Alabama has consistently rated near the top as one of the best states to start a business thanks to its business-friendly environment and favorable regulatory environment. Most think that starting an LLC in Alabama is a complex and challenging process. This guide breaks down the steps to get an LLC up and running in no time.
What are the benefits of an LLC?
- LLCs provide liability protection for business owners, meaning that the owners’ assets will not be at risk.
- Easy to set up and manage
- One person may form an LLC
When do you need to form an LLC?
If you are exploring starting a business or perhaps you are already in business as a sole proprietor it is a good idea to form an LLC. If you are operating a business without an LLC you could be placing yourself and your personal assets at risk.
While it is not required to form an LLC before starting a business the benefits include accounting and tax standardization, limited liability risk right away, and it will be easier to stay organized since all of your business-related expenses will be tied to one business bank account.
Step 1: Choose your company name
The first step in starting an LLC is to select a business name. It is essential to choose a business name that is unique from existing entities.
Perform an Alabama business name search
The Alabama Secretary of State maintains a database of business entities registered in the state that is free for the public to search.
Visit sos.Alabama.gov to begin a search.
Your Alabama corporation must contain the words Limited Liability Company or include the abbreviation L.L.C. or LLC. Prefixes, suffixes, and plural versions of an existing entity name do not make it unique.
For instance, if you wanted to start a BBQ restaurant named Backyard BBQ LLC you would want to make sure there wasn’t a similar sounding name like Backyard BBQ and Burgers or something that would potentially be confusing for customers to distinguish one from one another. If the name you are thinking of is remotely close to one that is active and already in use, try calling the Secretary of State ahead of time to get the green light before wasting time registering for a name that may end up getting rejected.
If you are struggling to come up with an Alabama LLC name, a good option is to try out a business name generator, which can help generate hundreds of name suggestions in a few seconds based on keywords that are of interest to you.
Perform a trademark search
If you intend on using your business for a commercial purpose you will want to perform a trademark search before selecting your Alabama business name. A trademark search will help you get an idea if the business name you want is used in another state and could save you headaches down the line by avoiding infringement issues.
The best way to find out if your proposed business name is available is by conducting a trademark search online at the US Patent & Trademark Office.
Determine if you want to use a DBA name
A DBA is a registered “Doing Business As” name and can be used instead of the legal LLC business entity name.
A DBA allows you to have a name for your business that reflects what it does or who its customers are. Business owners use their company’s DBA names on checks, orders, contracts, and correspondence when doing business.
Some of the main benefits of a DBA:
- Flexibility: If you have your LLC established, you can use DBA names instead of creating separate entities for each new venture.
- Branding: A DBA name is easier to brand and identify for customers.
- Expansion: It is easy to file DBAs in different geographical locations to target other customers and appear hyper-focused in your marketing.
You do not need to operate under a DBA if you use your Alabama business name for all business purposes. However, using a DBA name will not affect your Alabama LLC name registration.
Register the domain name
Once you decide on a business name, check to make sure that the domain name is available. Sites like Namechk can show you which domain extensions are available for your business name.
Although .com domain names are ideal, as the internet ages extensions like .net, .co, and .biz are becoming more commonplace
Register social media profiles
It is vital to have a solid social media presence in today’s business environment. Be sure to register for your business name on the different social media platforms ahead of time so that no one can sign up for them.
Reserve Alabama business name
Alabama is unique from other states in that they require a Name Reservation request form to be filed with the Alabama Secretary of State. The Name Reservation form can be downloaded and filed online through the Secretary of State online services business portal.
Step 2: Register Alabama LLC
After choosing a name, start the registration process online at the Alabama Secretary of State site.
Registering your LLC in Alabama is a fairly straightforward and quick process:
Select a registered agent
A registered agent is an individual point of contact for the state-designated to receive official correspondence from the state.
A registered agent is required for an Alabama LLC. If you are not personally going to be your Alabama LLC’s registered agent, find a substitute Alabama resident or company to serve in this role.
Be sure that the registered agent’s address is included in all your business documents and correspondence if you intend to use a different registered office.
Alabama registered agent requirements
An Alabama registered agent:
- must be over the age of 18
- have a physical street address in the state of Alabama
- be available during normal business hours
Fill out a Certificate of Formation form
Once a registered agent has been selected, the next step to filing an Alabama LLC is to fill out the Certificate of Formation. The Alabama Certificate of Formation is referred to as an Articles of Incorporation in other states.
The Certificate of Formation contains the following elements:
- Name of LLC: Fill out the business entity’s name and be sure to include the words “Limited Liability Company” or the abbreviation “L.L.C. or LLC.”
- Name of Registered Agent: Fill out the registered agent’s name that will be responsible for business correspondence.
- Registered Office Address of Registered agent: Enter the registered office address and be sure not to use a p.o. Box as the Secretary of State will not process the certificate of formation.
- A copy of the Name Reservation certificate form must be attached to the certificate of formation to file the new entity with the Secretary of State.
- Filing date: At the bottom of the certificate of formation form, there is an option to delay the formation of the LLC by 90 days. It can be advantageous to delay the processing of an LLC until the start of the next calendar year if it is toward the end of the year to avoid having to file a tax return.
At the bottom of the Certificate of Formation form, there are options to designate the LLC as a Series or Professional LLC:
- Series LLC: A Series LLC is a limited liability corporation that provides liability protection to multiple businesses under a single LLC filing. It is called a “series” because each series of the LLCs operates similarly to its own stand-alone business.
