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Alabama is experiencing a notable increase in new business endeavors, with most counties seeing more business growth during and after the pandemic compared to before. In 2021 alone, the state saw an impressive $7.7 billion in new capital investment and over 10,000 new jobs created. This remarkable growth is sparking interest in establishing new companies in Alabama.
Forming an LLC in Alabama can be a straightforward process, but it does require careful preparation. To assist you in this endeavor, we have created a concise step-by-step guide for setting up your Alabama LLC.
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How to Start an LLC in Alabama State – Step-by-Step Guide
To initiate the formation of an Alabama LLC, the first essential step is to submit a Certificate of Formation to the Alabama Secretary of State. You have the option to apply online or via mail for a fee of $200.
Follow our comprehensive How to Start an LLC in Alabama guide for a detailed walkthrough of the process:
- Select a Name for Your Alabama LLC
- Designate a Registered Agent in Alabama
- Complete and Submit the Certificate of Formation
- Draft an Operating Agreement
- Obtain an Employer Identification Number (EIN)
- Secure a Business Privilege License
- Address Business Privilege Tax Requirements
- Explore Business Insurance Options in Alabama
- Familiarize Yourself with Financial Considerations
- Promote and Market Your Alabama LLC
Alternatively, you can simplify the LLC formation process by utilizing professional services such as ZenBusiness, Swyft Filing, or Tailor Brands.
Step 1 – Reserve Your LLC Name With the Alabama Secretary of State
To kickstart the formation of your Alabama LLC, the initial step involves reserving a name for your business. This name must adhere to three specific criteria:
- It should include the terms “limited liability company,” “LLC,” or “L.L.C”
- It must be distinct from any other registered business entity in Alabama
- It should not contain language that could mislead consumers regarding the nature of the business’s services
Reserving your business name in advance guarantees its availability once all the necessary paperwork is in order. This can be accomplished by filing online using the forms provided by the Alabama Secretary of State’s interactive website. A $25 fee is associated with this process, and it’s important to save your digital certificate after submission, as it won’t be sent to you via mail.
In some cases, business owners may prefer not to use the full business name for all activities. In such instances, you can opt for a “DBA” (Doing Business As) name.
Alabama has a unique requirement that you must actually use your DBA name in business operations before registering it with the state. To register a DBA name, you can follow the instructions provided on the Secretary of State’s website, and keep in mind that you’ll need to renew it every five years.
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Step 2 – Designate a Registered Agent
Engaging in business activities within Alabama necessitates having a permanent address within the state. During your research on how to establish an LLC in Alabama, you’ll encounter the concept of “registered agents.” While it might initially seem complex, a registered agent is essentially an individual or entity designated to receive official correspondence from the state and IRS on behalf of your business.
Numerous businesses offer registered agent services for a regular fee. Choosing an Alabama-registered agent is a straightforward process, whether you search online or pick from a list of agents provided by the Alabama Secretary of State.
While you have the option to act as your own registered agent, it may not always be practical. Registered agents are required to be physically present at the designated address to receive correspondence during regular business hours.
Moreover, if you meet with clients at your registered address, there is a possibility of being served with legal documents in front of them. In such cases, it could be worthwhile to invest in the services of a registered agent company, allowing you to concentrate on the growth of your business.
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Step 3 – File a Certificate of Formation
The most pivotal step in understanding how to establish an LLC in Alabama involves the Certificate of Formation. This document provides the government with essential information about your business, including:
- The business name clearly indicates that it’s an LLC
- The address of the registered agent
- The name of the registered agent
- Confirmation of at least one LLC member
- For “series LLCs,” a statement regarding the enforceability of obligations and expenses
- Any other pertinent details that the LLC members deem necessary
To submit this form, it must be typed and can be done either by mail or online. If you choose the mail option, send the following items in an envelope addressed to the Secretary of State, Business Services, P.O. Box 5616, Montgomery, AL 36103:
- Two completed copies of the Certificate of Formation, along with the Name Reservation Certificate
- A self-addressed, stamped envelope
- A check, money order, or credit card payment form (available in the online form) for the amount of $200.00
For online filing, follow the instructions provided on the Secretary of State’s website, and the filing fee will amount to $208, payable via credit card or bank account.
