Start An LLC In Alabama
An LLC is a legal structure that offers the flexibility that one doesn’t find in sole proprietorships and partnerships.
Creating an LLC in Alabama, as in any other state, provides multiple tax advantages, management flexibility, and ease of administration.
There are two ways to form an LLC in Alabama. You can do it yourself or hire an agency to do the work for you.
Whatever path you decide to take, it’s worth taking a closer look at the steps required to create an LLC in Alabama.
Let’s first analyze how Alabama compares with neighboring states for starting an LLC.
| State | Alabama | Mississippi | Georgia | Tennessee | US Average |
|---|---|---|---|---|---|
| Population | 5,039,877 | 2,961,279 | 10,799,566 | 6,975,218 | 6,619,825 |
| LLC Filing Fee | $200 | $50 | $100 | $300 | $130.38 |
| LLC Annual/Biennial Fee | $100 minimum (every year) | $0 (however, an information report must be filed every year) | $50 (every year) | $300 (every year) | $89.34 (every year) |
| Corporate Tax Rate | 6.50% | 4.00% | 5.75% | 6.50% | 5.60% |
| Nominal GDP per capita | $49,027 | $42,411 | $63,271 | $59,969 | $64, 773.08 |
Before You Start An LLC In Alabama
Setting up an LLC in Alabama is straightforward. The documentation for creating an LLC in Alabama goes through the Alabama Secretary of State.
Apply to reserve a name, select a registered agent, fill out all necessary paperwork, and start your LLC.
How Much Does It Cost To Start An LLC?
Starting an LLC comes with certain costs and fees, including:
- Making a name reservation for your LLC will cost you between $10 and $28. You’ll pay $10 for filing by mail and $28 for filing online;
- The Alabama State of Secretary’s Office charges a $200 filing fee for approving and issuing a Certificate of Formation, while the Probate Court has an additional charge of at least $50. For an additional $100 you can get the LLC approval within a week.
- Every LLC has to pay an annual minimum of $100 Business Privilege Tax to the Alabama Department of Revenue.
- A $10 annual fee is paid for filing an annual report, and reapplication is required.
- Hiring a professional service to establish the LLC will cost an additional $50 to $150.
Steps To Start An LLC In Alabama
Pick A Name For Your LLC
First off, choose an LLC name. The name must be unique and comply with the naming requirements set by the State of Alabama. When choosing your Alabama LLC name, follow these guidelines:
- Limited Liability Company, L.L.C. or LLC must be contained in the name;
- The name has to be unique and differ from other business names registered with the Alabama Secretary of State’s Office;
- Words like attorney, bank, insurance, credit union, etc., are restricted and require licensure paperwork;
- Words used for government agencies (eg. CIA, Treasury, FBI, etc.) cannot be used unless it’s a state-licensed business;
- The business name has to imply the business purpose.
To reserve the business name you want, contact the Alabama Secretary of State’s Office before you file the LLC formation documents.
There are two ways to do this. The standard procedure is by filling out a Name Reservation Request Form and mailing it. The process lasts about 1 week. To speed things up, file the request online, and pay a $28 fee, after which the name availability will be checked automatically. You will get a notification once the process is complete.
Alabama allows you to reserve a name and keep it for a year in case you are not yet prepared to register the LLC yet. Just pay a fee, submit the right form, and you are set for the year.
Find A Registered Agent In Alabama
A registered agent is an individual or an entity authorized to be the central contact point for the LLC. This agent must have an address in Alabama and be available during business hours to receive service of process, legal documentation, summons, tax notices, and other mail on behalf of the LLC. A word of caution—PO Boxes are not allowed as an address for a registered agent.
The choice of registered agent depends on your call. You can act as the agent yourself or choose one from the list provided by the Alabama Secretary of State.
The registered agent that will represent the LLC may be a person residing in Alabama, a business entity in Alabama, or an out-of-state entity with an office in Alabama. Choose the agent wisely because they will be responsible for all the LLC mail and correspondence, and will remind you to file the necessary report. Maintaining the LLC is important, and failing to do so will result in fines and dissolution.
