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).
It would be best if you started with a name that satisfies the criteria set by the Alabama Secretary of State. If it does not, then they can refuse your application.
You'll learn all you need to know about operating agreements, certificates of formation, and taxation of LLCs in this article. Once you're done reading this, you should be more than well-equipped to conduct business as an LLC and become the business owner you've always wanted to be. Forming an LLC is an excellent way to do business, and it's pretty simple when you follow the guidelines.
LLC registration is a straightforward process, so if you're ready, it's time to learn how to start your Alabama limited liability company today.
Why Form a Limited Liability Company in Alabama?
There are many benefits to starting an LLC in Alabama. For one, they are pass-through entities (meaning they do not pay tax on the company level).
All income and expenses get passed through to the members of the LLC.
This can reduce your overall taxation rate because you'll be taxed as a sole proprietor or partnership rather than a corporation.
An Alabama LLC can also help you with estate planning. It's a lot easier to transfer LLC interest than it is to distribute real property in your will.
The LLC can be the owner of certain assets, such as bank accounts and investments that could potentially be very difficult for family members to claim after your death.
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 business.
- Find your LLC's registered agent.
- Create and file your limited liability company 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 limited liability company 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, there are many experts who can assist you at a low cost.
Step 1: Come up with a Name for Your Alabama LLC
The first step in Alabama LLC formation is coming up with a business name.
Check to make sure your LLC name isn't already taken or reserved by checking for it at 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 & and #.
It is essential to check the spelling carefully because the name will go on official state business forms and paperwork.
Step 2: Get a Registered Agent
According to law, every LLC needs to have a 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.
In order to get an 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 an agent on your own, you can also hire a registered agent service.
Registered agent services will not only offer agents 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 agent's address.
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 authority to do so under state law.
This includes at least one member or someone that 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.
Step 4: Formulate an Alabama LLC Operating Agreement
An LLC operating agreement is not mandated by Alabama law. 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 serves 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.
It's important for all members to have their own copy of the LLC operating agreement.
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.
It typically takes four weeks to receive a response, but it's recommended that you do so as soon as possible in order 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 business bank accounts, apply for business licenses and permits, register your employer with the Alabama Department of Labor (if you plan on hiring employees), etc.
LLCs Need Separate Business Bank Accounts
If you've decided to start an LLC, your business will likely need its own 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 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 own bank account is that it helps with tax purposes.
Alabama LLC Tax Requirements
Alabama LLCs pay income tax on their profits. The 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 Internal Revenue Service for accurate and up-to-date information.
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 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 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.
How Long Does It Take To Get LLC in Alabama?
It takes about two to three weeks for you to receive an LLC certificate from the Alabama Secretary of State office.
You can expedite this process by submitting an online application with appropriate fee payment, which will get your company registered within 24 hours.
Is an LLC Easy to Start?
LLC is relatively easy to start compared to traditional businesses, which require a lot of effort and time.
Creating an LLC is the first step your company takes in its journey towards success.
With limited liability protection for business owners' assets, this legal structure offers many benefits not available with other forms of business organization.
Can I Set Up an LLC on My Own?
Yes, you can set up an LLC on your own, but it is always better to seek professional help.
There are many resources available online that provide step-by-step guides and tutorials for new businesses owners. However, nothing can replace the advice of a professional.
Do I Need a Certificate of Existence for My LLC in Alabama?
No, you do not need to file for a certificate of existence in the state. While some states may require it, this step is included within other filings, and your agent should complete it.
How Much Money Does It Take To Start an Alabama LLC?
It takes a minimal amount of money to start an LLC in Alabama. The total cost will depend on the type of company you plan to form, but it is usually between $100 and $400.
Is It Worth It to Start an LLC?
Yes, it is worth it to start an LLC. It provides you with personal liability protection, tax flexibility, and more growth opportunities.
What Is the Easiest 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?
Yes, 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: Conclusion
If you are looking to set up an Alabama LLC, consult with a professional.
Many considerations need to be made when establishing this type of business entity, and it's best not to take any chances or make mistakes by doing things yourself.
You should always seek help from professionals if you want your new company to succeed for years to come.
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.