Sections of this topic
If you’re thinking of starting a limited liability company (LLC) in Alabama, you may be wondering where to start.
And rightfully so, because each state has slightly different steps to register an LLC, and they do not always use the same terminologies.
However, in this blog post, we’ll guide you step-by-step on how to open LLC in Alabama, from selecting a name for your LLC and filing an operating agreement to obtaining the required business permits and licences.
So, let’s get started!
Best Business Registration Services in Alabama
Software
Price
Business Formation
Annual Reports
Customer Support
Registered Agent Service
From $49 plus state fees
Can file for an LLC or Corporation
Prepare annual reports with expert help and automated technology
Solid customer support team
From $99 per year
$0 plus state fees
Can file for an LLC or Corporation
Annual report planning to help file correctly
Expert customer service, limited hours
Included free for the first year
From $59 plus state fees
Can file for an LLC, Corporation, or a DBA
Report filing services available
Unlimited phone/email support during business hours
$99 per year or included in higher tier plans
From $0 plus state fees
Form an LLC, Corporation, or nonprofit
Facilitate annual report filing
Limited to weekdays during normal business hours
Included free for the first year
Free to 100 plus state fees
Form an LLC, Corporation, or nonprofit
Annual report reminders, document storage
Knowledgeable and easy to access customer service team
$125 per year
From $79 plus state fees
Can file for an LLC, Corporation, Nonprofit, or a DBA
Create an annual report from a few simple questions
Customer support team can’t always keep up with demand
$299 per year
$39.99 per month or $99.99 flat rate
Form an LLC, Corporation, or nonprofit
Generate and maintain corporate records
Available during business hours, on-call lawyers for legal questions
$112.50 to $149.99
Pros And Cons Of Starting LLC In Alabama
Like every other business structure, starting an LLC has its advantages and disadvantages.
Knowing them will help you make an informed decision before proceeding with the registration methods.
Pros Of Starting LLC in Alabama
Private Asset Protection
Registering your business as an LLC makes it a separate entity from your private asset and that of your LLC partners. This form of separation is referred to as limited liability protection.
This means that if anything goes wrong, your business can be sued and penalized, but your private assets such as your home, car, and money in the bank cannot be tampered with.
Income Tax Only
As an LLC company in Alabama, you’ll never have to pay taxes on your business income and profits.
Instead, only the amount registered as your Income and that of the LLC members will be subject to taxation.
This way, you can avoid being double-taxed, and your LLC can save tons of money to invest back into the business.
Management Flexibility
Unlike most business structures, an LLC has lots of flexibility when it comes to business management.
The members can choose to run the company themselves, or they can hire business managers to do so for them.
And unlike corporations, LLCs can easily change their business policy – and sometimes branding – without going through many rigorous processes.
Less Business Formal Activities
With an LLC, you are not required by law to host any form of business meetings with the board of directors or shareholders or keep a detailed record of any meeting hosted.
Also, LLCs are not subjected to the many regulations and structures found in Corporations, making it a great choice for business owners seeking more freedom and independence in running their business.
Cons Of Starting an LLC in Alabama
Limited Investment Opportunities
Raising business capital as an LLC could prove more difficult compared to a sophisticated business structure such as a corporation.
Although some of the best banks for LLC businesses may offer business loans, venture capitalists or private investors still think LLCs are risky.
This is because LLCs do not have a rigid business structure, are not required to be as accountable, and do not offer shareholders the same level of control offered by corporations.
Alabama State Levied Tax
While the federal income tax is passed through to LLC members’ tax returns, in Alabama, LLCs are still subjected to other forms of state-levied taxes such as privilege tax, sales tax, etc.
For instance, LLC companies in Alabama are required to pay an annual business privilege tax ranging from $0.25 to $1.75 per $1000 of net worth, and the minimum tax is pegged at $100.
Remember, this is in addition to the personal tax every LLC member will have to pay, which can be a drawback for starting LLC in Alabama.
Accountability Issues
Because LLCs lack rigid business structures and formalities, maintaining a clear line of authority and accountability becomes difficult.
For instance, there is no obligation for constant meetings and reporting, which could lead to a lack of transparency.
And since members’ risks are limited to their business investments, they may not feel obligated to care much about the company.
How To Start An LLC In Alabama: In 7 Steps
1. Choose A Name For Your LLC
Naming your business is a fundamental part of starting your LLC in Alabama.
However, note that there are business-naming conventions you must follow to pick the right name for your LLC business;
a. You must make sure that the name you pick is unique – in terms of spelling – and has not been used by any other business anywhere in the US.
You can check whether the name you’re about to use is available by either running a Google search or checking the Alabama Secretary of State’s name database.
b. There are also suffixes your business name must and must not include.
