Are you looking to start an LLC in Alabama anytime soon? If yes, then this guide is perfect for you as it contains everything you need to know to start an LLC in Alabama.
From the process to launch the LLC to the associated costs for setting up an LLC, this guide contains it all. Just follow the steps mentioned in this article and you will have your own LLC set up and ready to start running.
One thing to keep in mind is that this process can be a little complex as you are required to make several filings and payments. So, if you feel stuck somewhere or overwhelmed by the process, you can simply hire an LLC formation service to do it for you.
Do you need help to start your LLC?
If you aren’t sure that you can handle the formation of your LLC, then the best way to do that is by hiring an LLC service. Here are the two top LLC formation services that you can consider to make your life easier:
ZenBusiness – If you are looking for a value for money LLC formation service then ZenBusiness is the perfect option for you. This online service charges low rates and offers a lot of features that one might need to start a business.
IncFile – If you are looking for the cheapest LLC service available, then IncFile is a good option. With them, you can set up an LLC for free and you get many great features for starting your LLC.
Step 1: Choose an LLC Name
When you are setting up an LLC, the first thing that you need to decide on is the name for your LLC. Now, you might think that naming is not crucial to the setting up your LLC but that’s completely untrue. The name that you choose for your LLC in Alabama will be its identity and will be what your business is known by. So, it is crucial that you choose a name business name that is unique and will stick in your customer’s mind. Apart from being unique, the name should also convey the nature of your business so that people don’t wonder and contact you accidentally for the wrong service. A good and memorable business name will not only attract new customers but will also help you in retaining the existing customers.
Remember, your LLC name is going to be presented everywhere. From business cards to bank accounts, it will appear at all the important places so it is important that you choose a name that conveys your brand, services, and values.
Although it is good to be creative with the LLC name, there are a few naming requirements placed by the state that you have to keep in mind.
Your LLC name should always include the words ‘LLC’, ‘Limited Liability Company’, or ‘L.L.C’. Moreover, it shouldn’t contain any word that might suggest that your LLC is a government-affiliated company or a banking organization else, it will be rejected by the state. Also, your LLC name should be different and distinguishable from the business names that are currently registered with the Alabama Secretary of State. A distinguishable LLC name should follow these rules:
- Use unique key words
- Use the key words in a changed order
- Display numbers differently (written words or Roman numerals)
- Use the key word with a different possessive or singular/plural form
So, if you find that your chosen business name is unavailable, then you need to add a unique character to make the business name distinguishable. And yes, making syntactical changes won’t cut it out.
Still confused? Let me share an example with you then. Imagine that you are opening a grocery shop in Montgomery, Alabama. You were planning to name your grocery store, Montgomery Grocery, LLC but that name is already in use. So, now you need to choose a different name such as Montgomery Supermarket, LLC. This name is a little similar to the original name but it also uses a new word so it is distinguishable and will be accepted by the Alabama Secretary of State.
Check if the Name is Available
Well, this one seems like an obvious step. Before you start making changes to your business name, make sure that you check whether the chosen business name is available or not. Hold off on ordering business cards, preparing bank documents, creating advertisements, and so on until you check whether the business name is available or not.
This can easily be done by checking the Secretary of State’s Business Entity Records page. If you find the business name already in use, you need to choose a distinguishable name before you file a name reservation for your LLC.
Name Reservation Certificate
Once you have decided on a business name and are in the process of getting the paperwork done to form your LLC, there is little to worry about. But there is a chance that in this time, someone else could end up using your chosen business name. Well, there is a way to avoid this scenario, you can file a name reservation to secure the business name.
In fact, the state of Alabama has made it mandatory for the businesses to reserve the business name before starting the LLC. So, if you are ready to form your LLC, then you would need to request the name reservation quickly. You can request for name reservation by mail or online and the will have to bear the filing costs as well.