- Professional LLC: A professional limited liability company (professional LLC) is an LLC with one or more members who are licensed professionals. To qualify for professional corporate status, the member or members must be engaged in the practice of law, accounting, architecture, chiropractic medicine, dentistry, optometry, osteopathic medicine, or another similar profession that requires the highest level of licensure.
File the Certificate of Formation
The certificate of formation can be filed online or through the mail after the Certificate of Formation form is filled out.
File Online directly through the Alabama Secretary of State Online Services portal.
File the formation documents by sending the Certificate of formation along with the Name Reservation form to the Secretary of State address:
Alabama Secretary of State
Business Services Division
770 Washington Ave, Suite 580
Montgomery, AL 36104
Our picks of the best registered agent services
Step 3: Next steps after filing Alabama LLC
Apply for an EIN
The IRS requires each LLC to have its own unique employer identification number. The Internal Revenue Service website can generate a federal tax identification number. An EIN number makes it easy to file your business taxes and stay in compliance with the IRS and is similar to a Social Security number but for your business.
EIN’s also add credibility to your business and are required from time to time by companies that have to pay you for goods and services. An EIN is also required to open a business bank account and will help you establish business credit in the event that you need to take out a business loan.
Start a business bank account
A business bank account is required for LLCs to start conducting business. Therefore, it is highly recommended that you start a low-risk bank account to start receiving income and paying any start-up expenses.
After the LLC has been established, your business bank account will be used for payroll, payment of bills, a deposit of earnings from your business, and any other financial transactions your business may have.
Apply for a business license and permits
If you are planning on selling goods or services in the state of Alabama, be sure to check out the Alabama Department of Revenue site to check for county requirements. The local country probate offices issue licenses and requirements differ from county to county.
Prepare an LLC operating agreement
An operating agreement is a contract between the LLC owners that lays out the financial and functional decisions of how an Alabama LLC will be managed by its owners. An operating agreement is needed if there are multiple business owners of an Alabama LLC.
An operating agreement can be as simple or in-depth as desired, but it is important to have one in writing before starting any significant operations within the business.
File annual report and business privilege tax
An Annual report and business privilege tax form are required for businesses in Alabama to stay in good standing with the state.
There is no fee to file and you can file through the Alabama Department of Revenue.
How much does it cost to file an Alabama LLC?
The state filing fee for an Alabama domestic LLC filing is $200. The Foreign LLC filing fee is $150. The Cost to file an Alabama Name Reservation cost is $28.
The Alabama Secretary of State has made it much easier to file LLCs with the launch of online filing of both the Name Reservation and Certificate of Formation through the Secretary of State website.
Recommended LLC formation services
- Northwest Registered Agent: Started as a registered agent service but expanded into business formations and offered additional professional services like mail forwarding and virtual business address services.
- ZenBusiness: Another recommended online business formation platform that can help set up an LLC in Arizona. They offer a full suite of services for new business owners, including operating agreements, business websites, domain names, and more.
- Incfile: A top online incorporation service provider in the market that offers various business filing services like LLC formation, Registered Agent, State Filings, and Compliance Filings.
Alabama LLC FAQs
What is the difference between a foreign and domestic Alabama LLC?
– Domestic LLC
Domestic LLCs are entities that are based and operate in Alabama. A Domestic Certificate of Formation form is required for domestic entities.
– Foreign LLC
A Foreign Professional LLC Application for Registration must be filed by businesses that intend to transact business in Alabama while being based in another state. In addition, foreign entities must file a Foreign LLC Application of Formation form with the Alabama Secretary of State.
Do Alabama LLCs need to file with a probate judge?
Alabama LLCs no longer have to file with a judge of probate thanks to ACT 2020-73, which has helped make the filing process much easier for Alabama corporations. In addition, the Alabama certificate of formation can now be filed with the Alabama Secretary of State online.
How many small businesses does Alabama have?
Alabama has over 396,000 small businesses according to the most recent data from the U.S. Small Business Office of Advocacy.
Below are some of the most popular industries for small businesses in Alabama:
Industry / Small Business Employment
– Health Care and Social Assistance — 116,119
– Food Services — 101,045
– Retail Trade — 87,806
– Manufacturing — 81,544
How many businesses are filed in Alabama each year?
According to the U.S. Census Bureau, business formations in Alabama have been steadily increasing in recent years which resulted in 58,268 new business applications filed.
Below is a chart that has shown continued growth of businesses that are filed in Alabama each year:
Year / New Alabama Businesses Formed
– 2020 — 58,268
– 2019 — 41,397
– 2018 — 41,948
– 2017 — 36,760
What is the processing time to file an Alabama LLC?
Alabama LLCs’ processing times have improved drastically in the last few years since John Merrill came into office and typically processed in only a few business days. He inherited a situation where current filings were taking as long as 7 months to the process, and he has eliminated red tape and strives for same-day processing.
What is an Alabama Certificate of good standing?
An Alabama certificate of good standing is a document that an Alabama LLC files with the Alabama Secretary of state. The certificate of good standing is used to affirm that the company complies with the terms and conditions that formed it and reaffirm the information from the certificate of formation.
What is a sole proprietorship?
A sole proprietorship is a business owned and run by one person.
The sole proprietor is responsible for all aspects of the operation, including liability, profits or losses, and tax obligations. The Internal Revenue Service (IRS) calls a sole proprietorship an individual proprietorship if you are self-employed.
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