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Certificate Of Formation
To proceed to officially establish the LLC, you’ll need to fill out the Certificate of Formation Form, known as Articles of Organization.
To do that, provide the following:
- LLC name;
- The name and address of the registered agent;
- The LLC’s effective date of starting;
- A specification if it’s a series, professional or non-profit LLC;
- If filing for a series or professional LLC, fill out the special entity section (optional for the other types);
- The organizer’s signature.
Also, attach a copy of the Name Reservation Certificate to the Certificate of Formation before filing the form.
The Effective Date section is optional because not many wish to delay the start of their LLC.
This is only done to avoid filing for tax returns if the LLC is formed at the end of the year. Otherwise, the LLC’s formation date matches the date of approval by the Certificate of Formation.
The Certificate of Formation may be filed online or mailed to the Alabama Probate Court. If so, they’ll provide a stamped copy of the filed form. The court then forwards the complete documentation to the Secretary of State for review and approval.
Once approved, you may obtain a business license, an Employer Identification Number, and a business bank account.
Other Required Documents
NAICS Code
The North American Industry Classification System (NAICS) is used by the Federal statistical agencies to classify businesses to collect and analyze statistical data. These are then published to offer information on the U.S. business economy. It is a 6-digit code that characterizes the business activity of your LLC.
LLC Records
Every business must have certain documentation for its members stored on-site or at the registered office. The following records should be available to LLC members at all times:
- An updated list of names and addresses of the manager and each member;
- Copy of filed Certificate of Formation and amendments, and executed powers of attorneys;
- Copy of operating agreements and their amendments;
- Copies of financial statements for the last three years;
- Copies of local, federal, and state income tax returns for the last three years.
Annual Report
The Alabama Department of Revenue expects that each year, every LLC files an Annual Report and pays privilege tax. The minimum tax that the LLC must pay is $100 each year. If it is higher, it will be determined based on the LLC’s net worth.
Business Licenses and Permits
Depending on the business, the Alabama Department of Revenue may ask you to acquire the following licenses or permits before starting:
- A business license—may be required before starting;
- A professional license—required for accountants, barbershops, and similar businesses;
Operating Agreement
An operating agreement is not required in every state, but it is highly recommended to have. Alabama doesn’t require the LLCs to have one, but it is a core document of the LLC, providing a framework of how the LLC conducts business. It outlines ownership rights, rights and member and manager responsibilities, distribution of profits and losses, and more. It will mainly help maintain the LLC and establish it as a separate legal entity.
Without an operating agreement, the LLC is vulnerable and exposed, and will be governed by the state LLC law. Being subject to generic state rules may turn out to be detrimental to the LLC and its members in case of a dispute or lawsuit.
An operating agreement consists of 6 main parts:
- Organization—when and where the LLC was created, its members, and its ownership structure;
- Management and voting—how the LLC is managed and how the members vote;
- Capital contributions – members who support the LLC financially and future funds raised;
- Distributions—outlines the profits and losses shared among members;
- Membership changes—includes the member appointment or removal process, stating when and if members can transfer ownership shares;
- Dissolution—circumstances that may lead to the dissolution of the LLC.
As an internal document, there is no need to file the operating agreement with the state. Regardless, be sure to regularly update it with any membership or management change within the LLC. Treat it like any other legal document that you submit to the state.
Get An EIN
An Employer Identification Number or EIN is a unique number the Internal Revenue Office (IRS) assigns to a business. To register, go to the IRS website and fill out an online EIN application form. The EIN will be issued immediately, free of charge.
The EIN is used to register for licenses and permits, open bank accounts, hire employees, file tax returns, and anything related to the LLC. It is the same as the social security number of an individual.
By obtaining an EIN, the LLC is provided with the flexibility to choose the form of federal income taxation. The legal structure has nothing to do with the LLC taxation. The pass-through taxation is how the LLC’s profits and losses flow to the members.
The Forms You Need To Register An LLC In Alabama
The main form that you’ll need to establish an LLC in Alabama is the Certificate of Formation. This needs to be filed online or mailed to the Alabama Probate Court. The court then forwards the complete documentation to the Secretary of State for review and approval.
