How to Start an LLC in Alabama: Step by Step

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Estimated reading time: 16 minutes

Always a powerhouse of industry, Alabama has continually evolved to attract new commerce and keep its existing businesses thriving. As entrepreneurs and professionals begin or further their business careers, the state makes an excellent option in terms of education and opportunity, thanks to Alabama’s numerous industries.

In fact, according to the Alabama Department of Commerce, Alabama offers thousands of available sites, a pro-business attitude, a diverse growth strategy, and top-notch workforce training.

So, let’s dive into how to start an LLC in Alabama step by step.

Choose a Business Entity for Your Alabama LLC 

To understand how to start a business in Alabama, you need to understand entity formation.  Limited Liability Companies (LLCs) and Corporations are the most popular business types.

Business formation is important because it sets your company apart as a professional company and not just a hobby.

Corporation

A corporation is a legal entity created separately from those who own and operate it. A corporation’s debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.

Limited Liability Company

LLCs are the most popular business structure, blending the aspects of corporations, partnerships, and sole proprietorships into a simple and flexible business entity. Like corporations, LLC formation protects the owner’s personal assets and also shields them from personal liability similar to a corporation. They also possess the “pass-through” tax benefits of a partnership.

There are two types of LLCs. LLC run by just own person (single-member LLC) and LLCs run by multiple people (multi-member LLCs)

Starting a LLC in IN can be difficult and confusing, especially as a first time business owner. But with a company like Inc Authority in your corner, you’ll not only have your LLC formed for you, but you’ll also get expert guidance beyond business formation, so you never have to wonder or worry about what to do next!

What About DBAs?

DBAs (which stands for “doing business as”) grant business owners the ability to conduct business under an assumed name. A DBA is also referred to as a fictitious business name and is an authorization by the state for your business to operate under an assumed name. 

For sole proprietors and owners of LLCs, DBAs offer an affordable way to gain legal recognition for the secondary name of your choice.

  • Sole proprietors: For sole proprietors starting a new business, DBAs are a budget-conscious way to gain legal status and work under a creative company name.
  • LLC owners: If the name on your LLC paperwork and your business name differ, DBAs offer the opportunity to operate as an LLC under a different legal name.

A DBA provides privileges like the ability to open a bank account, create enforceable contracts and establish federal employer tax status (getting an EIN). It’s possible to file multiple DBAs, allowing a single LLC to operate different businesses under the same legal umbrella. If you’re starting a business or expanding your LLC in AL, get the proper legal recognition early on to start off on the right legal footing. 

Our entity-setup service is 100% free.
We’ll waive our service charges, labor costs, and overhead. You only pay the state fees and postage, which are mandatory regardless of who incorporates for you. Start now for free!

Alabama LLC Filing Fee

The Alabama Secretary of State charges a $100 fee to file the Certificate of Formation. You must also pay a separate Probate Court filing fee, which is $50. In addition, you must reserve your business name by filing an LLC name reservation. This costs $28 to file online and $10 if filed by mail. When you compare this cost to Massachusetts’ $500 filing fee, you’ll realize how lucky you are to be in such an affordable state.

Create a Business Name

Under Alabama law, an LLC’s name must contain the words “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.” Your LLC’s name may not contain a word or phrase, which indicates or implies that it is organized for a purpose not contained in its articles of organization.

Your LLC’s name must be distinguishable from the names of other business entities already on file with the Alabama Secretary of State. You must reserve your LLC’s name with the Secretary of State before filing your LLC formation documents. You may do so online for a $28 fee.

Your proposed name will be automatically checked for availability, and you’ll receive your name reservation immediately at the end of the process. Or you can submit a Name Reservation Request Form by postal mail to the Alabama Secretary of State’s office. This requires a payment of $10. Before submitting the form, you should search the Alabama Secretary of State’s business name database to ensure your proposed name is available.

Using a Trade Name

You don’t need to use your LLC’s official legal name when you do business in AL. Instead, you can use a trade name, also called a “DBA” (short for doing business as), assumed name, or fictitious business name.

To do so in Alabama, you simply start using the trade name to identify your LLC in the state. You may also file an Application to Register Trade Name with the AL Secretary of State by mail and pay a $30 fee. Registration is not mandatory, but it does alert others that the name is in use in Alabama.

Alabama LLC Registration  

Let’s take a look at how to register a business in AL, including payables such as the cost, government fees, and so on.

File Certificate of Formation with County Probate Court

An Alabama LLC is created by filing a Certificate of Formation. Unlike most other states, the certificate is NOT filed with the AL Secretary of State. Instead, you must file it by postal mail with the Office of the Judge of Probate in the county where the LLC’s initial registered office is located. 

The Probate Court files the form and provides you with a stamped copy. The court then transmits the certificate to the Secretary of State, along with your fee. A list of the names and addresses of the probate judges for every Alabama county can be found at the Alabama Secretary of State website.