For instance, every LLC business name in Alabama must include the abbreviated words, “L.L.C”, ” LLC”, or its full form, “Limited Liability Company”.
On the other hand, you cannot include any word that is reserved for governmental agencies such as the Treasury, State Department, FBI, CIA, etc.
And for business owners that have found a name for their LLC but are not ready to proceed with registrations, you can file for the Alabama Business Name Reservation online.
It cost about $28 and would reserve the LLC name for up to 365 days.
2. Appoint Your Registered Agent
You are required to appoint a Registered Agent before you proceed with the registration of your LLC in Alabama.
The job of the Registered Agent is to collect legal documents on behalf of your business, mostly in periods when your business is going through legal issues.
However, the rule is that your registered agent must have a physical address in Alabama. A virtual address or PO Box is not accepted.
That is why even you or your friends and families can stand as registered agents for your LLC as long as you – or they – have a verified physical location in Alabama.
But the professional way is to hire businesses that are dedicated Registered Agents for LLCs in Alabama, also called commercial registered agents.
This is because commercial registered agents are guaranteed to be available during business hours all year round.
3. File A Certificate Of Formation
Filing a certificate of formation is the main part of officially registering your business as an LLC in Alabama.
This certificate is also referred to as Articles of Organization in some other states.
It’s a document you file with the Alabama Secretary of State that contains some basic information about your LLC such as the name of your LLC, the name and address of your registered agent, the purpose of your business, how your business will be managed, and much more!
The cost of filing a certificate of formation in Alabama is $200 and as of 2023, you’re no longer required to pay the Probate Court Filing fee which used to costs at least $50.
But once the document has been approved by the state, you’ll be issued a certificate to show that your LLC is now a legal business entity existing in Alabama State.
4. Draft An Operating Agreement
An operating agreement is a legal document created by you and your LLC partners, which outlines the rules and regulations for running the LLC.
It’s not a state or federal-issued document, so it’s not required to have one to open LLC in Alabama.
However, preparing an operating agreement takes your business away from oral agreements, and it can be referred to in the future when there is an internal conflict or dispute settlement.
Some of the most important details you must include in an LLC Operating Agreement include the procedures for ;
- Planning meetings
- Voting
- Resolving conflicts
Or the stipulated;
- Day-to-day operations
- Members Duties
- Members ownership.
And much more.
We’ve prepared a free Operating Agreement Template that you can use to draft a detailed document for your new LLC.
5. Get An Employer Identification Number (EIN)
The importance of an EIN for an LLC in Alabama cannot be over-emphasized.
Although it’s not a major requirement for opening an LLC, you’ll need it for some state and federal paperwork.
The Employer Identification Number (EIN), is a unique nine-digit number created and assigned by every LLC in Alabama by the Internal Revenue Service, which is used to identify your LLC for tax purposes.
Also with an EIN, you can proceed with other business activities such as opening a business bank account or hiring employees.
Note that the EIN is issued by the federal government, not the Alabama Secretary of State, and it’s also free to get.
6. File A Business Privilege Tax
A Business Privilege Tax is a must for every LLC business operating in Alabama.
This tax is used to fund public projects in the state, and failure to pay your privilege tax will result in severe penalties such as increased interest charges, inability to apply for loans, and suspension of your LLC business licenses.
The Business Privilege tax must be paid annually, and the due date is 2.5 months after your business fiscal year.
The tax rate for the Alabama Business Privilege Tax is calculated based on your LLC net worth, but to be specific, it ranges from $0.25 to $1.75 per $1000 of net worth.
Although, the minimum payment is pegged at $100.
7. Obtain The Required Permits and Licenses
To ensure the safety of customers and citizens, the Alabama State Government does not permit certain businesses to operate without a license.
Depending on your business type/industry, if you do not have the required permits or licenses, you’ll be barred from doing business.
So making sure you’ve secured the necessary licenses and permits is a crucial checklist for starting your LLC.
Some of the major permits you must obtain include;
- Zoning permits
- Building permits
- Health permits
- Occupational permits
- Sales tax permits
- Environmental permits
When it comes to licensing, no two businesses will need the same license.
So you must check with your local government to know which license your business will need to commence operation in Alabama.
Frequently Asked Questions
Conclusion
Starting an LLC in Alabama doesn’t have to be that complicated – it’s a relatively straightforward process that requires filing the necessary paperwork and paying the required fees.
We hope the 7 steps we’ve laid out will help you get started.
With these steps completed, you will be well on your way to operating a successful LLC in Alabama.
That said if you are unsure about anything, we recommend you seek the advice of a professional attorney and check with the Alabama Secretary for more clarification.
