How to Start an LLC in Alabama (step-by-step Guide)

Start an LLC In Alabama

Whether you are a first-time entrepreneur or looking to expand an existing business, knowing how to start an LLC in Alabama can set you on the right path. With just a few steps, you can protect your assets and have a solid foundation for your business.

To establish your LLC successfully, you must choose a unique business name, designate a registered agent, and file an article of organization.

But there’s more.

Filing your Certificate of Formation costs $200, and there is a yearly fee of at least $50 for Business Privilege Tax (BPT).

If you file your LLC by mail, it will be approved in 1-2 business days (plus mail time), but if you file online, your LLC will be approved immediately.

This guide will walk you through the process, ensuring you meet all requirements for creating an LLC in Alabama and saving time and money.

What Are the Steps to Start an LLC in Alabama?

To start an LLC in Alabama, you need to:

  • Step 1. Search and choose a unique name
  • Step 2. Designate a registered agent in Alabama
  • Step 3. File certificate of formation with the state
  • Step 4. Create an Operating Agreement
  • Step 5. Get an EIN from the IRS
  • Step 6. File your Initial Business Privilege Tax Return
  • Step 7. File a BOI Report

Let us dive more in-depth into these steps so I can show you how to get them:

Step 1: Search and Choose a Name for Your Alabama LLC

Choosing a name for your Alabama LLC is an essential first step. You must select a unique name that stands out and meets Alabama’s requirements.

Search your desired name using the Secretary of State’s Business Entity Search tool.

Here are the critical requirements for your LLC name:

  • It must include “limited liability company,” “LLC,” or “L.L.C.”
  • It cannot be the same as any other registered business in Alabama.
  • Avoid words that could mislead the public about the business services.

If you want to secure your chosen name, consider reserving it. For a $25 fee, you can file for a Name Reservation Certificate online through the Alabama Secretary of State forms on the interactive website.

Be sure to save the digital certificate, as it will not be mailed to you.

If you prefer to use a different name for your day-to-day business, you can register a DBA (Doing Business As) name.

Note

Alabama stands out from other states by requiring you to use your DBA name in business before you can officially register it with the state. To register your DBA, simply follow the steps outlined on the Secretary of State’s website. Remember, you’ll need to renew your registration every five years.

Step 2: Choose a Registered Agent for Your Alabama LLC

A registered agent is a person or service that acts as your business’s official contact for your Alabama LLC. They receive critical legal documents, tax notices, and other official mail for your business.

Who Can Be a Registered Agent?

You have a few options for selecting a Registered Agent in Alabama:

  • You: You can act as your agent.
  • Friend or Family Member: A trusted person can fulfill this role.
  • Registered Agent Service: You can hire a service that specializes in this.

Requirements for Alabama Registered Agents

Alabama law requires registered agents to have a physical street address, not just a P.O. Box. The address must be where the agent can consistently receive legal documents and official mail during regular business hours.

Additionally, the registered agent must be at least 18 years old and available to accept service of process. This means they must be present to handle any legal notices or court documents delivered to the LLC.

Warning

Your registered agent’s name and address will be listed on public records for everyone to see. If you don’t have an address in Alabama or want more privacy, I recommend hiring a Registered Agent Service for your LLC.

What registered agents do I recommend for Alabama?

I highly recommend Northwest registered agent services for obvious reasons.

They offer a range of benefits that set them apart, including a free year of registered agent service, which helps you save (about $300) on initial costs.

You’ll receive a complimentary operating agreement essential for outlining your LLC’s internal structure. My favorite part? Northwest also allows you to use their office address for your LLC filing, keeping your address off public records and enhancing your privacy.

Their free email forwarding service ensures you stay on top of important correspondence, and their exceptional customer support is always available to assist you whenever needed.

When you hire Northwest registered agent to form your Alabama LLC, you’ll get a free year of Registered Agent service and pay just $39 + state fees today. To learn more, read my Northwest registered agent review.

Step 3: Prepare and File an Alabama LLC Certificate of Formation

This is the most crucial step to learning how to start an LLC in Alabama — the certificate of formation tells the government several vital pieces of information about your business.

