You have big plans, but before your business can officially take off, you’ll need to make a bit of an investment.
And we’re not talking about renting office space or paying employees – before you sell a single product, there are startup costs associated with launching an LLC in Alabama.
Make sure that you consider all the possible costs associated with starting an LLC. To help you out, we’ve compiled the most common Alabama startup fees here.
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Overall Alabama LLC Formation Costs
LLC Name Reservation Fee
In Alabama, obtaining a Certificate of Name Reservation is a mandatory first step in the LLC formation process. So in preparing to start your business, your first move will be to reserve your name with the Alabama Secretary of State. This ensures your desired name will be available when you file your Certificate of Formation and no one else will use it in the meantime. A name reservation will run you $28 online and $10 on paper.
Alabama is actually the only state that requires a name reservation in advance of an LLC formation. In most states, it’s sufficient to simply combine this step with the formation filing itself, but Alabama requires a separate reservation process.
Before you reserve your name, you should always perform an Alabama business name search to make sure the name you want is available.
Certificate of Formation Fee
This is the big one, the most important (and most expensive) form that you’ll file to start your Alabama LLC. Standard processing is $150 and expedited processing costs $200. Filing online also costs $200, since online submissions are processed as quickly as expedited paper forms. So when you go to file your Certificate of Formation, be prepared to shell out some money. Fortunately, this is a one-time fee, so as long as your form is accepted, you won’t have to pay it again.
The Certificate of Formation isn’t a particularly complex document, but it does include some vital information about you and your business. You’ll need to include the name of your LLC, your name and address, your registered agent’s name and address, an indication that your LLC is or is not a series or professional LLC, the effective date of the filing, and a copy of your Name Reservation Certificate.
Before we move on, we’ll mention that if you’re forming an Alabama series LLC, you can use the same Certificate of Formation form used by standard LLCs.
Certain types of businesses require professional licensure before they can begin conducting business in the state. Plus, cities all have their own licensing laws, so you’ll need to check with your LLC’s hometown to determine which licenses they require. And take a look at the Alabama Department of Revenue’s business licensing webpage to find out which other licenses you need to obtain. License fees vary depending on the type and location.
What are some of the most commonly required business licenses for Alabama LLCs? If your business operates in a regulated industry, you will probably need some sort of professional license to operate in compliance with state law. On the municipal level, things like alarm permits, building permits, and zoning permits are all very common.
In Alabama, most business licenses can be obtained at your local county probate office.
LLC Formation Service
Starting an LLC in Alabama can be a complicated and time-consuming process. If you want to spend less time on paperwork and more time planning your business, you might opt for an LLC registration website. These services take care of the registration process for you, so you don’t have to spend time on research, paperwork, and filings.
Most of these services (like LegalZoom or ZenBusiness) offer basic LLC formation services like Certificate of Formation filing, tax consultations, and phone/email support for a flat rate, with options to pay more for premium packages with premium services like employer identification numbers, operating agreements, and expedited filing.
Registered Agent Service
Appointing an Alabama registered agent is an important part of your LLC formation process. Your registered agent is responsible for handling sensitive legal and tax documents and keeping your business compliant with Alabama business law.
In short, you need an agent you can trust. While you can be the registered agent for your own LLC, this puts pressure on you to keep up with business filings and potential legal disputes. Sometimes it’s better to hand off that responsibility to a professional.
If you need to change your Alabama registered agent or resign as an Alabama registered agent, check out our full guides on each of these topics.
If you have questions or concerns about the LLC formation process or if it’s the best business structure for you, sometimes it’s best not to take chances and consult an attorney. They’re not cheap, but they can provide essential business advice, professional filing assistance, and peace of mind. Some attorneys offer free consultations (usually 30-60 minutes) but will charge by the hour after that.
On average, business attorneys charge between $150-350 per hour. Some will offer a flat rate for setting up an LLC, which can range from $500-2,000. Cost variations depend on the experience and location of the lawyer. Search, compare, and contact Alabama attorneys on sites like Avvo. Find the one that’s right for you and reach out to request a consultation or get started forming your LLC.
If you don’t want to go digging for your own attorney, we compiled the following list of highly rated business lawyers in Alabama. All of these attorneys are primarily focused on the business world, they all receive five-star ratings from clients, and they all have excellent Avvo ratings.
