This quick guide will take you through the necessary steps on how to start an LLC in Alabama. It’s a fairly cheap and straightforward process, with very reasonable fees and expectations.
An Alabama LLC is a way to legally structure your business so that you have liability protection. Another advantage is that LLCs don’t need the slew of formalities that usually accompany other business structures. Minimal as they are, there still are requirements to follow. Let’s see what forming an LLC in Alabama entails.
1. Picking A Name For Alabama LLC
The process begins with picking a name for your LLC. Alabama requires that the name you choose be distinguishable from other business entities registered in the state. This means the name should be unique, and not very similar to names already in use.
You can do preliminary checks for name availability to see if your desired name is available. Alabama Secretary of State website provides a Business Entity Search By Entity Name function. This will give you a good idea of name availability. Once you zero-in on a name, it’s good practice to search the USPTO website to ensure there are no trademark issues.
Name Designators For Alabama LLCs
Every LLC name should end with a proper designator. Alabama allows the following designators for use:
- Limited Liability Company
As you probably know already, LLC is the most commonly used designator. Although you can use any of these for your business name.
Name Reservation Form
Name reservation is generally optional in most states. However, it is a required step of the process to create an Alabama LLC. The state doesn’t offer specific name reservation forms for LLCs, instead, they offer for domestic and foreign entities. Keep in mind, ‘foreign’ in this sense means entities not native to the State of Alabama.
If you choose to complete the Name Reservation via postal mail, the filing fee is $25. This payment can be made using check, money order, or credit cards. You can mail the completed form and the payment to the office of the Secretary of State at:
PO Box 5616,
Filing online is the smarter way because the name reservation is completed instantly. Additionally, you can move directly to filing the Certificate of Formation.
2. Appointing A Registered Agent
LLCs in Alabama must maintain a registered agent in the state to receive service of process on behalf of the company. This is an individual or entity that agrees to complete the role.
A registered agent must have a physical street address in Alabama. PO Box addresses are not accepted. Your Alabama LLC registered agent can be:
- Any person who’s at least 18 years of age and is a resident of the state.
- A domestic or foreign company that is allowed to do business in the state and has an office in Alabama.
Ideally, a registered agent should be available during normal business hours, in case the service of process arrives. Service of process entails receiving legal documents like lawsuits, subpoenas, summons, etc. on behalf of your LLC.
While the registered agent may also receive general correspondence, their primary requirement is their role to receive service of process.
The registered agent requirements are simple enough that you or friends/family could take on that role easily. However, many people choose to hire commercial registered agents for this role. It’s simply more easier and comfortable. The Alabama Secretary of State website has a list of Registered Agents on its business downloads page.
3. Alabama Limited Liability Corporation Certificate Of Formation
Until recently, forming an Alabama Limited Liability Corporation required filing the relevant documents with the Probate Judge’s office. Pursuant to Act 2020-73, this is no longer necessary. This act made it possible to file Alabama articles of organization (called Certificate of Formation) with the Secretary of State. It’s possible to complete the process online.
The cost of filing the documents with the Alabama Secretary of State is $200.
It is easier to complete this process online. Keep in mind, you will have to complete the Name Reservation process before you file for the Alabama Certificate of Formation.
This is where filing online gives you an edge if you want to complete the process faster. Name reservation requests are completed instantly, and you can move directly to filing the Certificate of Formation.
Approval is practically instant after filing online. This is way faster than filing via postal mail.
Filing via postal mail requires downloading and filling the LLC Certificate of Formation from the Business Downloads section on the Secretary of State website.
Mail the completed form, along with a copy of the form and a self-addressed and stamped envelope to the secretary of state. If you’re paying by check or money order, they should be included as well. These should be made payable to the Alabama Secretary of State. The mailing address is:
Secretary of State,
P.O. Box 5616,
Montgomery, Alabama 36103-5616
It usually takes 4-7 business days for processing the Certificate of Formation received via mail.
4. AL LLC Operating Agreement
Alabama doesn’t specifically require an operating agreement. However, every LLC, whether single-member or multi-member, is highly encouraged to form an operating agreement. There are several benefits of taking this route, including:
- It helps reinforce liability protection, by showing that your AL LLC is running properly.
- Provides convenient operating guidelines for running your company.
- Makes it easier for members to understand their roles and responsibilities.
- Can provide a framework if dispute resolution between members is necessary.
You can include various aspects of your business in the operating agreement. These include, but are not limited to, what percentage of the LLC is owned by each member, the roles and responsibilities, hiring strategy, approach to taxation, and more.
Some consider the operating agreement to be a ‘constitution’ of sorts for the LLC. As such, it can lay the groundwork of the day-to-day operation and groundwork for the LLC.
Operating Agreements are internal documents of the LLC, and need not be filed with any government department. However, members should keep copies of the agreement with them.
5. EIN Or Federal Tax ID For Your Alabama LLC
Once your AL LLC is approved, you should apply for an EIN (Employer Identification Number). This is a 9-digit number issued by the IRS.
There is no filing fee to get an EIN, and the process is quick and pain-free. The simplest way to get your EIN is to file for it online.
In some cases, it may not be possible to file online. These include situations where the LLC is owned by another company or if the person filing doesn’t have an SSN. In these cases, you can use Form SS-4 to apply for an EIN.
This form can be filed via mail or fax. Filings via mail can take four weeks to process, fax takes about four days, and online filings are processed instantly.
Having an EIN is important not just for taxation, but also for the day-to-day running of your business. You’ll need it for conventional things like opening a business bank account, for business credit cards, for hiring, and several more functions.
6. Annual Reports And Business Privilege Tax Return For Alabama LLCs
All LLCs in Alabama must file the Annual Reports And Business Privilege Tax Return. In a sense, this encompasses a tax, annual report, and business license.
These reports are filed with the Alabama Department of Revenue. The first report must be filed within two months and two weeks of your LLC coming into existence.
The first report or the Initial Business Privilege Tax Return is filed using Form BPT-IN.
After the initial report, you’ll have to file the Annual Reports And Business Privilege Tax Return every year before April 15. Conventional annual reports use Form PPT. Businesses may also need to file Form BPT-V (Business Privilege Tax Voucher).
The minimum cost for filing this report and tax is $100. However, you may have to pay more, depending on your business, income, and the number of members in your Alabama LLC. In case the amount to be paid exceeds $750, the payments have to be made online.
7. Business Licenses, Permits, And Taxes
Apart from the privilege tax return, you might also have to file for more licenses and taxes. This usually depends on the county/city of the operation of your business. Additionally, the specific industry or nature of the business may attract some requirements for licenses and permits as well.
For example, a county may require a business privilege license or a store license. Statewide licensing and permit rules may also apply.
As for federal taxation, LLCs get pass-through taxation by default. This means, the income from your LLC can be a part of your personal returns filed with the IRS. However, you may have to consider different forms, depending on whether your LLC is single-member or multi-member.
Similarly, taxation requirements can change if you choose to have your LLC taxed as an S-corp or C-corp.
Whatever the mode you take, remember it’s important to plan your taxes carefully. Additionally, the LLC must stay compliant with any business licenses, permits, or taxes required. Hiring a professional to handle these aspects of your Alabama LLC can be very fruitful.