To file your Certificate of Formation, follow these steps:

Step #1. Complete the Form: Obtain and complete the Certificate of Formation from the Alabama Secretary of State. You need to provide:

  • Business name, including the indication it’s an LLC
  • Registered agent’s address
  • Registered agent’s name
  • Confirmation that there is at least one member of the LLC
  • If the LLC is a “series LLC,” a statement on the enforceability of obligations and expenses.
  • Any other matters the members think should be included
Note

If you’re looking to start a foreign LLC in Alabama, make sure to fill out Foreign LLC Application for Registration with the Alabama Secretary of State and you will receive an Alabama certificate of authority.

Step #2: File Online: You can file your certificate of formation online through the Alabama Secretary of State website. Your filing fee will be $208, payable by credit card or bank account.

OR

File by mail: You can also file your certificate of formation by mail. You will send the following items in an envelope:

  • Two copies of the completed Certificate of Formation, with the Name Reservation Certificate attached
  • A self-addressed, stamped envelope
  • A check, money order, or credit card payment form (provided in the online form) for $200

The envelope should be addressed to:

Secretary of State, Business Services
P.O. Box 5616
Montgomery AL 36103

Note

Before submitting your form, you must prepare it electronically. In Alabama, you can choose from three types of LLCs: Series LLC (part of a larger entity), Professional LLC (for licensed professionals), and Non-Profit LLC (charitable activities). Consult a legal or tax expert if one applies to your business to understand potential tax benefits or obligations.

Step 4: Prepare Your Alabama LLC Operating Agreement

An operating agreement is an essential internal document for your LLC in Alabama. It outlines how your business will operate and sets clear policies for you and your members.

While Alabama doesn’t require an operating agreement, it is wise to create one. This document helps prevent misunderstandings and provides structure for your business activities.

When drafting your agreement, include details on the following:

  • Membership Interests: How members can transfer their ownership.
  • Voting Rights: How decisions will be made among members.
  • Financial Contributions: What will each member contribute to the LLC?
  • Profit and Loss Distribution: How profits and losses will be shared among members.
  • Management Structure: Decide whether your LLC will be member-managed or manager-managed.
  • Compensation: Any pay structure for members.
  • Bookkeeping: How financial records will be maintained.
  • Dissolution: Procedures for closing the LLC if needed.

Having an operating agreement also serves as proof of ownership of your business. Many banks will ask for this document when you open an LLC bank account, so it’s essential to have one ready.

Remember, keep a copy safe with your business records. It’s an internal document, meaning you won’t file it with any government agency. Creating your operating agreement sets a solid foundation for your LLC.

Looking to save time? Consider hiring a company to form your Alabama LLC: Northwest ($39 + state fee). You also get a free registered service – saving $300 in formation costs. Read my Northwest registered agent review here.

Step 5: Obtain an EIN for Your AL LLC

An Employer Identification Number (EIN) is a unique nine-digit number the IRS assigns. It identifies your business for tax purposes.

You will need an EIN to open a bank account, hire employees, file taxes, and apply for business licenses and permits.

How to Apply for an EIN:

  • Online: Visit the IRS website. This is the fastest way to get your EIN.
  • By Mail: Fill out Form SS-4 and send it to the IRS. This option takes longer.
  • By Fax: You can also fax the completed Form SS-4.
  • Phone: U.S. residents can call the IRS at 1-800-829-4933 to apply.
Note

In Alabama, you don’t need an EIN if you have a single-member LLC, do not hire employees and your business does not file excise tax. An owner of such a business will simply use their Social Security number for tax purposes.

How Much Does It Cost To Get EIN?

Obtaining an EIN is free of charge. The application process is quick, often taking just a few minutes online. You can receive your EIN immediately if you apply through the IRS website.

How Does it Take to Obtain my EIN?

  • Online: Get it immediately.
  • By Mail: Expect 4 to 6 weeks.
  • By Fax: Usually within 1-2 weeks.