If you file a name reservation online, it will cost you $25 while filing a name reservation by mail would cost you just $10. However, the online process is quicker and more convenient too. You can file for name reservation on the Secretary of State’s Online Services page. If you wish to file the name reservation by mail, then you need to take a print of the Name Reservation Request Form, fill it, and mail it along with a $10 check to this address:
Office of the Secretary of State
PO Box 5616
Montgomery, Alabama 36103
Do remember that it is a prerequisite in Alabama to reserve the business name before you can file your Certificate of Formation. So, don’t forget to file the name reservation for your business before you start the process for LLC formation.
Step 2: Choose Your Registered Agent
Now that your LLC is taking a little shape, it is time to move ahead with the process. In the state of Alabama, you need a registered agent to take care of the state and legal operations if you wish to operate your LLC.
A registered agent is a crucial part of your LLC formation process as they would be handling your business’ sensitive information and will communicate with the state so that you don’t need it. However, it is not for convenience that you would need a registered agent, it is actually mandatory in Alabama State for you to have a registered agent to form a LLC.
You can find this requirement in the Section 10A-1-5.31 of the Alabama State Code. You are required to maintain both a registered agent and a registered office in the state to start your LLC.
What does a registered agent even do? Well, the registered agent will take care of everything includes the taxes, maintenance requirements, lawsuits, and so on. If you had to do these tasks yourself, you would become overloaded with work. Moreover, having a registered agent means that you will be able to receive important business documents when you are away from the office as well. This is especially great for those whose physical office is outside of Alabama.
Now, let’s take a look on how you include a registered agent in your filings. Once you have found someone to be your registered agent, you need to include their name and address in the Certificate of Formation. This information will be available to the public and will be a part of the Secretary of State records. However, make sure that you consider all the options before you list a registered agent for your business.
Generally, you have two options, you can choose an individual as your registered agent or a company to act as your registered agent.
Choose an Individual as a Registered Agent
A lot of people think that one needs to be trained or have specialized experience to be a registered agent but that is definitely not the case.
Anyone can be a registered agent as long as they are 18 years old or above, a resident of Alabama, and have a physical working address in the state. So, you can choose an accountant, attorney, business partner, or even family members/friends as your registered agent.
Choose Registered Agent Service
Another option that would be easier and far more convenient would be to use an LLC formation service such as ZenBusiness, Northwest, etc. These services will not only take care of the LLC formation requirements but also offer registered agent services. In some cases, you might get free registered agent service for a year too.
If you are starting your LLC on your own, then you can use a registered agent service to take care of the agent duties.
Do keep in mind that when you are changing your registered agent or if your registered agent resigns, then you need to find a new registered agent ASAP and include them in the necessary documents. If you fail to do this and continue operating the business, you risk administrative dissolution.
Step 3: File Your LLC Formation Documents with State
This is where the LLC formation process really starts.
Now, you already have the name reserved and have chosen a registered agent too, you are all set to get the LLC running off the ground. So, now, it is time to work on the most important document for your LLC: the Certification of Formation. Once you file this with the Alabama Secretary of State, you will have the authority to commence your business in Alabama.
Once you begin your Certificate of Formation, do keep in mind to type out the form as handwritten forms are not accepted by the state. After completing the form, take a print out of the original application along with two additional copies. Now, send all the three copies along with the appropriate fee to your county’s probate judge.
The county here means where your registered office is located. You can use this list to find the probate judge for your county. The judge will then act as an intermediate medium to pass on your documents to the Secretary of State, who will take care of the rest of the LLC formation service and will include your LLC in the record.
Note: You cannot send the documents to the Secretary of State, it won’t be accepted. You have to send the documents to the probate judge and the judge will take it forward.
Now, let’s come to the filing fees that you need to pay for the Certificate of Formation. There are a few different filing fees involved in the LLC formation that you can read about here:
- Minimum Probate Judge Fee to be paid is $50.
- If you choose Standard Processing time, then it will cost you $100 and can take 3-5 business days, sometimes even 14 days during peak season.
- If you choose Expedited Processing, then the filing process will cost you $200 and will be completed in 24 hours.