When researching how to initiate an LLC, you’ll come across various options. In Alabama, another possibility is converting a different type of business into an LLC using this form. When completing the Certificate of Formation, Alabama offers three LLC types to choose from:
- Series LLC, which functions as part of a larger entity
- Professional LLC, catering to services provided by licensed professionals such as doctors, lawyers, or accountants
- Non-Profit LLC, engaging in charitable activities
If any of these options apply to your LLC, it’s advisable to consult with a legal or tax professional to explore your choices, as additional tax deductions or obligations may be applicable based on your selection.
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Step 4 – Create an Operating Agreement
While it’s not a legal requirement, creating an operating agreement is a vital step in the LLC formation process. This document outlines the policies and procedures that will govern your business. This is especially important if your Alabama LLC has multiple members, as an operating agreement can help you avoid legal complications and provide clear expectations for members, customers, and employees.
As you draft your operating agreement, it may prompt you to address aspects of your business that you may not have considered before. It also serves as legal documentation of your ownership of the business. Typically, operating agreements cover a range of topics, including but not limited to:
- The process for transferring membership interests
- Voting rights of members
- Contributions made by members to the business
- How profits, losses, and distributions will be shared among members
- Management structure
- Compensation arrangements
- Bookkeeping and financial procedures
- Procedures for dissolving the LLC
When starting a business, it can be challenging to determine how to proceed. It’s advisable for an Alabama LLC to have an operating agreement in place from the start, as it can always be amended later if needed.
One important decision to make is whether your LLC will be “member-managed” or “manager-managed.” In a member-managed LLC, all members collectively make day-to-day management decisions. In a manager-managed LLC, the operating agreement designates specific members responsible for day-to-day management tasks. Including this detail in the operating agreement is crucial to avoid confusion in the future.
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Step 5 – Request an IRS Employer Identification Number (EIN)
Following the formation of your LLC, the next step is to apply for an EIN (Employer Identification Number) from the IRS, also referred to as a federal tax identification number. This unique identifier is primarily used for tax-related purposes but can also be instrumental in activities like opening a business bank account. If you’ve converted another business type into an Alabama LLC, you will likely require a new EIN.
It’s essential to ensure that you review the specific state requirements for initiating an LLC. In the case of hiring employees in Alabama, you will also need an Alabama income tax withholding number, which can be obtained by registering with My Alabama Taxes.
However, there’s no need to request an EIN if your business falls under the following conditions:
- Single-member LLC.
- No employees on the payroll.
- The business does not engage in activities that involve “excise taxes,” which are special taxes levied on specific goods and services such as alcohol, cigarettes, fuel, heavy vehicles, and so on.
In such cases, the owner of the business can use their Social Security number for tax-related purposes.
>> Secure Your EIN With ZenBusiness >>
Step 6 – Get a Business Privilege License
In Alabama, every business is obligated to obtain a business privilege license, and it’s a requirement to purchase this license in each county where your business operates. You can acquire these licenses directly from the local county probate judge.
Step 7 – Sign Up for Business Privilege Tax
Every LLC engaged in business activities in Alabama must file an annual PPT (Privilege Tax Form for Pass-Through Entities) by the third week of April. The tax rate for this PPT typically ranges from 0.00025% to 0.00175% of your LLC’s net worth.
Step 8 – Examine Business Insurance Options in Alabama
Securing insurance for your Alabama LLC is a critical step in risk management, allowing you to concentrate on business growth. Typical insurance options for Alabama businesses encompass:
- Workers’ compensation insurance: Alabama businesses are obliged to have workers’ compensation insurance if they employ five or more individuals.