Both U.S. residents and non-residents can apply for an EIN. However, the application process differs slightly: U.S. citizens and residents with an SSN or ITIN follow one procedure, while non-residents or foreigners without an SSN or ITIN follow a different process.

Step 6: File your Initial Business Privilege Tax Return

Once your LLC is formed, you must file your Initial Business Privilege Tax (BPT) Return. This is required annually for all LLCs in Alabama.

Your Initial BPT is due 2.5 months after your LLC formation. For instance, if you formed your LLC on August 13, 2024, the due date would be October 27, 2024. Make sure to mark your calendar.

The Initial BPT has a minimum fee of $50. However, you might need to pay more based on your net worth and federal income taxes. It’s wise to consult with a tax professional for accurate guidance.

You can file your LLC’s Initial Business Privilege Tax online or by mail. I highly recommend the online filing because it’s easier to complete.

You can follow these instructions to file yours.

Step 7: File a BOI Report

Remember the federal Beneficial Ownership Information (BOI) reporting requirement when forming an LLC in Alabama.

You must file a BOI report with the Financial Crimes Enforcement Network (FinCEN) within 90 days of your LLC’s creation. T

This is free to file and can be done online. During the formation process, gather information about your company and beneficial owner.

What are the Different Methods To Start an Alabama LLC?

You can choose from three main methods to start your LLC in Alabama: handling it yourself, using online services, or hiring an attorney. Each option has its benefits and challenges, depending on what you prefer.

DIY LLC Formation in Alabama

Starting your LLC on your own is a direct method. You will fill out the Alabama Certificate of Formation and submit it along with the filing fee. This gives you complete control over the process.

Pros:

  • Cost-Effective: You won’t spend money on fees for services.
  • Control: You manage each step and decision.
  • Learning Opportunity: Gain knowledge about the LLC formation process.

Cons:

  • Time-Consuming: It may take longer if you are unfamiliar with the steps.
  • Complexity: You must accurately complete all forms.
  • Privacy Issues: If you act as your registered agent, your address becomes public.
  • Lack of Guidance: You may overlook essential requirements.

Using a Professional/Online LLC Formation Services

Online services can simplify the LLC formation process for you. They handle most paperwork and guide you through each step, saving you time and effort.

Pros:

  • Convenient: These services manage filings on your behalf.
  • User-Friendly: Their platforms typically include clear instructions.
  • Support Available: Customer service is often there for assistance.
  • Privacy Benefits: Many services provide their address to keep your personal information safe.

Cons:

  • Costs: You will need to pay a service fee.
  • Variable Quality: Not all services are equally reliable.

Hiring an Attorney

Working with an attorney provides legal expertise during the LLC formation process. This option is beneficial if your business has specific legal needs or complexities.

Pros:

  • Expertise: An attorney understands the legal requirements and can help avoid mistakes.
  • Customization: They can tailor your LLC structure to fit your business needs.
  • Support with Complex Situations: Ideal for unique business circumstances.

Cons:

  • Higher Costs: Legal fees can add up quickly.
  • Dependence on Others: You may have to coordinate with the attorney’s schedule.
  • Potential Delays: The process may take longer because of legal workloads.

What is The Cheapest Alternative Way to Form an LLC in Alabama?

If you want to start an LLC in Alabama without a significant expense, the cheapest option is to do it yourself.

You can file the Articles of Organization directly with the Alabama Department of State online. This approach helps you avoid the fees of hiring a lawyer or a formation service.

However, while DIY is cost-effective, it requires some effort. You’ll need to understand all the forms and regulations, and missing a detail could delay your application or create problems later.

Consider using a registered agent if you prefer not to handle everything yourself.

They can make the process smoother by ensuring you receive important documents and helping you stay compliant with state requirements. Although this adds a bit to the cost, it can provide valuable support and peace of mind.

Looking to save time? Consider hiring a company to form your Alabama LLC: Northwest ($39 + state fee). You also get a free registered service – saving $300 in formation costs. Read my Northwest registered agent review here.

Who Provides the Best LLC Services in Alabama?

There are a myriad of Alabama LLC services from which to choose. Choosing the wrong one can affect your Alabama LLC formation timeline—I know this from my experience using a few and researching a dozen over the years.

