Starting a business in Alabama can be an exciting time. Before selling your product or service though, the nuts and bolts of licenses, registrations, and taxes must be completed.
The guide below will show you the DIY process of forming an LLC in Alabama. However, you can also use an online LLC service handle the paperwork for you. We reviewed and ranked the 7 best available.
The Top 2 Worth Considering:
- Northwest Registered Agent is a great option if you are looking for premium customer support.
- IncFile is ideal if you are looking for the best pricing with excellent features.
Step 1: Name Your LLC
Selecting a name for your Alabama LLC is a first step, yet a very important one. A name that is unique and easy to remember is helpful in finding potential clients or retaining customers.
The name should indicate the product or service. It should also follow guidelines set forth by the state of Alabama.
The name of an LLC will likely appear on business cards and stationary, marketing materials, a website, legal contracts, business bank accounts, invoices and/or a building directory.
Alabama law requires that the business name includes the words, “Limited Liability Company,” “LLC,” or “L.L.C.” It must be different than other names already registered. Distinguishing features include the following:
- A key word is different.
- The same keywords are used but not in the same order or with a unique spelling.
- If the key words are numbers, they are communicated differently: as numerals, Roman numerals, or written words.
- Key words are differentiated by singular, plural, or possessive.
Let’s imagine that someone is considering opening a flower shop in Montgomery, Alabama. The name she is considering, Flowers by Fanny, is already in use. Instead, she decides to legally name her business Fanny’s Florals, LLC.
Determine the Name is Available
Following the selection of a name but before filing the Certificate of Formation, check to ensure that your name is unique on the Alabama Secretary of State website. Searching in other places, such as online, is also a good idea.
After you have determined that your chosen name is “distinguishable,” the name can be registered on the Certificate of Name Reservation, securing exclusive rights to this name.
Certificate of Name Reservation
In Alabama the certificate of Name Reservation must be filed with the Alabama Secretary of State before the Certificate of Formation can be filed. The name will be reserved for one year of the date of filing.
The cost for standard processing of a hard copy application is $10. For expedited processing (within 24 hours of receipt) the cost is $25. Payment by check, money order, or credit card is acceptable. A $30 fee will be applied if a check does not clear.
To file a hard copy, send by mail or courier (email not accepted) to the following address:
Office of the Secretary of State
PO Box 5616
Montgomery, Alabama 36103
When filing online, the application is processed and the certificate issued immediately. The cost is a bit higher than for a hard copy. If a subscriber to the Alabama Secretary of State online services, the cost is $27. If you are a non-subscriber, the cost is $28.
Step 2: Choose a Registered Agent
Every LLC in Alabama is required to have a registered agent. This agent can be an individual or a company.
The role of the registered agent is that of a contact person between the LLC and the state. The registered agent could be served processes, notices, or demands that are legally required to be served to the LLC.
Simply put, the process agent receives communications or documents from the state involving such things as taxes or lawsuits and communicates them to the LLC.
Some may wonder why a registered agent is necessary. The importance of the agent is to ensure that someone is always available to receive important documents even if the business owner leaves the office, goes on vacation, or is otherwise away. Also, having a registered agent is especially important if a physical office does not exist in Alabama.
The owner of the LLC can designate a registered agent on the Certificate of Formation application.
Yourself as Resident Agent
In the state of Alabama you can serve as your LLC’s registered agent. You must maintain an office in the state of Alabama at the registered address. It cannot be a PO Box but can be your home address.
Individual as Registered Agent
Most importantly, the individual must be a resident of the state of Alabama. Using a third party ensures that nothing falls through the cracks. The third party can be an accountant, an attorney, or even a friend. The agent must have a physical and mailing address in Alabama.
Registered Agent Service
We recommend either using an LLC formation service (like Incfile or Northwest Registered Agent) which gives you a free registered agent or ordering a registered agent service by yourself if you choose to DIY your LLC formation.
Step 3: File the Formation Documents with State
Let’s assume that fictional Fanny has received her Certificate of Name Reservation and chosen the registered agent in Alabama. She is ready to complete the paperwork (called the Certificate of Formation) that actually creates Fanny’s Florals, Alabama LLC.
When filling out the application, it is required that all information be typed. Next, it is time to turn to the Office of the Judge of Probate in the county in which the LLC will be located. You will need to send by mail the original Certificate of Formation application, two copies of the application, and the fee to the County Probate Office.
