Starting LLC in Alabama: Peculiarities & Detailed Manual
Want to start an LLC in Alabama? It is a profitable decision for a business, as the state has waived corporate tax in favor of gross corporate income tax. So you’ve decided to start an LLC? Not sure how to initiate the process? To start an LLC in Alabama, you need to get ready for several stages.
We’ve prepared a guide for you with just six steps to form your LLC and to get success! You can also refer to the virtual LLC formation service.
Note: ZenBusiness is the best service to file the LLC. You’ll surely appreciate reasonable prices, company values, and other peculiarities.
An Alabama LLC: The Notion & Essence
Many Alabama business owners choose to start an LLC. So, unlike a corporation, they can take advantage of flexible management. We’re talking about the protection of personal assets that sole proprietorships and general partnerships lack.
The state of Alabama puts forward simplified requirements for registration and maintenance of LLC and invites business owners to choose the type of taxation. Do you still have doubts about the LLC?
6 Stages to Form an LLC Correctly
Stage №1: Choose Your LLC Name
The LLC name is a significant aspect, as it is the name of your company that makes the first and strongest impression on the audience of your potential customers! The name must be different from existing company names and must meet Alabama’s regulatory requirements. Now get started with the following aspects.
LLC name in terms of jurisdiction
The State of Alabama obliges business owners to include the abbreviation DDS or the phrase – limited liability company in the name. Please note that the terms corporation or registered are prohibited. In addition, you cannot use the designations of other forms of business: banks or law firms.
Take care of the explanations
You must include in the title an explanation of the nature of your business. For example, if you are engaged in the computers’ repairing, write in the LLC title – computer wizard. If you have any values or principles, also indicate this. For example, if you are farming, use the term natural, nitrate-free, etc.
So, you need to get a little creative and fully comply with Alabama’s legal requirements.
Stage №2: Hire a Registered Agent
A registered agent is called a statutory agent in Alabama and will help you to start an LLC. The agent can be an Alabama resident, natural or legal attorney responsible for sending and receiving legal documentation on behalf of the future company. A company representative can also be an employee of the company or its owner.
Every filing entity, foreign filing entity, foreign registered LLP registered in accordance Article 7, and registered LLP that do not maintain a place of business in Alabama are required to appoint and incessantly maintain a registered agent within the state.
A registered agent guarantees an excellent reputation for your Alabama LLC. Also, if your business gets worse, Alabama can take legal action against it without notifying you. The registered agent will always receive appropriate notification and will be able to take timely measures to protect your interests as an attorney.
You should apply to the online service to get started a business in compliance with all regulations and requirements. So, you will have the opportunity to filter spam and protect your personal and contact information. If you use the ZenBusiness and Northwest Registered Agent to form an LLC, you will receive the free services of a registered agent.
Stage №3: Applying for Registration
To register a business in Alabama, you must file the Articles of Association with the Alabama State Secretariat. If you are anxious about your LLC formation, you can submit your documents for pre-processing, which will allow the Secretary of State’s office to advise you of the eligibility. It can be a good option if you get started for the first time in an LLC without consulting an attorney. Be sure to provide:
- The desired name of your business.
- Personal and contact details of the registered agent.
- Business management form.
- Personal and contact details of the manager of your company.
- Signature of the applicant and registered agent.
- Date of application submission.
Certificate of Formation in Alabama is different from other states. You have to get an Operating Agreement first. Read more about it in the next segment of this article.
Once you are ready to file a Certificate of Formation, feel free to get the pdf online. You can fill it out and send it to the Probate Judge’s office by regular mail. Check the official website of the Secretary of State to find the list of judges in every county in Alabama. The Probate Court will send your certificate to the local Secretary of State. Do note that you will need to pay a filing fee.
Cost to Form an LLC: You will need to pay a fee of $100+ to start an LLC in Alabama.
Processing Time: Most of the time, it takes 10 days to set up an LLC after filing the certificate. One needs to provide all the needed paperwork and submit it to the Office of the Judge of Probate. There is a way to speed up the process by paying an extra $100.
In this case, the filing will be processed within three days after contacting the Probate Office. If you decide to file the document online, the filing fee will include the $100 expedited fee. As soon as the filing is done, feel free to view the information online and search by entity name.
Stage №4: The Operating Agreement Background
While an operating agreement is not binding in Alabama, creating one could significantly improve the company’s climate. An operating agreement is a document that describes the structure of a project, the way it works, the rights and obligations of each partner.
