How to Start an LLC in Alabama (Step-by-Step Guide)
Getting a new business off the ground can feel like an intimidating process. Even just the legal side of forming a business entity can be complex. For entrepreneurs in Alabama, the rules and regulations are set out by the Alabama Secretary of State. But following those rules requires some research! This guide is here to help you learn how to start an LLC in Alabama as efficiently as possible.
Limited Liability Companies, or LLCs, are a very popular business structure. They offer several key benefits, including liability protection for owners. If an LLC is sued, the owners’ personal assets are protected. Compare this to a sole proprietorship, where the business owner and the business itself are essentially the same entity, and it’s easy to see why LLCs are popular.
The flip side of that coin is that LLCs are more involved to form than sole proprietorships. In this article, we will explain how to form an LLC in Alabama, from start to finish.
Consider using an LLC service
There are two ways to form a limited liability company in Alabama: Do it yourself, or hire a service to help. For many small businesses, hiring a service will be well worth the cost. These companies act as middlemen between you and the state of Alabama. They help guide you through the whole process, improving both efficiency and accuracy.
Some good options in Alabama include ZenBusiness, Northwest Registered Agent, and Bizee. These companies charge a small fee to help you with the entire application process. They can also serve as your Registered Agent, which is a requirement in Alabama (see step #3).
Name your Alabama LLC
Next, it’s time to select an available business name for your new company. You must select a name that meets certain criteria, including:
- It must be unique (not used by another company in Alabama). You can conduct a Business Entity Search at the Secretary of State’s website to confirm that your name is not taken
- The name must include the phrase “limited liability company”, “LLC”, or “L.L.C.”
- The name cannot include government-related words, like “FBI”, “State Department”, etc.
- If the name contains certain restricted words, like “doctor”, “lawyer”, etc. you may be required to fill out additional paperwork
Using a Doing Business As (DBA) or trade name
Naming your business is an important step – but finding the perfect business name for your LLC is not as necessary as you might think. This is due to the allowed use of trade names, otherwise known as Doing Business As names or DBAs.
Trade names allow companies to operate under different names than the technical names of their LLCs. For example, “Modern Plumbing Solutions, LLC” could operate as “Mike’s Plumbing”, or “Birmingham Plumbing”, if it registered for those trade names.
Alabama makes it easy to add trade names to existing business licenses. You can do it online, and it costs just $10 per name.
Choose an Alabama registered agent
Every LLC in Alabama is required to appoint a Registered Agent. A Registered Agent is an individual (or a business) who is tasked with receiving important documents for your business. They must reside in Alabama, having a physical mailing address in the state (no PO boxes), and must be willing to receive legal documents in the representation of your business.
Anyone who meets the requirements can be your Registered Agent – even yourself, as long as you live in the state. However, there are advantages to using a Registered Agent service.
These companies, like ZenBusiness or Northwest Registered Agent, provide professional Registered Agents in each state, including Alabama. They charge a small fee each year but provide additional security and privacy by keeping your personal information private.
Create an operating agreement
Next, it’s wise to draft and create your LLC operating agreement. This is an internal document, meaning you simply keep it (you don’t need to file it with any state or federal agency). It’s not a requirement.
An LLC operating agreement lays out certain key details of your business in a legal document. This includes the ownership structure (so it’s very important for multi-owner businesses). An operating agreement can reduce the risk of future ownership disputes and other issues. It also lays out key details about your company.
Operating agreements can be drafted with legal help, or with the help of a template found online. ZenBusiness and other LLC formation companies offer help with operating agreements, as well.
File the LLC Certificate of Formation
When filing online, there is a $208 fee total. You can pay by credit card or prepaid account. By mail, the fee is $200. You can attach a check or money order, or you can include credit card information on the form to pay via credit card. Fees may vary slightly depending on the county.
If you do submit by mail, the mailing address is:
Secretary of State
P.O. Box 5616 M
Montgomery, Alabama 36103-5616
This form will ask for basic information about your company, including ownership information. If you need help with this process, using an LLC formation service is recommended (see step #1).
Filings usually take 10 to 15 business days to process.
Wait for your documents
Once you’ve submitted your Certificate of Formation, it’s time to simply wait for Alabama to process your documents. In most cases, this takes 10 to 15 business days. You may also be able to select expedited processing during the registration process (for an additional fee).
Depending on the filing type, you may receive physical documents by mail, or be sent a link to download them digitally from the website.
Apply for an EIN
An EIN, or Employer Identification Number, is a federal tax identification number used by the IRS. It’s similar to a social security number, but for your business. An EIN is required to hire employees, and may also be required for things like a business bank account. Again, this is a federal-level number, which has nothing to do with the state of Alabama – but Alabama LLCs will still want to obtain one.
You can file for an EIN online at the Internal Revenue Service’s website. There is no cost for the service, and the application takes only a few minutes to complete. The IRS will send you a letter with your new EIN, should your application be approved. Once you’ve received it, you should use this number for any federal tax forms and tax returns.
Keep your business in good standing
There are many ongoing tasks that you’ll need to stay on top of in order to keep your business in good standing with state, federal, and local authorities.
For one, you will likely need a business license in the county or counties where you plan to do business. This is handled on the county level, and there are different requirements and application processes in each county. Check with your local government websites to see the details.
Apart from this, here are some ongoing tasks to keep in mind:
- The Alabama Business Privilege Tax must be filed and paid every year. You can complete this tax requirement online.
- You must file a federal tax return for your business every year
- You may need to pay quarterly estimated taxes (form 1040-ES) and other quarterly responsibilities
- You may need to file payroll tax returns, both federally and locally, if you have employees
- You may need to file returns in certain cities or counties where you do business
- You may need new permits or licenses if you expand to a new area
- You may need additional permits or licenses for some specialized businesses
- You must always have an appointed Registered Agent appointed for the life of your LLC
Open a business bank account
You will definitely want to have a separate bank account for your business and your personal finances. This helps keep things clear and makes bookkeeping much easier.
To open a business bank account, you’ll need your formation documents, EIN, and business license. Most banks and credit unions offer business checking accounts, so you can use your existing bank or find a new one. The key is to start a new account right away and use this for everything business related.
Alabama has a fairly simple process overall and a relatively low formation fee of around $200. It’s considered a business-friendly state, and will make an excellent home for your new company!
This can all seem a bit overwhelming at first, but it’s vital to start off on the right foot. If you take this time now to research and understand all your ongoing responsibilities, you will start off on track, making it easier to stay on track. You can find helpful resources online, or ask your Alabama business owner friends for help.
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