to indicate in Article 5 of the Certificate of Formation that your organization will be a series LLC, rather than a traditional one.
The Alabama Certificate of Formation — referred to as articles of organization in most states — is a relatively simple document that only requires some simple information about your business. You’ll need to indicate what your business name will be, and also include a copy of your name reservation form.
Then, you have to tell them who your registered agent is, and where their registered office is located within Alabama. You will also need to identify all of your LLC members, decide what date you want your formation to take effect, and include the name, signature, and title of your LLC organizer.
Once you have this form ready, you can file it with the Alabama Secretary of State, along with your $100 formation fee and your county’s probate fee.
Acquire an EIN
Next, you should obtain a federal tax ID number known as an Employer Identification Number (EIN) from the Internal Revenue Service. The EIN is essentially a Social Security Number for your business, as it is a nine-digit numerical code that you can use to identify your business on tax forms, and it also helps you open business bank accounts and hire employees.
It’s quite easy to get an EIN from the IRS. All you need to do is fill out the free form located on the IRS website, and you’re good to go. You will receive your number immediately upon filing.
Draft a Series LLC Agreement
Legally speaking, Alabama does require an LLC agreement — referred to in most states as an operating agreement — for series LLCs, although you don’t actually need to file it with the state. The reason it’s a legal requirement is that the LLC agreement is the document that provides your business with the basis to establish each individual LLC in the series.
Beyond that, the LLC agreement is a vital document, because it describes many aspects of how your series LLC will operate. In this agreement, you’ll outline what the different segments of your series LLC are, indicate the roles of each member/owner, detail the owners’ voting rights, and explain the financial contribution and allocation plans.
You should also indicate whether you want your business to be managed by its members or by a manager, discuss how an owner can be replaced if necessary, and outline a dissolution procedure if you ever need to close up shop.
Create a Financial Infrastructure
It’s crucial for any LLC to open a business bank account, as this helps you maintain the separation of personal and business finances that is required of all formal business entities. However, there’s an extra layer to this step for series LLCs, as you’ll need to open a bank account for the series’ parent LLC, as well as for each of the separate LLC segments under its umbrella.
If you fail to open a separate bank account for each segment, you will run the risk of losing the isolated liability of each LLC in the series. You need to be able to prove that these segments are truly separate if you want to maintain the liability shields between them.
In addition, this would be a good time to either hire an accountant or purchase accounting software for your series LLC. For traditional LLCs that don’t have particularly complex accounting needs, it’s usually sufficient to use accounting software, but a series LLC is a bit more complicated, and we therefore prefer hiring an accountant to make sure everything is done correctly.
Obtain Licenses and Permits
In order to operate a compliant business of any entity type in the state of Alabama, you’ll need to obtain a Business Privilege License from the probate judge or license commissioner in the county your business is located in. If you operate your business in multiple counties, then you will need to acquire a Business Privilege License in each of those counties.
Alabama makes it very easy to find out what other permits and certifications your business will need to operate in compliant fashion, thanks to the fact that the Department of Revenue has a complete list of entities that require licensing on their website.
Also, keep in mind that there are federal licenses for some industries, and you may also need to acquire licenses in your county or municipality.
Understand Maintenance Requirements
Every LLC in Alabama must report its income to the Department of Revenue by filing a Business Privilege Tax return. This tax is levied on the entity’s federal taxable income that was earned in Alabama. Depending on how much business you transact in this state, your rate could be as low as $0.25 per $1,000 of net worth in Alabama, or as high as $1.75 per $1,000. For most businesses, the maximum tax is $15,000.
Alabama also requires series LLCs to file an initial report and an annual report, although these filings are in tandem with the Business Privilege Tax return. It’s not necessary to file separate reports for each segment of your series LLC. Instead, you can just file one for the entire series.
Can I Hire Someone to Form My Series LLC?
When forming a series LLC, you have three options. You can tackle the DIY route, you can hire an attorney, or you can use a reputable online business formation service. The DIY option can be quite the hassle, and hiring a lawyer is obviously very expensive. That’s why we prefer hiring a business formation service.
These companies provide convenience and peace of mind that you don’t get from the DIY route, and they’re also much cheaper than hiring a lawyer to form your business. However, compared to the dozens of services that form traditional LLCs, there aren’t nearly as many companies offering series LLC formations.
Fortunately, one of our favorite LLC formation providers does offer series LLC formations, and that’s Northwest Registered Agent. They will not only form your series LLC, but their industry-best registered agent service (included at no extra charge) includes local scanning of every document they receive on your behalf. They also have the best customer support available for LLC formation services.
For more information on what Northwest can do for you, head on over to their website to get your Alabama series LLC formed today.
The process of forming a series LLC in Alabama isn’t too terribly different from the formation process for a standard LLC.
However, you do need to make sure that you indicate on your Certificate of Formation that you intend to function as a series LLC, and you should also include this information in your LLC agreement.
At the end of the day, if you want to skip some of the hassles and worries that come with forming your own Alabama series LLC, you always have the option to hire a reputable LLC formation service to handle it for you.
We hope this article helped you develop your understanding of how to form a series LLC in Alabama!