How to Start Your Own LLC in Alabama

This is a comprehensive, step-by-step process of how to set-up an Alabama LLC, covering the choice of a business name to remaining afloat once the business is registered.

1. Name Your Alabama LLC

One of the most significant decisions in the formation of an LLC is the selection of the appropriate name of the business. The name is your brand identity and the view that the customers get of your business first.

How to Choose a Business Name

There are various ways of approaching the naming of your LLC:

• Naming Your Business Idea: Before making a name choice, first define what your business idea is going to be.
• Request Feedback: seek advice and opinions of close friends, relatives or subordinates.
• Make Online Searches: Do you have a desirable domain name and an active social media?
• Generate Online Name: These are good in brainstorming, but they cannot substitute intelligent thinking.

The name that you want as your LLC must be unique, memorable and compliant with the law.

Check Name Availability in Alabama

Check Alabama Secretary of state Business entity database to ensure that your preferred name is not used. The name should also be sought to be too close since the state of Alabama can disapprove names that may create confusion.

Alabama LLC Naming Rules

According to the Alabama law, your LLC name should:

• Incorporate Limited Liability Company, or an acronym such as LLC or L.L.C.
• Not mean compliance with a state organization.
• Do not use restricted terms like bank, insurance, trust or university without the proper approval.
• Be not similar to other registered businesses within the state.

Check Federal Trademarks

You should research the U.S. Patent and Trademark Office (USPTO) database to check whether the name is federally registered before registering your name.

Name Reservation in Alabama LLC

Alabama needs to reserve the name prior to formation. Go to the Alabama Secretary of state Business Services.

Click on reserve an entity name and choose name reservation. Read instructions, make payments on review filing and complete online or paper application.

Doing Business As (DBA), or Trade Name

You will need to first register a trade name (DBA) in case you have to work under a name other than your legal LLC name.

Why Use a DBA? To conduct more than one brand under a single LLC or to receive payments and open bank accounts with another name of a business.

Scenario: JJ Waffles LLC can apply to register JJ Muffins under DBA.

In order to register a trade name, one should download Trade Name Application at the Secretary of State, provide evidence of the use of the name (specimens), and pay the filing fee.

2. Select a Registered Agent

The Alabama statute makes it necessary to have a registered agent in all LLCs. This individual or business entity is addressed with legal notices, tax mail, and governmental documents of your business.

Requirements of Registered Agent

The registered agent must:

• Be 18 years or older
• Physical street address in Alabama.
• Be present at normal working hours.
• Have permission to operate in Alabama (in case of an entity)

You can also serve yourself as a registered agent, but it is common to set professional services in place of many business owners due to privacy and convenience.

3. Decide on Your Management Structure

There are two ways of how Alabama LLCs can be managed:

Member-Managed LLC

• Everybody is involved in the day to day running.
• Most suitable when there are few owners of a business.

Manager-Managed LLC

• The managers are appointed by the members.
• Optimal in a scenario where there are passive owners of the owners.
• The managers can or can not be members.

In case of omitting any structure in the Certificate of Formation, Alabama uses member-managed.

4. Register a Certificate of Formation in Alabama State

In order to complete the legal registration of your LLC, you should apply to the Alabama Secretary of State with a Certificate of Formation.

• Required Information
• LLC name
• Principal office address
• Name and address of registered agent.
• Registered office address
• Contact information of the organizer.

Filing Fees

• Certificate of Formation: $200
• Name reservation: $25–$28
• Online processing fee: ~$11

Processing Time

• Online filings: normally fast.
• Mail filings: up to 2–3 weeks

5. Write LLC Operating Agreement

Though Alabama does not have a legal requirement of an operating agreement, its presence is highly encouraged.

What an Operating Agreement Incorporates

• Name and address of the principal of the LLC.
• Ownership percentages
• Managements and voting rights.
• Distribution of profit and loss.
• Member addition / removal procedures.
• Dispute resolution rules
• Record-keeping requirements

An operating agreement will also aid in avoiding controversy and giving more protection to liability even in single-member LLCs.

6. Get an Employer Identification Number (EIN)

The IRS provides an EIN which serves as a Social Security number to your business.

An EIN is required if:

• Your LLC consists of more than one member.
• You hire employees
• You make corporate taxation.

It is possible to request an EIN without charge on the IRS site.

7. Acquire Business Permits and Licenses

Depending on your industry, your LLC might require a license or a permit, either on federal, state, county, or city level.

Common Licenses & Permits

• Sales tax permit (seller permit)
• Licenses of a professional or industry.
• Health and safety permits
• Zoning and building permits
• Fire and signage permits

The lack of appropriate licenses may lead to fines and even shutdowns.

8. Choose Your Tax Status

The Alabama LLCs are pass-through in default.

Default Taxation

• Single-Member LLC: this is taxed like an individual.
• Multi-Member LLC: Partnership taxed.

Elections of Optional Corporate Tax

• C-Corporation: It is taxable to corporation tax (21) and it may be subject to a second taxation.
• S-Corporation: Approves salary + distributions, which lowers self-employment taxes (meets IRS requirements)

Other Alabama LLC Requirements of significance

Open a Business Bank Account

To ensure that the business is not affected by liability, it is necessary to separate business and personal finances.

Apply to Business Credit Card

Helps finance business credit and business start up costs.

Obtain Business Insurance

Common policies include:

• General liability
• Professional liability (E&O)
• Workers' compensation
• Property and equipment coverage.
• Commercial auto insurance
• Business Owner's Policy (BOP)

Maintain Records

Keep:

• Certificate of Formation
• Operating agreement
• Tax filings
• Licenses and contracts

Business Privilege Tax and Annual Filing

Alabama LLCs are required to submit a Business Privilege Tax Return on a yearly basis to Alabama Department of Revenue.

• The minimum tax normally begins at about 50-100 dollars.
• Deadline: 2 1/2 months into the start of the tax year.

Alabama does not now prepare its own annual report with the Secretary of State - that is wished to be done by the tax filing.

Alabama LLC FAQs