Did you know?
There are a lot of useful publications available to small businesses in Alabama to help them with any questions they may need. The Alabama District Office provides copies of the Alabama Small Business Resource Guide for all interested parties.
LLC Taxes In Alabama
How much do LLCs have to pay in taxes in Alabama?
LLCs are pass-through entities, therefore, the federal income taxes pass through the LLC itself, and are the responsibility of the individual LLC members. There is a flat rate of 6.5% corporate tax paid on a taxable net income if the LLC chooses to use the corporation taxation method. If the LLC has employees, they need to pay employer taxes.
How much state taxes do LLCs in Alabama have to pay?
LLCs need to pay a corporate tax calculated at a flat rate of 6.5% of taxable net income.
How much federal taxes do LLCs in Alabama have to pay?
The amount of federal income taxes that LLCs pay depends on the earnings, current income tax bracket, deductions, and filing status. Alabama has an annual Business Privilege Tax calculated on the total income passed through to LLC members. The minimum BPT amount is $100.
Is Alabama A Good Place To Start An LLC?
Yes, business owners are offered excellent opportunities for starting an LLC in Alabama.
There is a great business environment, flexibility, and an affordable and easy establishing process.
How Long To Form An LLC In Alabama?
The duration of forming an LLC in Alabama depends on the filing method. Still, the average waiting period is between 1 to 2 weeks.
How Much Does It Cost To Run An LLC In Alabama?
Those wondering how to start an LLC in Alabama for free should know that whilst affordable, creating an LLC in Alabama is not entirely free of charge.
Researching how much to start an LLC in Alabama will give you an idea of what costs you’ll need to cover. A name reservation costs $10, whereas a $250 fee is paid for filing the Certificate of Formation.
There is an annual Business Privilege Tax of a minimum of $100 and a $10 annual fee for filing an annual report.
What To Do After Formation?
After the formation process, open a business bank account to separate the private funds of the members.
Depending on the location and type of business, the LLC may need to obtain certain business licenses and permits:
- Business license;
- Professional license;
- Health department permit;
- Zoning permit;
- Home occupation permit;
- Sales tax permit.
An Alabama Initial Report and Initial Business Privilege Tax return have to be filed within 2 and a half months of registering the LLC.
The Privilege Tax Returns should include:
- Copy of the appointment schedule form 65;
- Copy of pages 1-4 of the federal tax return;
- Copy of balance sheets on taxpayer’s net worth;
- Documents supporting exclusion and deduction claimed.
Resources To Make A Successful LLC In Alabama?
The following links can help establish a successful Alabama LLC:
- https://www.alabamainteractive.org/sos/welcome_nameReservation.action
- https://www.sos.alabama.gov/sites/default/files/2022-01/DomesticBusinessCorporationFormation.pdf
- https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
- https://revenue.alabama.gov/individual-corporate/alabama-business-privilege-tax-and-corporate-share-tax/
- https://www.sos.alabama.gov/business-entities/business-downloads/#bdCategory-2862
- https://revenue.alabama.gov/business-license/business-licensing/
- https://sos.alabama.gov/sites/default/files/2019-12/Registered-Agent-List_0.pdf
Start Marketing Your LLC In Alabama
Having completed the process of how to start an LLC in Alabama, you will need to work on marketing your business. The best way to do that is by developing a marketing strategy, establishing social media platforms, and increasing the presence of your LLC in the digital world. Depending on the industry, work on an SEO strategy to get exposure.
How To Dissolve An LLC In Alabama
Dissolving an LLC in Alabama will require you to provide a completed Domestic LLC Articles of Dissolution form in original and in 2 copies, sent to the County Judge of Probate by mail or in person. This cannot be done online as the filer’s original signature is required on the form.
Conclusion
Deciding to open a business is an exciting step into the future of endless possibilities. Opening the Limited Liability Company, or LLC in Alabama opens new doors for a profitable business. Many start-ups in Alabama choose the LLC entity structure because it protects owners from personal liability for business claims and debts.
Good luck with your LLC!