You can make the payment with a credit card, check, or a money order but it will depend on your probate judge. Some probate judges don’t take expedited processing while a few others don’t accept credit card payment. So, make sure that you reach out to your county’s Office of the Judge of Probate to enquire about the policies before you send the document.
Step 4: Create an LLC Operating Agreement
Next step would be to create an LLC operating agreement that is essentially the framework for running the LLC. This framework will include the procedures, activities, conduct, etc. and serves as the bylaws for your company.
Is it a lot of work? Yes, absolutely. Are you required to form an LLC operating agreement to run your business? No. You are not required to create an LLC operating agreement in Alabama but that doesn’t mean it is a good practice to follow. Adopting an operating agreement will give some stability to your business and will protect your personal assets and will make you seem legitimate in front of banks, courts, government agencies, etc. as well. So, do give it some thought before you decide to not go forth with an operating agreement.
A good example would be to imagine that you are selling a percentage of your company to two other owners. Now, the LLC operating agreement will help in deciding how the LLC assets will be distributed among the owners if the company were to dissolve in future. In case you decide to maintain sole ownership of the business, then this agreement will work as evidence in the court to show that your personal assets are separate from the LLC assets. From tax structure to member duties, the operating agreement governs everything about your business.
If you are planning to draft an agreement, you have two options available to carry it out:
- DIY – Yes, you can always write the operating agreement yourself and there are several free online templates that you can use as a reference point. There are a lot of templates to create an effective document but if you choose an LLC formation service such as ZenBusiness, then you get free LLC operating agreement with the package too. This way, you end up saving both time and money.
- Hire an Attorney – If you are unsure about the laws and want to ensure that you don’t miss out anything in your operating agreement, then you can hire an attorney to write or review the agreement for you. An attorney will ensure that the agreement has all the necessary information, is in compliance with the state laws, and avoids any state default laws.
What are default laws?
You will find that each state has generic, baseline laws for the operation of LLCs. And most of these laws are generic and not tailored to your business so they don’t have your LLC’s best interest. This is why it is advised to avoid these laws at all cost by being as detailed in your operating agreement as possible.
One thing to remember would be that these laws are only applicable if you haven’t included anything about a particular scenario in your operating agreement. For instance, if your company were to face dissolution, your operating agreement will determine the future of the remaining debts and assets. However, if there was no mention of this scenario in your agreement, then the state gets to decide what they will do with your company’s assets and debts.
Step 5: Acquire an EIN
Now, once your LLC is set up, you need to consider the fact that you will have to pay the taxes for the company too. And don’t even think of trying to avoid the taxes because it is illegal to do so.
Legally, LLCs are considered ‘pass-through’ entities as the businesses don’t need to file corporate tax return but the owner needs to mention the income and the losses on their individual tax return. However, in a few cases, LLCs are required to pay the federal taxes especially if they classify as a partnership or a corporation, if they hire employees, or if they sell products. So, if you are planning to hire employees and sell some product, then you would need to acquire an EIN (Employer Identification Number).
EIN is a nine-digit number that can be used by the IRS to identify your company’s tax accounts. So, if you need to pay taxes, it is crucial that you have an EIN. You can check on this page whether you need to apply for an EIN or not. If you do, you can choose any of the three below-mentioned options:
Looking to get an EIN quickly? Then, you can file online for an EIN and get it immediately. This is the quickest and most convenient way to get an EIN. Just complete the process between 7 a.m. and 10 p.m. EST anytime during the week and you’ll get the number once you submit the digital form. Do keep your taxpayer individual number such as Social Security Number ready when filling out the form to complete the process.
Another option is to file for EIN through the postal service. However, it is the slowest method and can take around 4 weeks to be processed. If that is not an issue, then fill out the SS-4 form and mail it to:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Finally, if you trust the paper form but want the EIN to be processed quickly, then you can use the Fax method. All you need to do is download the SS-4 form, fill it out, and then fax it to (855) 641-6935. Once you complete this, you will receive your EIN in just four business days.
Once you have files the Certificate of Formation, created an operating agreement, hired a registered agent, and filed for the EIN, you might think that you are ready to start doing business. But that is not true. There are still a few things that you need to take care of before you proceed but don’t worry, it is almost complete.