You can access the name and address of your county’s Probate Judge here. The probate judge will then send the fee and a certified copy of the certificate to the Office of the Secretary of State. Notification of the Certificate of Formation filing will be provided by the probate judge’s office.
Generally, the filing fees are as listed below:
- Standard Processing typically takes 3 to 5 business days though during heavy filing it can take as many as 14. 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.
There is an important addendum to this fee schedule; each county judge operates a little differently. Some do not accept expedited fees. Others do not accept credit cards. It is a good idea to contact the Office of the Judge of Probate before filing. Also, if writing a check, it is payable to the Alabama Secretary of State.
Step 4: Create an Operating Agreement
An operating agreement in the state of Alabama is recommended though not required. The agreement is a contract that defines the operations of the LLC, includes terms and conditions, states the responsibilities of its members, and ensures legal protections of its members.
All owners of the LLC must be in agreement of the terms in the agreement and sign before a notary public.
The operating agreement is useful for both multi-member and single-owner LLCs. In both cases, the agreement provides protections.
For example, in the case of the multi-owner LLC, the terms can stipulate what should happen if a death or divorce occurs among one of its members. In the case of the single-owner LLC, the agreement could be used in court as evidence that the LLC is separate from the individual owner.
The operating agreement can be created in two ways. Some individuals may choose to write the agreement on their own, using an online template. In this case, forms are available that are specific to state. Be sure to use the correct multi-member or single-member form.
The alternative is hiring an attorney to create the document. The benefits of using an attorney are ensuring the document doesn’t exclude any important information, adheres to state law, and invalidates default provisions that may not be what you wish.
Step 5: Get an EIN
An EIN is an Employer Identification Number. Anyone who runs their business as a corporation or partnership must file for this 9-digit number in order to identify the tax accounts of a business. The number can be applied for in one of the following three ways:
Applying online is the quickest method. The process can be completed between 7 a.m. and 10 p.m. EST, Monday through Friday. When the form is completed, the information will be immediately validated and a number issued while you are still online. In order to apply online, a valid individual taxpayer number, such as a Social Security number, is required.
Form SS-4 can be downloaded, completed and faxed to 855-641-6935, twenty-four hours, seven days per week. The EIN will be provided within four business days.
If either of the above methods are unavailable, Form SS-4 can be mailed, though processing will take approximately four weeks. The form can be mailed to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Think you’re ready to open up shop now? Guess again!
Step 6: Taxes, Licensing & Income Reporting
Businesses like Fanny’s Florals, LLC may be official after completing the above steps, but it is important not to overlook a few critical details.
Taxes and Reporting
On the federal level, most LLCs do not pay taxes directly to the government. Instead, they report income and losses on the owner’s personal 1040 tax returns. Schedule C is often used for reporting. Unless the LLC chooses to be taxed as a corporation, a single-member LLC is taxed as a Sole Proprietorship and a multi-member LLC is taxed as a Partnership.
In Alabama, all LLCs are required to file a Business Privilege Tax Return and Annual Report with the Department of Revenue on or before three and a half months after the beginning of the LLC’s taxable year.
A separate form ( Form BPT-IN) is needed for the first return which is due two and a half months after the LLC has organized.
The returns can be sent to one of the following addresses:
If not making a payment, send your return, 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
A business privilege license and in some cases, a store license or municipal business license are needed before a business can begin operations. The business privilege license is issued by the County Probate Judge or License Commissioner in the county where the business is located. The license runs from October 1 through September 30, and needs to be renewed in October annually.
The store license applies to businesses where either retail or wholesale merchandise of any kind is sold.
The Municipal Business License is similar to a professional license. It applies to businesses that involve a particular occupation. The list can be found here. Requirements and fees vary according to the license.
In addition, local governments may require additional licenses and permits.
When all of the mechanics of setting up an LLC in Alabama have been completed, someone like Fanny can get down to the business of setting up a website, creating a logo…or purchasing flowers!
Need Help Creating Your LLC?
We recommend LLC formation services because it allows you to knock off an important thing off your checklist so you can focus all your energy on actually starting a business.
Can you do it yourself? Absolutely.
However, a service that forms an LLC for you will help with ongoing maintenance and keep you notified of any requirements you should adhere to.
As we mentioned earlier, IncFile and Northwest Registered Agent are the top LLC services available. If you’re not familiar with them, as a point-of-reference many of our readers like to compare them to the most well known LLC service, LegalZoom.