If you’re looking for a reliable DIY guide for starting an LLC in Alabama, look no further.
Below you’ll find all the information you need to launch your business and handle any associated costs. Follow each step carefully and your LLC will be established and ready to hit the ground running.
That said, the process can be complex, with various filings and costs, so if at any point you need help, you can hire an LLC formation service – they’ll take care of the paperwork so you can spend more time growing your business.
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Forming an LLC can be intimidating. If you need help or just want to make sure it’s done correctly, hire an online LLC service like 🥇ZenBusiness ($39) or LegalZoom ($99). They take care of the legal paperwork so you can focus on what you do best.
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Step 1: Name Your LLC
What’s in a name? Quite a bit, actually. Your business name is your Alabama LLC’s identity, its personality, its reputation. Find a name that sticks in customers’ minds – while conveying your brand qualities – and you’ve struck gold. A unique, memorable name can draw in new customers and keep existing ones coming back.
Your LLC name is going to appear everywhere: business cards, marketing collateral, websites, legal contracts, bank accounts, invoices, directories, and much more. So be sure that it conveys your product, service, brand, and values.
While you can (and should) be creative with your business name, there are certain state requirements that it must follow.
Don’t try to register or reserve any name that’s missing the words “Limited Liability Company,” “LLC,” or “L.L.C.” or that suggests your LLC is a banking, insurance, or government-affiliated company because it will be rejected by the state. On top of that, your name must be distinguishable from every other business name currently on record with the Alabama Secretary of State. To be considered “distinguishable,” from another, similar name, yours must:
- Use one or more unique key words
- Use key words in a different order
- Express numbers differently (Arabic numerals vs. Roman numerals vs. written words)
- Use a key word with a different singular, plural, or possessive form
So, if your business name is unavailable in Alabama, you must include at least one distinguishable character or key word to make it unique. Changes to syntactical features like punctuation, capitalization, spacing, and special characters will not do the trick.
Consider this: your friend Fanny wants to open a flower shop in Montgomery, Alabama. The name she is considering, Flowers by Fanny, LLC is already in use. So she comes up with a new one: Fanny’s Florals and Design, LLC. This name is similar to the original but includes new words, distinguishing it in the Secretary of State’s records.
Determine the Name is Available
Of course, you will only need to make distinguishable changes if your name is already taken. Don’t make the mistake of ordering business cards, creating advertisements, and using a name on documents like the Certificate of Formation without first confirming that it’s available. Use the Secretary of State’s Business Entity Records page to see if there’s an existing business using your desired name.
Maybe you pegged a distinguishable name right away, or maybe it took some modifications, but either way, once you have a unique name, you can lock it down by filing a name reservation.
Certificate of Name Reservation
You may have fallen in love with a particular name, but still have some preparation and paperwork to sort out before starting your LLC, and you’re worried that someone will swipe it in the meantime. You can lock it down by filing a name reservation. In Alabama, it’s actually mandatory to reserve your name before starting your LLC, so if your business is ready to go, you’ll want to request a reservation ASAP.
Think about Fanny. After making her name distinguishable, she’s ready to officially start using it, but while she’s waiting on some paperwork to start her LLC, she must request a name reservation online or by mail.
Filing online costs $25 (compared to $10 for a hard copy), but is a much quicker method. You can complete the process on the Secretary of State’s Online Services page. Or, print and complete the Name Reservation Request Form, then mail it (with a $10 check) to:
Office of the Secretary of State
PO Box 5616
Montgomery, Alabama 36103
Once again, placing a name reservation is a necessary prerequisite to filing your Certificate of Formation in Alabama, so do this before moving on.
Step 2: Choose a Registered Agent
Fanny’s LLC is quickly taking shape, and if it’s going to operate in Alabama, she’ll need a go-between for state and legal communications. This is called the registered agent.
A registered agent is a key component of your budding LLC, handling all of its sensitive communication with the state so you don’t have to. But maintaining an agent isn’t just a convenience, it’s required.
According to Section 10A-1-5.31 of the Alabama State Code says that “each filing entity […] shall designate and continuously maintain in this state a registered agent and a registered office.”
Taxes, lawsuits, maintenance requirements, and more – the registered agent takes care of it all. If you had to do this yourself, it would pile additional tasks onto your already-full plate. Plus, your agent makes your business available to receive documents even when you’re out of town or away from the office. This is especially important if your physical office is outside Alabama.
Now for the practical application, the “how-to.” When you’ve found someone who has agreed to take on registered agent responsibilities, include their name and address on your Certificate of Formation. This information will be on record with the Secretary of State and available to the public. But before you list an agent on your documents, be sure to review all of your options.
You have two options for who can serve as a registered agent: an individual or a company.
Individual as Registered Agent
You may think that an individual registered agent would need specialized training or experience, but this isn’t the case.
