If you are considering starting an LLC in Alabama, this article is for you. This step-by-step guide will walk you through the process to get your Certificate of Organization (CO) and Limited Liability Company (LLC).
Forming an LLC is an excellent way to do business, and it's pretty simple when you follow the guidelines.
After years of working as a business consultant in the business formation world, I have learned that defined steps keep processes fast.
This is why I have decided to team up with legal and business professionals to test and try the process of opening an LLC in Alabama, so you don’t have to.
Quick Summary
- Starting an LLC in Alabama requires several processes, including selecting an original company name, locating a registered agent, submitting the articles of formation, and acquiring all required licenses and permissions.
- Creating an LLC has advantages like liability protection and pass-through taxation, but it also has cons like high taxes and extra costs.
- Open a different bank account for the LLC, keep company and personal finances separate, and think about purchasing business insurance as protection.
Form an Alabama LLC in 5 Easy Steps
You can have your Alabama LLC up and running within a day by following these simple steps:
- Choose a name for your LLC.
- Find your LLC's registered agent.
- Create and file your certificate of formation.
- Put together an operating agreement
- Make an EIN filing online with the IRS.
Follow these LLC formation steps, and you can rest easy knowing that your LLC is set up the right way.
You might also need business licenses, depending on the service you're providing, especially if you need a professional LLC that offers professional services such as attorneys or dentists.
If that's the case, you'll need to form a professional limited liability company.
If you need help with any of the steps, many experts can assist you at a low cost.
To give you an idea, here is a full guide on how much an LLC costs in Alabama.
Step 1: Come up with a Name for Your Alabama LLC
The first step to starting an LLC in Alabama is coming up with a business name.
Check to make sure your LLC name isn't already taken or reserved by checking for it on the state business website (lookup Alabama LLCs).
If you find that someone else has claimed your business name, try another one.
You can also reserve a business name ahead of time by paying a small fee and filing a name reservation certificate.
You can book a business name for your LLC online for up to a whole year in Alabama.
A good business name should accurately describe your business. It can be a combination of words, but it should not include numbers or symbols such as & or #.
It is essential to check the spelling carefully because the name will appear on official state business forms and paperwork.
Read our article for more information on how to change an LLC name in Alabama
Step 2: Get a Registered Agent
According to law, every LLC needs to have an LLC registered agent in Alabama. It is an individual or business entity that receives official papers on behalf of the LLC when something happens to it, such as being sued or getting sued.
Alabama registered agents can be individuals residing in Alabama or any business that has the legal authority to do business and maintain an office in Alabama (such as a law firm).
An Alabama registered agent will act as a person authorized to receive official papers, notices, and service of process for your LLC.
To get a registered agent for Alabama business entities, you need to be specific about the address that will serve as a registered office or principal place of business.
It is usually where legal documents are delivered & received by the company's own registered agent.
If you don't want to look for a registered agent on your own, you can also hire a registered agent service.
Registered agent services will not only offer a registered agent in Alabama but other services as well (such as tax returns & accounting).
Step 3: Submit Alabama Certificate of Formation
A certificate of formation is a document that states the business entity has been legally formed.
This certificate of formation must be filed with the Alabama Secretary of State before any legal operations can take place.
It will need to be submitted along with a $100 filing fee.
An Alabama LLC certificate of formation should include information such as the business name, the physical street address of the registered office & the registered agent.
It should also include the names and addresses of the organizer(s) or incorporators.
An LLC certificate in Alabama must be signed by a person with the authority to do so under state law.
This includes at least one member or someone who has been given the authority to sign on behalf of a member.
It must also include an original, certificate number and it should be filed in paper format with the Business Entities Division of Alabama Secretary of State [1].
Step 4: Formulate an Alabama LLC Operating Agreement
Alabama law does not require an LLC operating agreement. However, it is recommended to be put in place as all members should clearly understand any rules or regulations essential for operating an LLC business.
Operating agreements serve as "a roadmap" to your business and can include information such as:
- The purpose of the business
- The rights and duties of members
- How to transfer membership interest in the company
- Dissolution procedure
An operating agreement should be drafted by an attorney but can also be created with a template found online. While this is not required to form your LLC, it's highly recommended to have one for several reasons.
Attorney-backed Online operating agreement templates are drafted to include all rules and regulations that pertain to your business.