Foreign Qualification Fee
This only applies if your LLC was formed in another state and is now expanding into Alabama. In this case, the foreign qualification fee takes the place of the Certificate of Formation fee. All foreign business entities are required to foreign qualify in Alabama, or they could incur some pretty severe penalties. To qualify, you’ll need to submit an “Application for Registration” either online or on paper. Online filings cost $250 and paper ones cost $150.
LLC Annual Fees
Most states have annual fees and/or forms that LLCs file to stay in good standing, and Alabama is no exception. Each year, your LLC is required to submit a Form PPT: Business Privilege Tax Return and Annual Report. This is a tax for the privilege of doing business in Alabama and will cost a minimum of $100. However, it could cost more, depending on your federal taxable income. You can calculate how much your LLC owes right on the form. Make sure to file it by April 15th each year to maintain your compliance with the state.
The information necessary to complete your Business Privilege Tax Return and Annual Report includes your business name, an indication that your business is an LLC, your business address, your federal tax ID number (EIN), the date you formed your LLC, the jurisdiction where you originally registered your LLC, the amount of tax you owe, your signature, your title, and the date. Depending on the exact nature of your business, there may be additional steps required.
For more info on annual reports for Alabama LLCs, check out our full article on this topic!
In addition to the annual Business Privilege Tax listed above, your LLC needs to pay an “Initial Business Privilege Tax” within 2.5 months of its formation. Like the annual tax, your initial tax will be a minimum of $100 but could be more depending on your taxable income. Use Form BPT-IN to submit your initial tax. If you don’t submit this form and pay your tax within 2.5 months of formation, your LLC could be labeled delinquent.
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Looking at all these fees, you might be thinking: how can I pay less? While you might be tempted to look for loopholes or find a way around them, this could cause you bigger problems in the future.
Failure to pay annual fees and taxes will result in your LLC being labeled “delinquent,” and you will lose your compliance with the state. Plus, you’ll end up with additional penalties. For example, if you don’t pay your annual Business Privilege Tax, you’ll be fined 10% of the amount due (or $50, whichever is greater).
Aside from that, losing your compliance with the state has its own set of disadvantages. You won’t be able to request a Certificate of Compliance, which allows you to expand your business to other states, and is necessary for certain tax filings. Keeping up with your fees and payments will save you from additional fines and headaches down the road.
Planning Your Expenses
By now, your budget spreadsheet might be looking a little crowded, but have no fear! Most of these are one-time fees that you won’t have to worry about again. Plus, with all these on the books, there won’t be any surprise costs when you register an LLC in Alabama.
Soon, you’ll have these fees behind you and you’ll be forging ahead, growing your business, and earning profits. As you do, make sure to keep up with the few recurring fees — like annual reports and franchise taxes — so your business doesn’t fall out of good standing.
Key Steps for Starting an Alabama LLC
- The first step to forming an Alabama LLC is to come up with a good name for your business. You’ll want to make sure the name you want is still available and hasn’t already been claimed by another business, so you’ll need to search the state’s business database to verify its availability.
- Next, you’ll need to choose your registered agent. While you can legally serve as your own registered agent in Alabama, this role can actually be more of a hassle than you might expect. That’s why we always recommend hiring a reputable registered agent service that can handle the responsibility of this position on your behalf.
- The third step involves the preparation and filing of your Certificate of Formation. You’ll need to fill out the paperwork and pay a $150 or $200 fee. Once the state processes this document, your LLC will be officially open for business!
- That’s not the end of the road for the startup process though, as you’ll also need to create an operating agreement for your LLC. There is no legal requirement for Alabama LLCs to have written operating agreements, but it’s still an extremely important element of any LLC. The operating agreement is an internal document that outlines how your LLC will operate, and there are several aspects of this document that can prevent messy ownership disputes down the line.
- You will also need to acquire a federal tax ID number (also known as an EIN, or employer identification number). This is essentially a Social Security number for your business, as it is a nine-digit code used to file taxes, hire employees, open business banking accounts, and more.
- Next, you’ll need to register for any relevant taxes with the Alabama Department of Revenue, and also obtain all licenses and permits that apply to your business type. Keep in mind that, depending on the nature of your business, you might require licenses from the federal, state, county, and municipal governments.
