How to Start an LLC in Alabama: Step-by-Step Guide
It is relatively simple to form an LLC in Alabama. It involves thinking about your business idea, putting it on paper, and filing that document with the appropriate government office.
1. Reserve your LLC name with the Alabama Secretary of State
To form your Alabama LLC, the name reservation is the first step. You must have a unique business name that meets three requirements:
- Contains the phrase “limited liability company”, “LLC” or “LLC”
- Is not identical to any other business entity registered in Alabama
- Does not contain words or phrases that mislead consumers about the services provided by the company
By reserving your business name first, you ensure that it will be available once all paperwork is completed. You can do this by filing online using the Alabama Secretary of State forms on the interactive website. This requires a $25 fee and you must save your certificate digitally after deposit – one will not be mailed to you.
Scoop preview: For various reasons, some business owners do not want to use the full business name for every business activity. In this case, you can use a “DBA” business name, which stands for “doing business as”.
In Alabama, you must use your DBA name to do business before you can register it with the state, which makes Alabama unique from other states in this regard. To register a DBA name, follow these instructions on the Secretary of State’s website. You will need to renew every five years.
2. Appoint a registered agent
Doing business in Alabama requires a permanent address in the state. When you search for how to start an LLC in Alabama, you will see a lot of information about “registered agents”. It sounds complicated, but a registered agent is simply a designated person and address to which the state and the IRS send official correspondence.
Many companies offer registered agent services for a recurring fee. You can easily select a registered agent in Alabama by searching online or choosing from a list of agents provided by the AL Secretary of State.
Scoop preview: You can be your own registered agent, but it’s not always practical to do so. This is because registered agents must be physically present during all business hours at the address provided to receive correspondence.
Additionally, if you receive clients at your registered address, you may receive legal documents in front of them. It may be worth letting a registered agent company handle this for you, so you can focus on growing your business.
3. Submit a training certificate
This is the most important step in learning how to start an LLC in Alabama – the Certificate of Formation tells the government several important pieces of information about your business:
- Business name, including indication that it is an LLC
- Registered agent address
- Registered agent name
- Confirmation that there is at least one member of the LLC
- If the LLC is a “series LLC”, a statement of enforceability of obligations and expenses
- Any other questions that members think should be included
The form must be typed and can be sent by mail or online. To mail the form, send the following in an envelope addressed to: Secretary of State, Business Services, PO Box 5616, Montgomery AL 36103
- Two copies of the completed training certificate, with the name reservation certificate attached
- A pre-addressed and stamped envelope
- A check, money order, or credit card payment form (provided in the online form) for $200.00
To file online, follow the instructions on the Secretary of State’s website. Your application fee will be $208, payable by credit card or bank account.
You will find that there are several options when researching how to start an LLC. In Alabama, an additional option is to convert another type of business to an LLC using this form.
Scoop preview: In a certificate of formation, Alabama allows you to choose one of three types of LLC:
- Series LLC, which operates as part of a larger entity
- Professional LLC, which offers services by licensed professionals, such as doctors, lawyers, or accountants
- Non-Profit LLC, which engages in charitable activities
If you think any of these apply to your LLC, consult a legal or tax professional to learn about your options. Additional tax deductions or obligations may apply, depending on the type you select.
4. Create an Operating Agreement
It’s not a legal requirement, but it’s important. An operating agreement details the policies and procedures that you intend to govern your business. Especially if your Alabama LLC has more than one member, an operating agreement will save you legal trouble and let your members, customers, and employees know what to expect.
When writing the operating agreement, you may also be asked to define aspects of your business that you hadn’t thought of before. You can also use your operating agreement as legal proof that you own your business. Operating agreements often include, but are not limited to, information about:
- Transfer of member interests
- Right to vote
- Membership fees
- How profits, losses and distributions are shared
- Account bookkeeping
Scoop preview: When developing a business idea, it can be difficult to decide where to start. An LLC in Alabama must have an operating agreement upon formation and can always be changed later. A helpful tip is to consider whether your LLC will be “member-managed” or “manager-managed.” In a member-run organization, all members collectively make day-to-day management decisions.
In a manager-run organization, the operating agreement specifies one or more members who will be responsible for day-to-day management. It’s important to write this into the operating agreement to avoid confusion down the road.
5. Apply for an IRS Employer Identification Number (EIN)
After training, you will need to apply for an EIN from the IRS, also known as a Federal Tax Identification Number. This unique identifier is used for tax purposes and can be used for other activities, such as opening your business bank account. If you formed an LLC by converting a business type to Alabama LLC, you will likely need a new EIN.
Be sure to check state requirements for how to start an LLC. In Alabama, if you hire employees, you will also need an Alabama income tax withholding number. This can be obtained by registering with My Alabama Taxes.
Scoop preview: You do not need to apply for an EIN if your business meets the following conditions:
- One-person SARL
- No employees
- Does not report “excise taxes” (special taxes levied on goods and services such as alcohol, cigarettes, fuel, heavy vehicles, etc.)
The owner of such a business will simply use his social security number for tax purposes.
6. Fulfill Ongoing Obligations
The fun doesn’t stop after you learn to beginning an LLC in Alabama. There are annual obligations that you will need to meet in addition to running your business.
File your taxes
Don’t forget to file your annual federal, state and local income taxes. If you have employees, you’ll probably need an accounting service to do this for you.
Alabama requires that a combined business lien tax return and annual return be filed 2.5 months after the LLC is formed and once per tax year thereafter. You must pay a minimum of $100 per year as an Alabama LLC.
Keep your licenses up to date
You should check with your local or county government to determine if you need additional licenses to operate your business. Any professional licenses such as bar memberships for lawyers or accounting certifications for CPAs must also be kept current.
Keep your records
Part of your ongoing obligations is to keep certain records available for inspection by LLC members. Records should be kept at your “principal establishment”, which may be your office or, as is becoming increasingly common, your home.
- Name and address of each member and manager
- Copy of the training certificate and any subsequent modifications
- Legal documents such as powers of attorney
- Federal, state, and local tax returns for the last three years
- Operating contract and any amendments
- Financial statements for the last three years
Scoop preview: Consult a tax professional for more information as you learn how to start an LLC in Alabama. A helpful tip – if you work outside your home, dedicate a conspicuous room or space to work. This way, you will be able to deduct the expenses associated with maintaining this space as operating costs.