Here are some top-rated options you should consider:

Best Alabama LLC ServiceGoogle RatingLLC Formation CostRegistered Agent Fee
Northwest Registered Agent4.7/5$39Free for 1 year
Doola4.6/5$0 (plus state fees)$297/year
Tailor Brands4.4/5$0 (plus state fees)$199/year
ZenBusinessN/A$0 (plus state fees)$199/year

Besides, the fact that other services bill you for their registered agent in the first year, and Northwest offers it for free, is a HUGE plus for me.

Northwest Registered Agent stands in Alabama LLC formation due to its commitment to transparency, customer service, and privacy. Using their address helps protect your personal information, making them a reliable choice.

How Much Does It Cost To Form an LLC in Alabama?

Forming an LLC in Alabama costs around $200, which covers the Alabama LLC formation fees. However, there are other fees you need to be aware of.

Here’s a breakdown of the entire Alabama LLC costs:

RequirementCost
Domestic LLC Filing Fee (Certificate of formation)$200 (by mail), $208 (online)
Foreign LLC Filing Fee (Certificate of formation)$150 (by mail), $156 (online)
Name Reservation$25
LLC formation service$39 (via Northwest)
Registered Agent Fee$0 (via Northwest)
Alabama Initial Business Privilege Tax$50 minimum
EINFree
Total Estimate$450 – 500

When forming a new company in Alabama, it is ideal to budget about $450-$500 for the first year. Then, if you want to go further, you can get other bells and whistles like a virtual mailbox, custom website, trademark services, premium EIN services, etc.

The most significant (and essential) expense for every Alabama business owner is filing the certificate of formation, which costs $200.

Pros and Cons of Forming an LLC in Alabama

Alabama LLC Pros

  • Alabama permits the formation of a series LLC, enabling multiple businesses under one umbrella.
  • Alabama LLCs are tax-exempt at the entity level; members report income individually.
  • LLC members can prohibit other members from giving up shares to third parties.
  • Alabama allows LLC owners significant flexibility in dividing the company’s revenues.
  • Member names are not required on the certificate of formation.
  • Companies with 75 or fewer employees may qualify for a $1,500 Income Tax Credit.
  • Enterprise Zone Program

Alabama LLC Cons

  • Alabama levies a business privilege tax on LLCs, which is based on your company’s net worth.
  • The certificate of formation is expensive to file

6 Important Things To Do After Creating Your Alabama LLC

After you’ve successfully created your LLC in Alabama, several essential steps must be taken. These actions will help you stay compliant and set your business up for success.

1. Research the Best Licenses and Permits for Your Business

The good news is that Alabama doesn’t have a state general business license.

Before starting operations, ensure you secure all required licenses and permits if necessary. The specific types you need will depend on your business activities and location.

Start by checking with your local city or county government. They often have resources that outline the requirements for businesses in your area. For example, if you plan to sell goods, you may need a sales tax permit.

Some professions may require special licenses. If you work in fields like healthcare or law, verify the specific credentials required. Staying compliant with licensing can prevent fines and legal issues.

2. Create Business Accounts for Your Alabama LLC

Establishing separate business accounts is essential for managing your finances. Open a business checking account to keep your personal and business expenses distinct.

Having a dedicated account simplifies bookkeeping. It also makes it easier to track income and expenses. Consider applying for a business credit card. This can help you build credit for your business over time.

Opening these accounts often requires an Employer Identification Number (EIN) from the IRS. This number is your business’s Social Security number and is required for tax purposes.

3. Understanding Alabama Tax Requirements and Managing Your Taxes

Tax management is crucial for your LLC. You must file different types of taxes based on your business activities.

In Alabama, LLCs are subject to the Business Privilege Tax, due 2.5 months after your formation and annually after that. Keep records of all your income and expenses to help with tax filings.

If you have employees, you’ll also need to handle payroll taxes, including federal and state income taxes. Seeking an accounting service can simplify this process if it feels overwhelming.