The certificate of formation must include the following information:

  • the LLC’s name
  • the name and address of the LLC’s registered agent
  • an indication whether the LLC is a series LLC, professional LLC, or non-profit LLC by checking the appropriate box–not applicable to most LLCs
  • the effective date the LLC will begin if different from the Certificate of Formation filing date, and
  • the signature of organizer or attorney-in-fact.

A copy of the Name Reservation certificate from the Secretary of State must be attached. The filing fee is $200 to the Secretary of State — plus a separate Probate Court filing fee, which is about $50.

Alabama State Filing Fee:$200
Alabama State Filing Time:10-14 business days
Annual Report$100

Mail to:

Secretary of State
Business Services
P.O. Box 5616 M
Montgomery, Alabama 36103-5616

Our entity-setup service is 100% free.
We’ll waive our service charges, labor costs, and overhead. You only pay the state fees and postage, which are mandatory regardless of who incorporates for you. Start now for free!

Alabama LLC Operating Agreement

An LLC operating agreement is not required in Alabama, but it is highly advisable. This is an internal document that establishes how your LLC will be run. It sets out the rights and responsibilities of the members and managers, including how the LLC will be managed. It can also help preserve your limited liability by showing that your LLC is truly a separate business entity. In the absence of an operating agreement, state LLC law will govern how your LLC operates.

Issues that should be defined by your LLC Operating Agreement include:

  • Member powers
  • Rules for meetings
  • Members’ voting rights
  • How your LLC will be managed
  • Guidelines for losses and profits
  • Buyout provisions

Once the operating agreement has been adopted, it will provide protection for the members of your LLC. When the members of your LLC have agreed on the terms of your operating agreement and have signed the document, you should keep the agreement in a secure location.

Inc Authority can remind you to do or do for you if you choose to have us handle the paperwork.

Get Your Employer Identification Number or EIN

The next step you’ll want to tackle is getting your EIN or Tax ID number (TIN). This number is like your business’s social security number, separating you from your business. This protects you from fraud and identity theft.

Additionally, an EIN is required by your bank to open a Business Checking Account, file tax returns, obtain payroll services and credit cards, and pay for any LLC cost that Alabama laws require.

To apply for your EIN, you’ll need to complete form SS-4, which can be found on the IRS website.

Assign a Registered Agent for your LLC in Alabama

There are an estimated 38 million home-based businesses in the U.S., so if you’re thinking about starting a business in your home, you’re definitely not alone.

But did you know that all businesses are required by law to have an address where they can accept service of legal documents (like a service of process) from the state or government agencies during normal business days and hours? Without an office, that would be your street address or P.O. box.

As you can imagine, that’s not always possible (or advisable) with a home-based or foreign-filed business. That’s where a registered agent comes in.

A registered agent is a responsible third-party in the same state as your business who receives official government notifications (usually tax forms and notice of lawsuits) on behalf of your LLC in AL.

Even if you aren’t planning on starting a home-based business or foreign LLC, having a registered agent is still advisable because it will:

  • Limit third party access to your personal information
  • Ensure that you never miss important documents
  • Protect the privacy of owners
  • Eliminate junk mail
  • Ensure you’re never served with legal papers in front of your clients
  • And more!

Setting up a Registered Agent Service

Every Alabama LLC must have an agent for service of process in the state. This is an individual or corporation that agrees to accept legal papers on the LLC’s behalf if it is sued. The agent should agree to accept service of process on behalf of the limited liability company prior to designation.

The registered agent may be (1) an individual residing in Alabama, (2) an Alabama business entity, or (3) an out-of-state business entity with an office in Alabama. The Secretary of State compiles a list of Alabama registered agents.

Learn more about our registered agent services here.

Open a Business Bank Account

To keep your personal and business expenses separate and to stay in good standing with the Internal Revenue Service (IRS), you need to open a business bank account for your LLC or corporation.

Setting up a separate bank account for your company makes it easier to for you do business, manage a cash balance, complete, and file your income tax returns with the AL Department of Revenue, deduct business expenses for taxes, conduct proper accounting, and execute employee payroll. Bank accounts also provide better protection in the event of legal action.

Additionally, business bank accounts create historical relevance through the relationship established with the bank, and can create unrestricted access to long-term funding options, business credit cards, and other financial solutions.

Types of Business Bank Accounts

Not all business bank accounts are created equal. That’s why it’s important to distinguish between the good, the bad, and the best business bank accounts.

Checking Accounts

A business checking is the most common type of business bank account and the first one you’ll want to open for your business. This because business check accounts allow you to: 

  • Accept deposits (over-the-counter cash, checks, credit card, and electronic deposits). 
  • Pay for business-related expenditures (payroll, taxes, business insurance, vendors, lenders, and everything imaginable that you’ll need to operate your business). 
  • Keep detailed records of all expenses and income.
  • Protect your money. This account is Federal Deposit Insurance Corporation (FDIC) insured, meaning you’re covered up to $250,000 by the federal government should anything happen to the bank or your money.
  • Support dual signatures. If you have a partnership or employees, you may wish to make it required that two signatures be present whenever a withdrawal or deposit is made.