- General liability insurance: General liability insurance offers comprehensive protection against legal actions and financial losses arising from property damage and workplace injuries, such as a customer slipping and falling on your premises. While not mandated by state law, many commercial leases may necessitate this coverage.
- Professional liability insurance: Professional liability insurance safeguards against financial losses stemming from errors or poor advice in professional services, spanning consultancies, accountants, medical professionals, or real estate agents, among others.
>> Explore Comprehensive Business Insurance With ZenBusiness in Alabama >>
Step 9 – Understand Financial Considerations
Beyond insurance, there could be additional financial commitments when establishing your Alabama LLC. These might encompass expenses such as leasing a physical retail location, investing in a professionally designed website or social media management, procuring equipment and software, and hiring contractors or professionals like lawyers and accountants to aid your business.
If you require assistance with covering these costs, there are resources accessible to entrepreneurs to secure startup funding.
Step 10 – Market Your Alabama LLC
After completing the initial administrative startup tasks, it’s time to raise awareness about your Alabama LLC and set it apart with an effective marketing campaign. A well-rounded marketing strategy for your small business should encompass the following components:
- Market research: Prior to promoting your products or services, it’s crucial to conduct market research. This involves understanding your target customer and gaining insight into your competitors’ activities.
- Advertising: Boost the visibility of your LLC through advertising channels such as print, TV, radio, or digital media. Alternatively, you can enlist the services of an agency to handle this aspect for you.
- Social media: Establish a strong presence for your small business on social media platforms like Facebook, Instagram, and YouTube. Engaging with your audience through these channels can be highly beneficial.
- Public relations: While paid advertising has its merits, it’s important to complement it with public relations efforts. Building connections with local and national media organizations can help increase your business’s visibility and credibility.
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How to Start an LLC in Alabama – Buyer’s Guide
What Is an LLC?
An LLC, short for “Limited Liability Company,” is a business structure that offers protection to its owners, known as “members,” from being personally liable for the business’s actions. Even solo entrepreneurs can establish LLCs to safeguard their personal assets in case the business encounters financial difficulties. Typically, creditors can only go after the company’s assets and not the personal assets of the LLC members.
The formation of an LLC is subject to state-specific regulations, and the process for creating one in Alabama has its own unique requirements. Generally, these requirements include selecting a business name that clearly identifies it as an LLC, paying the necessary filing fees, designating a “registered agent” responsible for handling legal and business communications, and obtaining an IRS identification number.
It’s important to note that certain businesses, particularly those requiring professional licenses, may not be eligible for LLC status, depending on the state’s laws. In Alabama, LLCs can offer professional services as long as their members hold the required state licenses. It’s worth mentioning that licensed professionals may not enjoy the same level of liability protection as non-professional LLC members, as licensed individuals are held to higher professional standards.
Is an LLC the Best Business Structure for Me?
An LLC structure is a suitable choice for your business if you desire legal protection without the additional administrative complexities associated with establishing a corporation. By default, an LLC follows a tax arrangement where your business income is taxed at your personal income tax rate, a system known as “pass-through” taxation.
Unlike corporations, LLCs are not subject to separate taxation; instead, they pass their income through to their members. Corporations, on the other hand, are distinct legal entities that pay taxes on their profits, with owners also being taxed on the income they receive from the corporation. This results in a scenario often referred to as “double” taxation.
If you prefer, you can opt to have your LLC taxed as a corporation by submitting an election form to the IRS. For a comprehensive assessment of the advantages and disadvantages associated with each tax status, consulting a certified accountant is advisable.
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How Much Does it Cost to Start an LLC in Alabama?
Commencing an LLC in Alabama involves various fees for mandatory filings. While establishing a completely free LLC in Alabama is improbable, the process entails several essential expenses. Firstly, to reserve the LLC’s name, non-subscribers will need to pay $28.00, while subscribers have the option of paying $27.00 online or $25 plus postage if they choose to submit via mail.