Anyone can serve as your registered agent, as long as they are a resident of Alabama, have a physical address in the state, and are at least 18 years old. Some good choices include an attorney, an accountant, or a business partner, but friends and family members also work.
Registered Agent Service
It can be a lot easier, though, to use an LLC formation service like ZenBusiness (or even IncFile and Northwest), so we highly recommend it. Not only will they take care of business formation requirements, but they’ll also include a free registered agent service. Or, if you’d rather start your LLC on your own, you can use a registered agent service to cover your agent duties.
During the life of your LLC you may, at some point, need to change your registered agent. Perhaps you want to switch from an individual to a professional service, or maybe your existing registered agent resigns. Either way, you’ll want to make the change as soon as possible because operating without an agent on file can lead to administrative dissolution.
Step 3: File the Formation Documents with State
This is where the LLC formation process kicks into high gear. Let’s check back in with Fanny.
She’s reserved her unique business name, designated a registered agent, and she’s ready to get her LLC off the ground. It’s time for Fanny to take on the most important LLC document: the Certificate of Formation. This filing creates a record for Fanny’s Florals and Design, LLC with the Alabama Secretary of State, giving it the authorization to commence business in the state.
As you begin your own Certificate of Formation, make sure you type everything – handwritten forms will not be accepted. When you’re finished, print the original application and make two copies, then send all three (along with the appropriate fee) to your county’s probate judge.
This means the county in which your registered office is located. Find it on the list of probate judges here. The judge will serve as an intermediary, passing your documents along to the Secretary of State, who will process everything and put your LLC on the record.
Note: Don’t send your materials to the Secretary of State! They will only be accepted if sent to the appropriate probate judge.
There are a few different filing fees for the Certificate of Formation:
- Standard Processing typically takes 3-5 business days, although it can take as many as 14 during peak filing times. The cost is $100.
- Expedited Processing is completed within 24 hours of receipt of the paperwork. The cost is $200.
- The Minimum Probate Judge Fee is $50.
These fees are payable by check, money order, or credit card. However, It’s important to note that each probate judge operates slightly differently. Some don’t accept expedited processing. Others don’t accept credit card payments. Reach out to your county’s Office of the Judge of Probate to check on their policies before sending your documents.
Step 4: Create an LLC Operating Agreement
The operating agreement is the framework that holds up an LLC, the vital underpinning that establishes processes for its procedures, activities, and conduct. Essentially, it serves as your company’s bylaws.
You may be thinking: that seems like a lot of work. Is it necessary? Yes and no. You’re not technically required to adopt an operating agreement in Alabama, but doing so provides both stability for your company and legal protection for your personal assets and legitimacy in front of courts, banks, and government agencies, so you should think long and hard before proceeding without one.
Let’s say our friend Fanny sells a percentage of her company to two other owners. Her operating agreement could stipulate how the LLC’s assets would be distributed among them in the case of dissolution. But if she decides to maintain sole ownership, the agreement could be used in court as evidence that the LLC’s assets are separate from her personal ones. These are just two examples, but the operating agreement governs everything from member duties to tax structure.
If you’ve decided to draft an agreement, there are two ways to go about it:
- Write it yourself. Don’t be intimidated by this option. There are plenty of free online templates that serve as helpful guides. You can create an effective document from most of the templates out there, but we recommend getting one through ZenBusiness, which includes a free LLC operating agreement with every package. This will save you a lot of time and money.
- Hire an attorney. If you want to be absolutely sure that you don’t miss any important details, an attorney can write or review the agreement for you, ensuring that it complies with state law, includes all necessary information, and avoids the state’s default laws.
What are default laws?
Each state has its own set of generic, baseline laws for how LLCs should operate. These laws, however, only govern matters not included in your operating agreement. Take dissolution, for example. If your LLC ever dissolves, your operating agreement would determine what happens to its remaining assets and debts. But if you fail to include it in the agreement, the state will make that decision for you.
Because default laws are broad and not tailored to your specific business, they often aren’t in your LLC’s best interest, so it’s best to avoid them by being as comprehensive as possible in your agreement.
Step 5: Get an EIN
There’s simply no way to avoid taxes. In fact, it’s illegal to try, so don’t do it.
Federally, LLCs are classified as “pass-through” entities, businesses that don’t file corporate tax returns, but whose owners include income and losses on their individual returns. Still, there are certain circumstances that require LLCs to pay federal taxes, like classifying as a corporation or partnership, hiring employees, or selling merchandise. So, in Fanny’s case, if she plans on hiring additional florists and selling bouquets, she will need to apply for an EIN.