Having a template will also save you time in the long run, rather than creating operating agreements from scratch.
All members need to have a copy of the LLC operating agreement in Alabama.
Step 5: Receive an Employer Identification Number
If you plan on hiring employees, you'll need to obtain a federal employer identification number (EIN) from the IRS.
You can apply for this online by filing Form SS-4 with them on the IRS website [2].
It typically takes four weeks to receive a response, but it's recommended that you do so as soon as possible to ensure your business is compliant with federal and state laws.
Even if you don't hire employees, you need to get an EIN for your business.
This is the nine-digit number that identifies you as a company with the IRS and every other government agency, so it's best to apply for one even if you don't plan on hiring employees yet or at all.
You will need an EIN to open a business bank account, apply for business licenses and permits, register your employer with the Alabama Department of Labor (if you plan on hiring employees), etc. [3].
LLCs Need a Separate Business Bank Account
This particular type of checking or savings account is essential for many reasons.
For one, separating business funds from personal assets is an intelligent business practice.
It prevents people from using business money to pay off any personal debt they might have, like credit cards, student loans, or mortgages.
Another reason why an LLC needs its bank account is that it helps with tax purposes.
Alabama LLC Tax Requirements
Alabama LLC Tax requirements should not be neglected, as Alabama LLCs pay income tax on their profits. The LLC tax rate is 6.5%, plus a sales tax if applicable to your business.
If you need more information on sales tax for Alabama LLCs, please consult the Internal Revenue Service for accurate and up-to-date information [4].
If you want, you can choose to pay taxes as a C corporation or an S corporation. It's up to owners to decide how their Alabama LLC will get taxed.
In addition to that, LLCs in Alabama need to pay the annual privilege tax as well.
Business Privilege Tax
Alabama business privilege tax is due no later than three and a half months from the beginning of your company's tax year.
There are business privilege tax exemptions in Alabama, so if your business qualifies for any of them, please check with the Alabama State Department.
Related Articles:
- How to Cancel an LLC in Alabama
- How Long Does It Take To Get an LLC in Alabama
- Professional LLC Formation Services in Alabama
Why Form a Limited Liability Company in Alabama?
Making an LLC in Alabama offers personal liability protection, flexible management, and tax advantages for business owners.
To form an LLC in Alabama, follow these steps: Choose a name, file Articles of Organization with the Secretary of State, appoint a registered agent, create an Operating Agreement, obtain necessary licenses and permits, and obtain an Employer Identification Number (EIN) from the IRS.
FAQs
Are Alabama LLCs Easy to Start?
Alabama LLCs are relatively easy to start compared to traditional businesses, which require a lot of effort and time.
Can I Set Up an LLC in Alabama on My Own?
You can set up an LLC in Alabama on your own, but it is always better to seek professional business support.
Do I Need a Certificate of Existence for My LLC in Alabama?
You do not need to file for a certificate of existence in Alabama. While some states may require it, this step is included within other filings, and your registered agent should complete it.
Is It Worth It to Start an LLC in Alabama?
It is worth it to start an LLC in Alabama. It provides you with personal liability protection, tax flexibility, and more growth opportunities.
What Is the Easiest Alabama LLC to Start?
The easiest LLC to start in Alabama is a sole proprietorship. This type of business structure requires no management or maintenance, which means you can focus on running your own company rather than spending time on other responsibilities.
Can I Start a Foreign LLC in the State of Alabama?
You can start a foreign LLC in the state of Alabama. All you have to do is register your business with the Alabama Secretary of State. You can file online since online LLC registration is possible in Alabama.
Starting an LLC in Alabama: Is It Worth It?
Establishing an LLC in Alabama takes multiple factors, so it's advisable to avoid taking any chances or making mistakes by doing things on your own.
Before finding ZenBusiness, which quickly became our favorite solution for starting a new business, we tried a lot of different professional service providers.
With the assistance of qualified legal advisors, accountants, tax specialists, etc., there is no reason why your new venture cannot succeed right off the bat, so get ready to start your Alabama LLC today.
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ZenBusiness
References:
- https://www.sos.alabama.gov/business-entities
- https://www.irs.gov/pub/irs-pdf/fss4.pdf
- https://www.labor.alabama.gov/
- https://www.irs.gov/
