Before starting a business, you need to decide on a business structure, which is how a business is set up to operate. This choice impacts a company’s legal and operational framework, including how it is organized, managed, and taxed.
One option is the Alabama LLC, a business structure created under state law. LLCs provide their owners with personal liability protection and the potential to save money on taxes. With our guide, you can learn how to form an LLC in Alabama without an attorney.
Related: Starting A Business in Alabama Checklist
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Steps To Form An Alabama LLC
Step 1: Name Your LLC
The first step to forming an Alabama Limited Liability Company is choosing and reserving a unique name that isn’t already registered by another registered entity in the state. The Alabama Secretary of State has a handy online database where you can search available Alabama LLC names to find out if your name is available quickly.
In addition to having a unique name, there are a few other naming requirements to be aware of. These include:
- The business name must differ from any other name registered with the Secretary of State’s office.
- The company name must not imply a business purpose that is different from what the business does.
- The business name must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC.
- Unless the business is licensed by the state, words such as bank, insurance, attorney, etc., can’t be used.
Step 2: Appoint an Alabama Registered Agent
To have an LLC in Alabama, a registered agent must be appointed. A registered agent is a person or entity with a physical street address in Alabama (PO Boxes aren’t allowed) who is available during normal business hours for service of process. The agent will be the central point of contact for receiving important legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
While many LLC owners opt to fulfill this role themselves, some hire a registered agent service to help stay current with state requirements while offering a layer of convenience and confidentiality since the owner’s personal address isn’t disclosed in public records.
Related: How Do You Appoint An Alabama Registered Agent?
Step 3: File the Alabama Certificate of Formation
The paperwork to create an LLC in Alabama is the Certificate of Formation (called the Articles of Organization in many states).
In Alabama, you can download and mail the Certificate of Formation or file online.
Expect the LLC approval process to take around one week when filing by mail or immediately online.
Related: How To Fill Out The Alabama LLC Certificate of Formation
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What To Do After Setting Up Your Alabama LLC?
Once the LLC has been formed, there are a few additional steps to take. Below is a list of the most common tasks.
File the Initial Report and Initial Privilege Tax Return
The Alabama Initial Report and Initial Business Privilege Tax Return (Form BPT-IN) must be filed within 2.5 months of registering an LLC. The Privilege Tax is assessed on businesses for the “privilege” of operating in Alabama. Learn more about the Business Privilege Tax from the Alabama Department of Revenue.
Prepare an Alabama Operating Agreement
The LLC operating agreement is a document that governs the LLC’s framework and covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states, including Alabama, do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
If the LLC will hire employees or is owned by more than one member, an EIN is required.
The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes.
Related: How To Register For An EIN
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Depending on the LLC’s age, an Alabama Certificate of Compliance may be needed to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, various business licenses and permits will likely be needed before starting. Some common registrations include:
- Business privilege license: Every business is required to obtain a business privilege license from the Alabama Department of Revenue.
- Business license: In addition to the state of Alabama business privilege license, many cities require businesses to obtain licensing before starting.
- Professional license: In Alabama, certain types of businesses, such as beauty shops, photographers, restaurants, and others, require professional licensing.
- Sales tax license: A Alabama sales tax license from the Alabama Department of Revenue is necessary to sell products and certain services in the state.
Related: How To Register A Business In Alabama
File Alabama LLC Annual Reports
Each year, Alabama LLCs must file Form PPT, the Alabama LLC Annual Report, and the Alabama Business Privilege Tax Return and pay the privilege tax to the Alabama Department of Revenue. The tax is based on the LLC’s net worth, with an annual minimum tax of $100.
Related: How To File An Alabama LLC Annual Report
File the Beneficial Owner Information Report
Beginning in 2024, any individual who owns at least 25% or has “substantial control” of an LLC or corporation in Alabama or any other state must file the Beneficial Ownership Information (BOI) form with the Financial Crimes Enforcement Network (FinCEN). BOI reports are filed electronically through FinCEN’s website.
Alabama LLC FAQs
How much does an Alabama LLC cost?
The cost to form an LLC in Alabama includes the Certificate of Formation state fee of $200, plus the name reservation filing fee of $28.
Is there a yearly fee for an LLC in Alabama?
Yes -The Alabama Business Privilege Tax is due each year and will cost $100 at minimum.
How long does it take to start an LLC in Alabama?
An LLC is normally approved in 7-10 business days in Alabama, though one business day processing is available for an additional fee.
Is the LLC the best type of business structure?
Choosing the right business structure is important, and the LLC is popular as it offers a blend of flexibility and liability protection. Unlike a sole proprietorship or general partnership, where personal and business assets are intertwined, an LLC provides a shield for your personal assets against business debts and lawsuits. This means if your business runs into trouble, your personal savings, house, and car are safer.
The LLC offers a simpler structure for those thinking about a corporation, with fewer formalities like board meetings or annual reports. Plus, the tax setup can be more favorable since LLCs enjoy pass-through taxation, avoiding the potential double taxation corporations can face, where both the company’s profits and the owner’s earnings are taxed.
However, the best choice depends on your situation. If you’re going solo with minimal risk, a sole proprietorship is the easiest and least expensive route. A general partnership works similarly but for two or more people. Though more complex, corporations might suit those looking to raise significant capital.