Tip

Consider consulting with an accountant for tailored advice and to optimize your tax strategy. They can help ensure you meet all requirements and take advantage of available tax benefits.

4. File Your Alabama Business Privilege Tax & Annual Report

Make sure to file your Business Privilege Tax each year. Since January 2024, Alabama no longer requires annual reports, which can ease your filing burden.

The filing fee for the Business Privilege Tax starts at $50, depending on your business’s income. If your company has no tax due, you should still file a “No Tax Due Report” to keep your records clean and up-to-date.

Keep an eye on any changes in state tax laws that may affect your obligations in the future.

5. Get Business Insurance for an LLC

Business insurance is vital to protecting your company from potential risks. Consider obtaining liability insurance to safeguard your assets against lawsuits or claims.

Evaluate whether you need additional types of coverage, such as property insurance, workers’ compensation, or professional liability insurance, based on your industry.

Consult with an insurance agent who understands business needs in Alabama. They can guide you in choosing the right policies for your LLC to ensure you are adequately covered.

Tip

Consult with an insurance agent to tailor your coverage. This investment can save you from significant out-of-pocket expenses in case of a claim.

6. Setup Your Business Online Presence (optional)

Creating an online presence can help you reach more customers. Consider building a professional website that outlines your products or services.

Social media accounts can also enhance your visibility. Platforms like Facebook, Instagram, and LinkedIn allow you to interact with potential clients.

While having an online presence is optional, it often gives businesses a competitive edge in today’s market. Make sure your contact information is easy to find, and keep your online content updated.

Alabama LLC vs. S Corp vs. Partnerships vs. Sole Proprietorship vs. Corporations

When starting a business in Alabama, you have several options. Each type of business structure has its features.

Sole Proprietorship

An Alabama sole proprietorship is the most straightforward way to start a business. Imagine you’re running a lemonade stand on your own. You make all the decisions and keep all the profits.

However, there’s no legal separation between you and your business. If your lemonade stand faces financial trouble or legal issues, your assets, like your car or home, could be at risk.

It’s easy to set up and manage, but it does leave you personally responsible for any business debts.

Partnership

An Alabama partnership involves teaming up with one or more people to run a business.

Think of it as joining forces with a friend to open a café. You share the profits and responsibilities, and you both make business decisions.

However, like a sole proprietorship, each partner is personally liable for any business debts or legal issues. If the business encounters financial trouble, your assets could be at risk, too. Partnerships are relatively easy to set up but require clear agreements between partners to avoid conflicts.

LLC (Limited Liability Company)

An LLC offers a blend of flexibility and protection.

Picture it as a protective umbrella over your lemonade stand. This structure separates your assets from your business, so if your LLC faces legal issues or debts, your personal belongings are generally safe.

LLCs are more formal than sole proprietorships or partnerships but offer flexibility in management and tax treatment. They are ideal for small—to medium-sized businesses that want liability protection without the complexity of a corporation.

S-Corporation

An S Corporation is a more structured business form.

Think of it as a business where owners are shareholders, much like a small-scale company with multiple investors. It protects liability and allows profits to pass through to your tax return, avoiding double taxation.

This means you report the income and losses on your tax return, which can be beneficial for tax purposes. However, S Corps have stricter operational requirements and formalities compared to LLCs.

Corporation

An Alabama corporation is the most complex structure, suitable for larger businesses aiming for significant growth. Imagine a big company with many shareholders. A corporation offers robust liability protection and is a separate legal entity from its owners, meaning your assets are protected.

Corporations can raise capital more efficiently by issuing stock and can offer employee benefits.

However, they come with extensive regulatory requirements, formalities, and paperwork, making them more suitable for businesses with significant resources and expansion plans.

Looking to save time? Consider hiring a company to form your Alabama LLC: Northwest ($39 + state fee). You also get a free registered service – saving $300 in formation costs.

My Final Thoughts: Forming an LLC in Alabama

Starting an LLC in Alabama is an exciting step toward bringing your business idea to life. Although it might seem like many steps initially, breaking them down makes the process more manageable and ensures you cover all the essential bases.

