How to Form an LLC in Alabama in 7 Steps
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Forming an Alabama limited liability company (LLC) involves choosing a unique business name, appointing a registered agent to handle legal documents, filing a certificate of formation with the Alabama Secretary of State, obtaining an EIN from the IRS for tax purposes, and setting up necessary business and tax accounts.
If you have a great idea for a business and want to form an Alabama limited liability company, here are some basic steps to get you going in the right direction.
Here is a step-by-step guide to creating an Alabama limited liability company.
7 Steps to Form an LLC in Alabama
Name Your LLC
The first step to start an LLC is to create and protect a legally valid LLC name. Under Ala. Code § 10A-1-5.03, the Alabama business name be unique and different from any other company’s name.
Search the Secretary of State’s Name Database
Check your business name with the Secretary of State Business Center business name availability search page to ensure that an existing business isn’t using that name. This search is just a preliminary step to the state filing. You still need to go through the registration process to get your name approved by the state.
After you have decided on a name, submit the name to the Secretary of State. Under Ala. Code §10A-1-5.06 the name must contain “limited liability company” or one of its abbreviations, LLC or L.L.C. The name of the LLC cannot use any variation of the word “corporation.” It cannot use obscene language or claim a profession or business affiliation that does not exist.
Reserve the Business Name
Under Ala. Code §10A-1-5.11, you are required to submit a Name Reservation Request Form for Domestic Entities to register your business name before submitting a certificate of formation. There is a $25 processing fee if registering by mail. This registration reserves your name for up to one year with an option to renew. If you choose to reserve a name online, the state fee is $28.
Name reservation does not guarantee that your name will be approved, but it keeps anyone else from using it for the time it takes to process your application.
Protect Your Business Name
Next, make sure that no one else can use your business name. You can do this by reserving a domain name and/or trademarking your name.
- Domain Name: Do a name search on the internet to determine that your internet domain name is available. If available, grab it immediately (that will only cost a few dollars).
- Trademark: If you want to protect your business name or brand, trademark the name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. While that application is pending, a trademark protects the name under common law. Once you receive your federal trademark, you can register it as an Alabama trademark or service mark. You may also trademark the Alabama LLC name with just the state, without a federal trademark.
Get a Registered Agent
Alabama requires an LLC to have a registered agent for service of process under Ala. Code §10A-1-5.31. A registered agent receives service of process (legal documents) on behalf of the LLC.
An Alabama registered agent can be an individual who is a resident of Alabama or a company (domestic or foreign) with a physical Alabama street address. A P.O. Box is not acceptable as a registered office address.
The registered agent must personally receive service at that registered address during business hours from 9 AM to 5 PM, Monday through Friday. You can opt for a registered agent service company to serve as your registered agent.
Include the registered agent’s name and office address on the certificate of formation.
File Your Certificate of Formation
You are now ready to complete your certificate of formation and register your Alabama LLC with the Alabama Secretary of State. To do this by mail, fill out the online form, print and submit it with the name reservation certificate and the state filing fee of $200.
However, Alabama offers LLC formation through its online business services portal. The fee for filing online is $208.
Your LLC Certificate of Formation must contain the following:
- LLC name and mailing address
- Name and physical address of the registered agent
- Name of person filling out this form
- Designation of the type of LLC
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Draft an Operating Agreement
It is a good idea for business owners to write an LLC operating agreement. Alabama does not require operating agreements, but it is a good idea to keep everybody’s interests clear. Additionally, it may be requested by a bank when opening a business bank account or applying for a credit card.
An operating agreement should contain the following provisions:
- Percentage of members’ ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and losses
- Procedures for holding meetings
- Buyout and buy-sell agreements (methods for transferring interest or in the event of a death)
The members may manage an LLC or hire an outside manager.
Get an EIN
If you have employees, you must file to receive an IRS Federal Employer Identification Number (EIN) on the Internal Revenue Service website. You must also apply for your EIN on the IRS website if the LLC has more than one member. You will be subject to all federal tax-withholding rules.
Set Up Business and Tax Accounts
After filing with the state of Alabama, you will have numerous state and federal requirements for your new LLC. Investigate what federal, state and county tax accounts you need to set up to operate your business.