The Employer Identification Number (EIN) is a nine-digit number that the IRS will use to identify your company’s tax accounts, so if you pay any business taxes, it’s extremely important to have one. Click the “Do I need an EIN?” link on this page to see if you fall into this category. If so, apply for an EIN one of three ways:
Need to get this done quick? File online – it’s by far the most efficient method. You can only complete the process between 7 a.m. and 10 p.m. EST, Monday through Friday, but you’ll receive your number immediately upon finishing the digital form. Keep in mind that you will need to provide a valid individual taxpayer number (like a Social Security Number) as part of the process.
You might prefer the feel and security of a paper form. In this case, download Form SS-4, complete it, and fax it to (855) 641-6935. You will receive your EIN within four business days.
Or, there’s always trusty postal mail. However, this is the slowest option, as processing typically takes around four weeks. If that doesn’t deter you, fill out Form SS-4 and send it to:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Okay, so you’ve filed the Certificate of Formation, designated a registered agent, adopted an operating agreement, and filed for an EIN. Time to start doing business, right? Sorry, there are a couple of additional steps you may need to take first. But don’t worry, you’re almost there!
Step 6: Taxes, Licensing & Income Reporting
For all intents and purposes, most LLCs will be official after completing all the prior steps. Still, it’s important for business owners like Fanny to keep looking ahead, as there are certain maintenance requirements to keep an Alabama LLC running smoothly and in good standing with the state.
Before you start doing business, create a plan for the following potential LLC requirements:
As mentioned earlier, LLCs are almost always classified as “pass-through” entities, which means that they don’t pay income taxes directly to the federal government. That responsibility falls instead on the owners, who must include business income and losses on their personal 1040 tax returns and/or Schedule C. LLCs are flexible with tax structure, so you can choose to have yours taxed like a corporation instead. In this case, it would need to file a separate corporate tax return.
Alabama imposes a specific Business Privilege Tax on all its LLCs. The rate depends on your federal taxable income, with a minimum of $100. To pay this tax, file a Business Privilege Tax Return and Annual Report with the Department of Revenue in the first three and a half months of the LLC’s taxable year.
There’s a separate form (Form BPT-IN) for your first filing. This one is due no more than two and a half months after you start your LLC. There are two separate mailing addresses, based on which form you’re filing:
If not making a payment, send your Form BPT-V to:
Alabama Department of Revenue
Business Privilege Tax Section
PO Box 327431
Montgomery, AL 36132-7431
If you are making a payment, mail your return and payment to:
Alabama Department of Revenue
Business Privilege Tax Section
P.O. Box 327320
Montgomery, AL 36132-7320
You’re not finished paying taxes just yet, because your LLC might also owe other business-related taxes if it meets certain conditions. For example, if you sell merchandise, it will owe Sales and Use Taxes. And if you hire employees, your LLC will need to pay a Withholding Tax and an Unemployment Tax. You can register for Sales, Use, and Withholding Taxes on the Department of Revenue website, and for the Unemployment Tax on the Department of Labor website.
The Certificate of Formation may have already made your business legitimate, but your LLC needs to obtain Business Privilege License (and potentially other professional licenses) before it can start doing business in the state.
Every LLC operating in Alabama must maintain a Business Privilege License, issued by the county probate judge or license commissioner. This license expires on September 30 each year and you’ll need to renew it in October.
Depending on what kind of business you run, you will also need to apply for a Store License and/or a Municipal Business License.
Does your LLC sell merchandise? According to the Department of Revenue, any business “in which goods, wares or merchandise of any kind are sold, either at retail or wholesale,” needs to apply for a Store License, also issued by the County Probate Office or County Licensing Commission.
You may also need a Municipal Business License, although these are highly specific to certain business purposes and occupations. For example, barbers need to pursue licensure through the state’s Cosmetology Board, and if our friend Fanny ever wanted to expand into landscaping, she would need a license from the Landscape Architects Board. Find the entire list of license requirements here.
Your home city or county may also have their own licensure requirements, so check with your local government to find out.
Every year, your LLC will be responsible for filing an Annual Report. The good news is that your Annual Report is included with Business Privilege Tax (see “Taxes” section above), so when you pay the Business Privilege Tax, you will also fulfill your LLC’s Annual Report requirement.
And we’ve come to the end. It’s a long process, and not always easy, but the reward is well worth it. If you’ve made it this far, congratulations! Your Alabama LLC is ready for takeoff. So go ahead and start with that big sale, promotional campaign, or business deal. Maybe you’ll see Fanny out there in the business world, selling her beautiful floral creations.
Need Help Creating Your LLC?
If you even skimmed this guide to look over the steps, you likely got a sense of how many moving parts there are when starting an LLC. Can you do it all yourself? Absolutely. We have complete confidence in you.
But if you’d rather hand it off to someone else and not have to worry about it again, we recommend using an LLC setup service. This way, you can go about your other business responsibilities with the confidence that everything will be submitted correctly and punctually.
Plus, an LLC formation service can handle maintenance items like Annual Reports, so you can take them off your to-do list. And on top of that, many services also provide a registered agent.