Savings Accounts

This one should come as no surprise. A business savings account (like a personal savings accounts) lets you safely save money in a bank.  You don’t need this right away though, only when you have an abundance of capital sitting in your business checking account, will you need to open a savings account. It allows you to: 

  • Make saving money a habit. The most successful companies (think blue chips like Wal-Mart, Amazon, General Mills, Hershey’s, and General Electric) all have solid reserves of capital.
  • Protect your business during a cash-crunch. Incidentally, 80% of businesses fail because of cash flow problems.
  • Save money so that you don’t have to take out expensive business loans.
  • Maintain liquidity. With a business savings account, you can liquidate assets to buy equipment, purchase real estate, and make other big purchases for your business. 
  • Build business credit. Yes, having a business savings account can actually help you establish and build business credit.

Certificate of Deposits

A business certificate of deposit (CD) is a term account that offers maximum security and a guaranteed rate of return. You agree to lend your business’s money to the bank for a set period of time at an agreed-upon interest rate. The interest rates are usually higher than you’d receive from a business savings account or interest-bearing business checking account. 

Here are the main features of a business certificate of deposit:

  • It pays out 1% or more in interest. Some CDs pay over 2% in interest
  • You cannot liquidate the account until the term expires. This means you can’t spend the money. 
  • The longer the term, the higher the interest rate.
  • Different banks offer different term limits. Some CD terms are for a week, months, or even years.

Money Market Accounts

This is a lesser-known type of business a bank account and isn’t for every business owner. You’ll want this type of account if you have a lot of money saved, want higher interest rates than a business savings account or interest-bearing business checking account, but still want some access to your money.

Here are the main features of a business money market account:

  • Six withdrawals per month. 
  • Deposit money anytime.
  • Deposit as much money as you like.
  • Higher interest rates (currently between .1% and 1.6% APY)
  • Require a minimum balance.
  • Penalties if you withdraw more than six times in a month. Ask your banker what the penalty is if you withdraw more than six times.

How to Open a Business Bank Account

Opening a business bank account is as simple as gathering some information together and completing an application. Here are the steps to open a business checking account:

1.     Do your due diligence. Research different banks and discover what each one offers. Then decide which one will work best for your business type. An easy way to do this research is to check out some of our business bank reviews.

2.     Get a tax ID number. You can get one free EIN from the IRS. If you think you already have one, here’s how to look up an EIN.

3.     Gather your business formation documents (for LLCs and Corporations).

4.     Gather your business license or business name filing paperwork.

5.     Call the bank and find out what other items you’ll need to open a business bank account. Every bank has different requirements, so make sure you check with them first before attempting to open a business bank account. Sometimes this information will be listed on the bank’s website.

6.     Go in person or online to complete all necessary paperwork and submit your business documents.

At Inc Authority, we make getting a business bank account easy. How so? Well, when you form your business with us, you gain access to a free Bank of America business checking account. So, don’t wait! Form your LLC in AL today!

Tax and Regulatory Requirements

Additional tax and regulatory requirements may apply to your Alabama LLC. These may include:

EIN: If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN). This is necessary even if it has no employees. If you form a one-member LLC, you must obtain an EIN only if you elect to have it taxed as a corporation – instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website. There is no filing fee.

Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses. Check with the county probate office or county licensing commission for the county where your LLC office is located.

LLC Records: An Alabama LLC must keep the following records in its principal office and make them available for inspection by LLC members:

  • A current list of the full name and last known business or residence street address of each member, and each manager, if any.
  • A copy of the filed articles of organization and all amendments, and executed copies of any powers of attorney pursuant to which any documents have been executed.
  • The LLC’s federal, state, and local income tax returns and reports, if any, for the three most recent years.
  • Copies of any then effective operating agreements including any amendments, and financial statements of the LLC for the three most recent years.

File State Tax Return/Annual Report

Alabama requires LLCs to file a combined Business Privilege Tax Return and Annual Report with the Department of Revenue each year. The initial report (Form BPT-IN) is due 2.5 months after your LLC is formed. Subsequent reports (Form PPT) are due on or before 3.5 months after the beginning of the LLC’s taxable year. A minimum $100 tax must be paid each year. For details and tax forms, see the Alabama Department of Revenue website.

If you will be selling goods and collecting sales tax — or if you have employees — you need to register with the Alabama Department of Revenue. You can register online (via the My Alabama Taxes website) or on paper (using DOR Form COM:101Combined Registration/Application).

Getting Started with Your Alabama LLC

Forming a professional LLC or corporation in Alabama is an exciting opportunity, but like starting any business it can be overwhelming. Why not let the business experts at Inc Authority do all the heavy lifting for you?

We’ll form your LLC or corporation, run a business name check, get your EIN, and make sure you have all the licenses and permits needed to run your business. We can also advise you on the things you need to pay, such as LLC cost, AL state fees, and other payables.

Not to mention we offer a ton of free management and report tools to help make running your business as simple as possible. Please contact us or visit our website today to get started!

Incorporating is the most powerful thing you can do to legitimize your business. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your free LLC today and enjoy the protection due to you and your business under the law.

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