Initial Business Privilege Tax Filing
You must file an Initial Business Privilege Tax Return with the Alabama Department of Revenue within 2.5 months of filing your LLC formation papers with the state.
Business Privilege Licenses
In Alabama, businesses must have a business privilege license. Local county governments used to issue the licenses through a probate judge. Now the Alabama Department of Revenue handles it. The year after you set up your LLC and file the Initial Business Privilege Tax Return, you file a PPT for your LLC. You file a CPT form if you are an LLC taxed as a corporation.
Check for Additional Federal or State Requirements
Check state and federal websites to determine if there are any specific rules for your business. For example, some LLCs may have to file a Beneficial Ownership Information Report (BOIR) with FinCEN. Under current law, LLCs created in the United States are “domestic reporting companies” and are exempt from the BOIR requirement.
However, laws may change, so stay up to date with state and federal requirements.
Business and Tax Requirements in Alabama
When starting a new business in Alabama, you must register your business for state and county tax accounts, especially if you have employees.
State Business Tax
LLCs have precise requirements for filing taxes. You may choose one of several different tax designations for your LLC, including a C or S corporation. If your LLC is taxed as a corporation, your LLC pays a 6.5% tax rate of the LLC’s taxable income. If your LLC is set up for pass-through taxation on the members’ individual income tax returns, there is no state tax.
State Employer Tax
Your LLC is subject to employment taxes rules if it has employees—even if the employees are also members. As an employer you may need to:
- Report all new hires to the Alabama Department of Labor
- Set up withholding tax accounts
- Pay unemployment insurance
- Carry workers’ compensation insurance
Sales and Use Taxes
You will probably have set up a sales tax account if your company sells anything. You, as the seller, collect the tax from the purchaser and remit it to the state. Your city or town may also have a sales and use tax.
Business License and Permits
YOu must file for a Business Privilege License and renew it every year you operate your LLC. Depending on the type of business, you may need additional business licenses and permits. Check with your state, town, and county offices for requirements and registration information.
Registration in Other States
If you plan for your LLC to do business in other states, contact the Secretary of State in that jurisdiction to register as a foreign LLC. That state may ask for a certificate of good standing, called a certificate of compliance in Alabama, which you can get from the Alabama Department of Revenue. The fee is $14. The certificate shows your LLC is current with all tax filings and obligations.
Annual Requirements in Alabama
Starting January 1, 2024, LLCs do not have to file an annual report with the Alabama Secretary of State.
You may have to file a Business Privilege Tax Return if your calculated business privilege tax is over $100.
Additionally, you should renew your Business Privilege License.
Alabama LLC FAQs
The fee for an LLC filing is $200. However, if you want to file online, the fee is $208.
Starting in 2024, LLCs do not have to file an annual report with the Alabama Secretary of State. LLCs whose business privilege tax is calculated to be $100 or less are not required to file a Business Privilege Tax Return (PPT).
However, you must renew the Business Privilege License for your LLC and pay any renewal fees.
- Single-member LLC. Alabama allows a single-member LLC, an LLC owned by one member. They have the same formation and filling requirements as multi-member LLCs.
- Multi-member LLC. A multi-member LLC is when multiple people or "members" can own the LLC. The members name a person or a group of people as "manager-members" to operate the LLC.
- Professional LLC. State law does not explicitly allow for a professional LLC (PLLC) designation. However, it does allow for professional corporations. As long as the member or employee(s) rendering the service hold a license in that profession, an LLC may perform professional services.
- Series LLC. Alabama law allows the formation of Series LLCs (SLLC). These consist of an "umbrella" LLC and one or more individual LLCs that branch off the original.
A certificate of formation in Alabama proves the existence of the LLC. You may need a copy to show a bank to open a business banking account or get a line of credit. You can get a certificate by completing the Application for Certificate of Existence of Registered Entities and mailing it to the Secretary of State. You can also make an online request for a certificate of existence. The filing fee is $25 or $28 if done online.
A certificate of compliance, issued by the Alabama Secretary of State, verifies your LLC is approved in Alabama and compliant with state law. Other states refer to this as a certificate of good standing. If you are seeking investors, a bank loan, or want to register your LLC in another state, you may need one. You can order a certificate of compliance from the Alabama Department of Revenue for a $14 fee plus a $4 processing fee.
To set up an LLC in Alabama you need an acceptable business name and registered agent and office. Complete the LLC certificate of formation and file it with the Secretary of State. There is a requirement to file an initial business privilege tax return with the Alabama Department of Revenue within 2.5 months of creating your LLC.
An LLC has many advantages for small businesses. LLCs have a unique business structure that offers business owners liability protection and tax advantages. The LLC protects personal assets from the business operations of the LLC. The LLC avoids double taxation—business and personal—of corporations if taxed as a pass-through entity. Additionally, there are fewer reporting and recordkeeping requirements than other kinds of entities such as corporations.
There is an annual report called the Business Privilege Tax Return in Alabama. If your LLC operates on a calendar year, file the return by the 15th of April. Or by the 15th of the third month following the end of your business year.
You may have to file a Business Privilege Tax Return if your calculated business privilege tax is over $100.
Additionally, you must renew your Business Privilege License and pay any fees.
No, a certificate of formation is the initial document you file with the state to create your Alabama LLC. An operating agreement is an outline of the LLC’s management structure. Alabama does not require your LLC to have an operating agreement.
A bank or credit card company may want to see your operating agreement for you to open a business bank account or get a loan or credit card. Keep a copy of your operating agreement with your LLC formation documents.
Yes. If you have a trade name or brand that is different than the name of your LLC, you can register for a fictitious business name or "doing business as" (DBA) name. The trademark office at the Secretary of State’s office handles registration for a DBA in Alabama. There is a $30 fee.
The business license in Alabama is called the Business Privilege Tax, an annual license to do business in Alabama. Check with your local county or municipality for additional licenses you may need to operate your business.
Yes. Alabama offers online LLC formation on its website. You will have to set up a user account. The fee is $208. However, if you prefer, a business formation services company can file the paperwork for you.
If mailing forms for business services, send them to:
Secretary of State
Business Services
P.O. Box 5616
Montgomery, Alabama 36103
Registered agent service companies can handle the initial filing of your articles of organization, called a certificate of formation in Alabama. They can also maintain the status of your LLC.
The Alabama Secretary of State uses your registered agent as the point of contact for your LLC for service of process and other legal documents. There are advantages to using a registered agent service.
- Privacy: If your business is served with a lawsuit, it goes to the registered agent’s office address, not your place of business. Your customers aren’t alerted to any business disputes.
- Compliance: A missed annual filing or tax payment is costly and can jeopardize your business standing. They notify and remind you of important deadlines.
- Administrative Assistance: Busy entrepreneurs need help with paperwork and documents. They can get you the business documents you may need, such as a copy of your certificate of formation or certificate of compliance.
- Availability: The registered agent is open to accept service of process during regular business hours of 9 am – 5 pm, Monday through Friday. Depending on your business, you may not operate on that time schedule.
A domestic LLC is an LLC formed in the state of Alabama through the Secretary of State’s office. Once you receive confirmation that Alabama accepts your LLC’s paperwork, you have a domestic LLC.
If you want to register your LLC in another state, contact the Secretary of State in that jurisdiction to register as a foreign LLC. A certificate of good standing in Alabama is called a certificate of compliance. You file an application and pay a fee to that state. They may require a certificate of compliance to show your LLC is current with Alabama’s tax reporting and payment obligations. You can order it from the Alabama Department of Revenue for a $14 fee plus a $4 processing fee.
Any foreign (out-of-state) LLC that wants to do business in Alabama must fill out a Foreign LLC Application for Registration with the Alabama Secretary of State. There is a $150 filing fee.
If you want to close your business and dissolve your LLC, you must get an agreement from all the members. Complete the Alabama Dissolution Form with the Secretary of State’s office to dissolve an Alabama LLC. There is a $100 fee for dissolution. You can also do an online dissolution for a fee of $104.
Alabama does not offer anonymous LLCs at this time. Currently, only Delaware, Nevada, New Mexico, and Wyoming have anonymous LLCs. An anonymous LLC does not reveal the LLC’s member names in the articles of organization which is a public record. Some business owners use professional registered agent services to help with privacy concerns.
Disclaimer: The information presented here does not constitute legal advice or representation. It is general and educational in nature, may not reflect all recent legal developments, and may not apply to your unique facts and circumstances. Consider consulting with a qualified business attorney if you have legal questions.
How to Start an LLC in Other U.S. States
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