Once you’ve finished all of these steps, you’re ready to operate a compliant business entity with the state of Alabama!
Key Steps for Maintaining an Alabama LLC
After you’ve completed all of the items in the previous section, you’ll need to focus on maintaining your LLC. The first step in this process is to open a business bank account. This will help you keep your business and personal expenses entirely separate, and it will also help immensely with your accounting and taxation responsibilities.
You should also keep detailed records of every financial transaction that takes place with your LLC. This means maintaining a file of invoices for every purchase and sale you make, along with information regarding your employees or contractors and the work they perform for your business.
As we already mentioned, annual reports are a key component of LLC maintenance in this state, and there are harsh financial penalties for delinquent reports. Additionally, you might want to hold an annual meeting to discuss goals and priorities for your LLC, although this is an optional step.
Frequently Asked Questions
Before we wrap things up, let’s take a look at some of the most common questions we hear from readers regarding the LLC formation process in Alabama.
What are the state business tax rates in Alabama?
All businesses in Alabama must pay an Initial Business Privilege Tax and an Annual Business Privilege Tax. Both of these taxes have a $100 minimum, but your tax could be higher depending on the specifics of your business. In addition, your LLC will likely be subject to state income tax between 2% and 5%, as well as sales and use tax and any applicable local taxes.
How quickly does Alabama process LLC formations?
It can take Alabama up to two weeks to process each LLC formation filing. However, for an additional $100, they will expedite your order within three business days.
How many small businesses are there in Alabama today?
The state of Alabama is home to around 400,000 small businesses. Entrepreneurs of all backgrounds and business types find that Alabama is a great place to own and operate a small business.
What are the top small business resources and websites in Alabama?
The Alabama chapter of the Small Business Development Center is a great place to start, as they offer a wide variety of tools and resources for Alabama LLCs. The U.S. Small Business Administration’s Alabama District Office is another valuable resource, and the Alabama Department of Commerce’s “Made in Alabama” site also has many useful tools for entrepreneurs.
Should I form my LLC in Alabama, or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.
Cost to Start an LLC in All 50 States
We break down the LLC costs in detail in all 50 states. View all of our State LLC Costs guides below.
- Cost to Start an Alaska LLC
- Cost to Start an Arizona LLC
- Cost to Start an Arkansas LLC
- Cost to Start a California LLC
- Cost to Start a Colorado LLC
- Cost to Start a Connecticut LLC
- Cost to Start a Delaware LLC
- Cost to Start a Florida LLC
- Cost to Start a Georgia LLC
- Cost to Start a Hawaii LLC
- Cost to Start an Idaho LLC
- Cost to Start an Illinois LLC
- Cost to Start an Indiana LLC
- Cost to Start an Iowa LLC
- Cost to Start a Kansas LLC
- Cost to Start a Kentucky LLC
- Cost to Start a Louisiana LLC
- Cost to Start a Maine LLC
- Cost to Start a Maryland LLC
- Cost to Start a Massachusetts
- Cost to Start a Michigan LLC
- Cost to Start a Minnesota LLC
- Cost to Start a Mississippi LLC
- Cost to Start a Missouri LLC
- Cost to Start a Montana LLC
- Cost to Start a Nebraska LLC
- Cost to Start a Nevada LLC
- Cost to Start a New Hampshire
- Cost to Start a New Jersey LLC
- Cost to Start a New Mexico LLC
- Cost to Start a New York LLC
- Cost to Start a North Carolina LLC
- Cost to Start a North Dakota LLC
- Cost to Start an Ohio LLC
- Cost to Start an Oklahoma LLC
- Cost to Start an Oregon LLC
- Cost to Start a Pennsylvania LLC
- Cost to Start a Rhode Island LLC
- Cost to Start a South Carolina
- Cost to Start a South Dakota LLC
- Cost to Start a Tennessee LLC
- Cost to Start a Texas LLC
- Cost to Start a Utah LLC
- Cost to Start a Vermont LLC
- Cost to Start a Virginia LLC
- Cost to Start a Washington LLC
- Cost to Start a West Virginia LLC
- Cost to Start a Wisconsin LLC
- Cost to Start a Wyoming LLC