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How to Form an LLC in Alabama: Step-by-Step Guide

Forming an LLC in Alabama is relatively easy. It’s about thinking through your business idea, putting it on paper and submitting it to the relevant authority.

1. Reserve your LLC name with the Alabama Secretary of State

To incorporate your Alabama LLC, name reservation is the first step. You must have a unique business name that meets three requirements:

  • Contains the phrase “Limited Liability Company,” “LLC,” or “LLC”
  • Is not identical to any other registered business entity in Alabama
  • Does not contain words or phrases that mislead consumers about the services offered by the company

Reserving your company name first will ensure it is available to you once all the paperwork is done. You can do this online using the Alabama Secretary of State’s forms on the interactive website. There is a $25 fee and you must digitally store your certificate after submission – one will not be mailed to you.

Inside Scoop: For various reasons, some business owners do not want to use the full company name for every business activity. In this case you can use the company name “DBA” which stands for “doing business as”.

In Alabama, you must use your DBA name to conduct business before you can register it with the state, making Alabama unique from other states in this regard. To register a DBA name, follow these instructions on the State Department’s website. You must renew every five years.

2. Designate a registered agent

Doing business in Alabama requires a permanent address in the state. If you research how to form an LLC in Alabama, you will see a lot of information about “registered agents.” It sounds complicated, but a registered agent is simply a named person and address to which the state and IRS send official correspondence.

Many companies offer registered agent services for a regular fee. You can easily select an Alabama registered agent by searching online or by selecting from a list of agents provided by the AL Secretary of State.

Inside Scoop: You can be your own registered agent, but that is not always practical. This is because registered agents must be physically present at the specified address during all business hours to receive correspondence.

In addition, if you receive customers at your registered address, it is possible that legal documents will be served on you before them. It may be worth the small fee to have a registered agent company do this for you so you can focus on growing your business.

3. Submit a Certificate of Incorporation

This is the most important step in learning how to incorporate an LLC in Alabama – the certificate of incorporation tells the government several important pieces of information about your company:

  • Company name, including a note that it is an LLC
  • Registered agent address
  • Registered agent name
  • Confirmation that there is at least one member of the LLC
  • If the LLC is a “Series LLC,” a statement of enforceability of obligations and expenses
  • Any other matter that members feel should be included

The form must be typed and can be submitted by mail or online. To mail the form, mail the following items in an envelope addressed to: Secretary of State, Business Services, PO Box 5616, Montgomery AL 36103

  • Two copies of completed Certificate of Incorporation with attached Name Reservation Certificate
  • An addressed, stamped envelope
  • A check, money order, or credit card payment form (provided on online form) for $200.00

To submit online, follow the instructions on the Secretary of State’s website. Your application fee is $208, payable by credit card or bank account.

You will find that there are several options when you research how to form an LLC. In Alabama, an additional option is to convert another type of corporation into an LLC using this form.

Inside Scoop: In Alabama, you can choose one of three LLC types in a certificate of incorporation:

  • Series LLC operating as part of a larger entity
  • Professional LLC offering services from licensed professionals such as doctors, attorneys or accountants
  • Non-Profit LLC dedicated to charitable causes

If you think any of these apply to your LLC, consult a legal or tax professional to explore your options. Depending on the type chosen, additional tax depreciation or obligations may apply.

4. Create an operating agreement

This is not a legal requirement, but it is important. An operating agreement sets out the policies and procedures you intend for your business. Especially if your Alabama LLC has more than one member, an operating agreement will save you from legal trouble later and let your members, customers, and employees know what to expect.

As you draft the operating agreement, you may also be asked to elaborate on aspects of your business that you had not previously thought of. You can also use your operating agreement as legal proof that you own your business. Operating agreements often include, but are not limited to, information about:

  • Transfer of Membership Interests
  • right to vote
  • Members Contributions
  • How profits, losses and distributions are shared
  • management
  • compensation
  • accounting
  • resolution

Inside Scoop: When developing a business idea, it can be difficult to decide how to start. An LLC in Alabama should have an operating agreement from the time of incorporation, which can be changed later at any time. A helpful tip is to determine whether your LLC will be “member-managed” or “manager-managed.” In a member-managed organization, all members collectively make day-to-day management decisions.

In a manager-led organization, the operating agreement designates one or more members who are charged with day-to-day administration. It is important to include this in the operating agreement to avoid confusion later.

5. Apply for an IRS Employer Identification Number (EIN)

After incorporation, you must request an EIN, also known as a Federal Tax Identification Number, from the IRS. This unique identifier is used for tax purposes and can be used for other activities such as opening your business bank account. If you formed an LLC by converting some type of corporation into an Alabama LLC, you will likely need a new EIN.

Be sure to check state requirements for forming an LLC. If you are hiring employees in Alabama, you will also need an Alabama income tax deduction number. This is obtained by registering with My Alabama Taxes.

Inside Scoop: You do not need to request an EIN if your business meets the following conditions:

  • Individual Member LLC
  • No employees
  • Does not file “excise taxes” (special taxes levied on goods and services such as alcohol, cigarettes, fuel, heavy vehicles, etc.)

An owner of such a business simply uses their social security number for tax purposes.

6. Fulfill ongoing obligations

The fun doesn’t end after you learn how to make it beginning an LLC in Alabama. There are annual obligations that you must fulfill in addition to running your business.

Submit your taxes

Remember to file your annual federal, state, and local income taxes. If you have employees, you probably need an accounting service to do this for you.

Alabama requires that a combined business privilege tax return and annual report be filed 2.5 months after the LLC’s incorporation and once per tax year thereafter. You must pay a minimum of $100 per year as an Alabama LLC.

Keep your licenses up to date

You must check with your local or regional government if you require additional licenses to operate your business. Any professional licenses such as bar memberships for solicitors or accounting certificates for chartered accountants must also be kept current.

Keep your records

Part of your ongoing duties is to keep certain records available for inspection by members of the LLC. Records should be kept at your “principal place of business,” which may be your office or, more commonly, your home.

  • Name and address of each member and manager
  • Copy of the deed of incorporation and any subsequent amendments
  • Legal documents such as powers of attorney
  • Federal, state, and local tax returns for the last three years
  • Operating Agreement and Any Amendments
  • Annual accounts for the last three years

Inside Scoop: Consult a tax professional for more information while you learn how to form an LLC in Alabama. One Helpful Tip: If you work from home, dedicate a room or conspicuous space to work. This allows you to write off the cost of maintaining that space as a business expense.

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