To start an LLC in Alabama, follow these steps:

  • Choose a name for your LLC.
  • Select a registered agent.
  • File the Certificate of Formation with the state.
  • Create an operating agreement.
  • Obtain an EIN from the IRS.
  • File a Business Privilege Tax Return and pay the necessary fees.

When considering costs, the state’s filing fee for the Certificate of Formation is approximately $200. You should also budget for a minimum annual business tax privilege return of $50. These costs can vary, so check for updates on fees.

Learn More About Starting an LLC in Alabama

If you need additional help to start an LLC in Alabama, check out these useful resources:

Frequently Asked Questions

How long does it take to get an Alabama LLC, and can it be expedited?

Creating an Alabama LLC typically takes about 1-2 business days for approval after you submit your application. If you need it faster, you may be able to request expedited processing for an additional fee. Always check with the Alabama Department of State for the latest processing times.

What if I already have an LLC in a different state from Alabama?

You can register as a foreign LLC if you have an LLC in another state and want to operate in Alabama. This process involves you filing the Foreign LLC application for registration.

Can you form an LLC for free in Alabama?

Unfortunately, you cannot form an LLC for free in Alabama. Filing fees and other expenses are necessary to formally establish your business, which you must pay to the state.

How much does the Business Privilege Tax & Annual Report cost?

The Business Privilege Tax in Alabama varies based on your business revenue, starting at $50. As of January 2024, businesses in Alabama no longer need to file an annual report.

Can I form an LLC in Alabama without a lawyer?

Yes, you can form an LLC in Alabama without a lawyer. Instead, you need a registered agent with an address in Alabama to help you with the administrative tasks.

What is the process for registering an LLC in Alabama online?

To register an LLC online in Alabama, visit Northwest Registered Agent. Follow their LLC filing procedure to complete your registration quickly.

Can I change my registered agent in Alabama?

Yes, you can change your registered agent in Alabama. To do so, you must file a form with the Alabama Secretary of State, providing details of the new agent.

How do I change my Alabama LLC’s name?

To change your LLC’s name in Alabama, you must apply a name change with the Secretary of State. This process typically requires a filing fee.

How do I renew my Alabama LLC?

Renewing your Alabama LLC involves filing your Business Privelege Tax Return and paying any associated fees. To maintain good standing, make sure to do this by the deadline.

How do I dissolve an LLC in Alabama?

To dissolve an LLC in Alabama, you must file a Certificate of Dissolution with the Secretary of State and pay any owed taxes or fees.

How do I add a member to an Alabama LLC?

To add a member to your LLC, update the operating agreement if necessary and file a form with the Secretary of State if your LLC’s structure changes.

How do I add a DBA to an LLC in Alabama?

To add a DBA (Doing Business As) to your LLC in Alabama, you must file a Registration of Trade Name form and pay the required fee.

Can a minor own an LLC in Alabama?

A minor can technically own an LLC in Alabama, but there are legal considerations and restrictions. It’s advisable to consult a legal expert for guidance.

When is the Business Privilege Tax Report due?

The Business Privilege Tax Report is due April 15 each year. Ensure you complete these on time to avoid penalties.

Does an LLC expire in Alabama?

An LLC does not expire as long as you file the pay the Business Privilege Tax.

Can a non-resident open an LLC in Alabama?

Yes, a non-resident can open an LLC in Alabama. You must appoint a registered agent with a physical address in the state.

Can I buy a house or car with my LLC in Alabama?

Yes, your LLC can buy a house or a car. However, be prepared to follow proper accounting and legal procedures to ensure everything is in order.

Can you have multiple businesses under one LLC in Alabama?

In Alabama, you can operate multiple businesses under one LLC. This is often done through DBAs, allowing you to maintain simpler operations management.

Is Alabama an excellent state to form an LLC? Is it worth it?

Alabama can be a good state for forming an LLC due to its low fees and favorable business regulations. However, it is essential to evaluate your specific business needs and goals.

Can one person form an LLC in Alabama?

Yes, one person can form an LLC in Alabama. This is a single-member LLC and is a typical business structure for individual entrepreneurs.

Share The Article :

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *