How to Form an LLC in Alabama in 7 Steps
A limited liability company (LLC) is a business entity that many entrepreneurs choose to organize themselves when they are just getting started. 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. Alabama law requires that the Alabama business name be unique and different from any other company's name.
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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. 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
Alabama law requires you 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. 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. 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
You can also use a business formation service company to reserve your business name and file the paperwork.
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.
File Beneficial Owner Information Report (BOIR)
After you form your LLC, you must file a Beneficial Ownership Information Report (BOIR) with FinCEN. The BOIR is a new requirement. If you create your LLC in 2024, you must file within 90 days from the day your LLC received notice of its creation/registration or 90 days from the day the Secretary of State or similar office first provided public notice of your company’s creation/registration, whichever is earlier. If you form your LLC in 2025, you must file within 30 calendar days from the date you receive actual or public notice of the LLC’s creation or registration.
To file a BOIR, visit www.fincen.gov/boi and select “File BOIR." To complete your BOIR, you must provide information regarding your LLC, its beneficial owners, and its applicants. Your LLC’s applicants are those who directly filed the document that created or registered the LLC or were responsible for controlling the filing. Beneficial owners are people who have substantial control over the LLC and/or own a minimum of 25% of the ownership interests of an LLC.
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
In Alabama, your LLC registers for a business privilege license. However, 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.
To keep your Alabama LLC in good standing, keep up with annual filing and tax requirements. Many of the requirements that will apply to your LLC are outlined below.
File Annual Business Privilege Tax Return in Alabama
The year after filing the Initial Business Privilege Tax return, the LLC must file an annual report with the Alabama Department of Revenue. The report is due by April 15th of the following year if your LLC follows the calendar year. Otherwise, the report is due on the 15th of the third month following the end of your LLC's business year.
- An LLC operating as a "pass-through" entity files a PPT form.
- An LLC elected to be treated as a corporation files a CPT form.
Pay Annual Business Privilege Tax in Alabama
Alabama calculates the state tax based on your federal income tax. For tax years after December 31, 2023, there is an exemption on tax due of $100 or less.
Additonally, starting in 2024, LLCs do not have to file an annual report with the Alabama Secretary of State.