Should you decide to cancel the name reservation, there is a $4.00 fee in addition to postage costs. The subsequent step is acquiring the Domestic LLC Certificate of Formation, which carries a price tag of $208.00 when submitted online or $200 plus postage when sent by mail.
For those establishing a Foreign LLC, the Certificate of Formation comes at a cost of $156.00 online or $150.00 plus postage for mail submissions. It’s crucial to take these fees into account when budgeting for the initiation of an LLC in Alabama.
LLC Formation Service in Alabama
Online LLC services provide an affordable and convenient option for startups. These services offer a range of pricing packages, allowing businesses to tailor the formation process to their specific needs. Some of the features they offer include:
- A user-friendly dashboard for storing and accessing important documents
- Registered agent services, eliminating the need to find your own
- Assistance with applying for an Employer Identification Number (EIN)
- Live expert support during the information input process
- Tax preparation and advisory services
Below, we highlight some of the most widely used LLC formation services:
ZenBusiness
ZenBusiness is an online service for LLC formation that caters to entrepreneurs and small business owners, providing them with a suite of tools to kickstart and expand their companies. They offer cost-effective and all-encompassing LLC formation packages, encompassing services like registered agent assistance and annual report filing, among others.
ZenBusiness extends ongoing support and valuable resources to assist businesses in maintaining compliance and achieving success.
Swyft Filings
Swyft Filings is a specialized LLC formation service known for its speed and simplicity in the LLC creation process. They offer a broad spectrum of LLC-related services, ranging from incorporation to compliance and registered agent support. Swyft Filings also offers personalized guidance to help businesses navigate the intricacies of LLC formation and adhere to state and federal regulations.
>> Start Using Swyft Filings >>
Tailor Brands
Tailor Brands, on the other hand, is an online branding and design service designed to aid businesses in crafting a polished and consistent brand identity. Their offerings encompass various branding packages, such as logo design, business card creation, and social media branding. Tailor Brands equips businesses with design tools and resources to craft and tailor their branded assets to their unique needs.
How to Start an LLC in Alabama – FAQs
Can I Form an LLC Online?
While most LLC paperwork in Alabama can be submitted online with the possibility of an additional processing fee, there is also a mail-in option available to avoid this fee. However, for the mail-in option, your forms must be typed and printed. Opting for online filing is generally the fastest and most convenient method for establishing an Alabama LLC.
If you’re wondering how to initiate the process of forming an Alabama LLC, you can enlist the services of an Alabama LLC formation company. They can assist you in gathering the necessary state-specific paperwork and guide you through the filing process, typically for a fixed fee.
This can ultimately save you both time and money, particularly if you’re unfamiliar with the filing process and want to reduce the likelihood of errors.
Can I Start an LLC in Alabama if I Don’t Live There?
If you’re considering starting an LLC in Alabama but reside in another location, there are a couple of options to explore. First, assess whether you truly need an Alabama LLC or if it’s more appropriate to register as a foreign entity to conduct business within the state. If your primary business operations will be in Alabama, you can establish an Alabama LLC even if you live out of state, provided you have a registered agent based in Alabama.
Alternatively, you can opt to file as a foreign LLC. This means your LLC was originally formed in another state, but you intend to expand your operations into Alabama as well. To achieve this, follow these steps:
- Appoint a registered agent in Alabama
- Submit a Certificate of Name Reservation
- Register the LLC, either online for $156 or by mail for $150 plus postage
Read more: Cost to Start an LLC
What Kind of Tax Flexibility Does an LLC Provide?
LLCs have the flexibility to choose their tax classification, which can include options like sole proprietorships, partnerships, C corporations (C-corps), or S corporations (S-corps). This selection enables LLC members to effectively manage and reduce their tax obligations.
>> Launch Your Alabama LLC With ZenBusiness Now >>