This document reflects the consistency of partners and thereby reduces the chance of controversy and disputes. Therefore, it is significant that all members of the future LLC carefully read this document before joining the company.
An attorney can help draw up an operating agreement and determine the way income and liabilities will be distributed among the owners of your LLC. You will find more information about the operating agreement here. Prepare to enter the following information:
- Names of all participants.
- The rights and obligations of each of the listed participants.
- Description of procedures for voting or resolving differences between members.
- Regulations on the financial share of participation of LLC members.
- Description of the way you’re going to manage the LLC.
So, do not neglect this stage of LLC formation. It largely guarantees your safety and the observance of your rights by all members of the business project.
Stage №5: Tax Compliance
To conduct a business that you want to register as an LLC successfully, you need to comply with several tax requirements at various levels.
Requirements of Federal Significance
Does your LLC involve multiple owners? Then you need to take care of the EIN! The EIN, or Employer Identification Number, is a unique nine-digit number assigned by the IRS to US corporations. This number must be obtained by all business owners under whose leadership the hired employees work. A business owner can obtain an EIN from the IRS in person or by mail.
Your state’s cess requirements
The founder of LLC has to get the appropriate permits or licenses for tax registration and identification numbers to start doing business in Alabama. You need to visit the My Alabama Taxes (MAT) portal and receive a tax ID number.
You will pay taxes in Alabama depending on the type of LLC. The majority of companies are required to sign up for sales and use tax. In addition, you need to register for withholding tax if you have employees. Fortunately, you can check all the tax requirements for your LLC when signing up for MAT.
In addition, there is a unique Alabama Business Privilege Tax. It has to be paid by entities that “were formed under the laws of Alabama or operate in Alabama (if formed under the laws of another country or state).”
Every LLC is required to file an initial Business Privilege Tax Return no later than 2.5 months after formation. The tax sum depends on the net worth and federal taxable income of your company but it cannot be lower than $100. You might need to contact a tax professional for assistance.
Local Tax Business Demands
Depending on the exact location of your company in Alabama, you might need to pay local taxes. The biggest cities in the state have online portals for entrepreneurs, including Montgomery, Mobile, Birmingham, and Huntsville. Visit them to get more information.
Stage №6: Getting Business Licenses & Permits
Your LLC must have all the required permits and licenses to operate in certain industries in Alabama. According to state law, a limited liability company can only provide one type of service. Its owners must be registered or licensed to provide the service under which the LLC was created.
The details depend on the type of service offered by the business. You should visit The Business Licensing page to find out the cost of the permits. This website provides the latest information regarding notices and laws in Alabama. It also holds the answers to the most popular questions about business licenses in the state. Visit the Alabama.gov portal if you are looking for additional sources of information.
Other Stages for Business Owners After LLC Registration
After completing the six mandatory steps towards starting an LLC, you need to take care of the following.
Opening a business bank account
Separate your personal and LLC accounts. Thus, you will be sure of the safety of your personal and financial data. Besides, you won’t have any hassle when filing your charge returns. Your EIN will help you open a business account quickly, no matter what you choose a bank or credit union.
All owners of companies/corporations, regardless of their form of management that attracts employees, must go through the compensation insurance procedure. All basic and detailed information is available with the Alabama Bureau of Workers’ Compensation.
This policy aims to protect the rights of workers who are injured at work and unable to work. It will not be superfluous to get a civil liability insurance policy, as well as pay attention to some other types of insurance.
As you might have guessed, an income report requires you to account for the income realized from your LLC. Please note that it needs to be filed even if you failed to earn any money throughout the year. LLCs in Alabama include it within the Annual Report that is turned to the Department of Revenue.
Owners of the business need to fill the Form 1065. In addition, it is required to fill an Alabama Schedule K-1 for every person who was owner or partner of the LLC during the taxable year. Click here to find the forms required for Alabama companies.
Referring to the services of a qualified accountant
Entrepreneurs who do business in Alabama need to file an Annual Report by April 15th at the latest. It intends to show that your LLC is still operating.
The annual report provides disclosure of your company’s yearly activities to the authorities. In contrast to other states, LLCs in Alabama file their annual reports with the Department of Revenue.
It is filed jointly with the state’s Business Privilege Tax return. Every LLC in the state is obligated to file annual reports and pay the Business Privilege Tax, which is at least $100. The Initial Report / Business Privilege Tax return needs to be filed no later than 2,5 months since the date of LLC formation.