Step 6: Licenses, Taxes, and Reporting Income
Technically, your LLC is officially ready once you have completed all the above-mentioned steps. However, it is still important for business owners to take care of the remaining things such as maintenance activities that need to be performed to run your Alabama LLC smoothly and in compliance with the state’s requirements.
Make sure that you create a plan for the following LLC requirements before you commence your business:
If you are setting up your LLC in Alabama, then you need to pay the state specified tax on the LLCs. This is the Business Privilege Tax in Alabama and the minimum tax to be paid is $100. The tax rate can be more depending on the LLC’s federal taxable income.
You will need to file a Business Privilege Tax Return and Annual Report with the Department of Revenue to pay the tax. And this needs to be done in the first three and half months of the taxable year for the LLC. If it is your first filing, then you need to submit a separate form, BPT-IN. This form is due in the first two and a half months of starting the LLC.
If you are not making the tax payment for your LLC, then you need to send the form BPV-T to this mailing address:
Alabama Department of Revenue
Business Privilege Tax Section
PO Box 327431
Montgomery, AL 36132-7431
On the other hand, if you are making the tax payment, then mail your return and the payment to this mailing address:
Alabama Department of Revenue
Business Privilege Tax Section
P.O. Box 327320
Montgomery, AL 36132-7320
As we stated earlier, LLCs are classified as ‘pass-through’ entities so the LLC doesn’t need to pay the taxes directly to the federal government. However, the owners need to include the business income and the losses in their personal 1040 tax returns or Schedule C. The best thing about LLCs is that they have a flexible tax structure. So, you can choose to get the LLC taxed as a corporation by filing a separate corporate tax return.
Yes, apart from the above taxes, your LLC might owe others taxes as well depending on the business conditions that it meets. For instance, if your business sells merchandise, then you will need to pay Sales and Use Taxes as well. If your LLC hires employees, then you need to pay Withholding and Unemployment Taxes too.
To register for the Sales, Use, and Withholding Taxes, you can go to the Department of Revenue website. And to register for the Unemployment Tax, go to the Department of Labor website.
While the Certificate of Formation makes your LLC legitimate, you also need to obtain Business Privilege License and a few other professional licenses before you can start doing business in Alabama.
Each LLC that wishes to operate in Alabama needs to get a Business Privilege License that is issued by the county judge probate or the license commissioner. This license is valid till September 30 and needs to be renewed in October every year.
Now, depending on the nature of your business, you might also need to obtain a Store License and/or a Municipal Business License. If you sell merchandise, goods, or any kind of wares, then you need to apply for a Store License, according to the Department of Revenue. This license is also issued by County Licensing Commission or the County Probate Office.
You might also need to get a Municipal Business License but these are highly specific to the businesses. Here is an entire list of license requirements for different kinds of businesses that you can check out to figure out which licenses you might need.
Also, your county might have some special licensing requirements that you would need to run the business. So, do check with the local government authorities before you start the business operations.
Finally, you need to file an Annual Reporting for your LLC every year. However, thankfully, when you pay the Business Privilege Tax, you also fulfill the requirements for Annual Reporting for your LLC. So, you don’t have to do it separately.
That’s all guys, this is the entire process for forming an LLC. It is not an easy process but it is definitely worth the time and effort. If you have made this far in the process, then congrats for your LLC set up in Alabama. You can now focus on the advertisements, sales, promotional campaigns, and other business related activities. Good luck for your business!
Looking to Create an LLC?
After reading through this guide, you might have gotten an idea of the steps and how the process moves when you are creating an LLC. Are you capable of doing it on your own? Definitely.
But if you wish to save time and effort on your time and are looking for a smooth process, then we would recommend you to hire an LLC formation service. This way, you can focus on the other aspects of the business and don’t have to worry about the documents being submitted correctly and on time.
Moreover, with an LLC formation service, you will get benefits of other services such as Annual Reporting, Registered Agent, and so on.