If you’re starting a business in Alabama, the first step you’ll need to take is to form an Alabama LLC. An Alabama LLC will separate and protect your personal assets (that’s what the “limited liability” in limited liability company means). It will also legitimize your business in the eyes of your potential customers.
This article will walk you through all the steps required to form your Alabama LLC and get your business started on the right foot. Be sure to bookmark this page, as the process may take you a few days from start to finish.
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Steps to Form an Alabama LLC
Forming an LLC in Alabama on your own doesn’t have to be difficult. Just follow these simple steps below and your new business will be up and running in no time!
How to Form an Alabama LLC – Quick Version
- Choose a name for your LLC (and get the domain name)
- Assign a registered agent (learn about Alabama registered agents)
- File Your LLC Certificate of Formation (Alabama Secretary of State Business Entities – $200 filing fee)
- Create Your Alabama LLC Operating Agreement (here’s a free template)
- Get an EIN (IRS EIN Assistant)
Or, skip the work and use a trusted LLC formation service. Our pick is Northwest Registered Agent ($29 + state fees).
Step 1. Choose a Name for your Alabama LLC
The first step to forming an Alabama LLC is to choose a name for your business. Deciding on the perfect name for your new business is one of the most crucial parts of starting a company. Choosing a name that’s easy to remember and stands out in search engine results will help you get more customers, which means more revenue, which leads to more growth!
When choosing a name, there are a few searches that you need to complete before you settle on the final option:
- Alabama LLC Name Search – Search here – This is the database of all “taxable entities” in Alabama. Essentially, your name must be unique to all existing entities in the state. Alabama’s Secretary of State Business Entities Division requires Domestic LLCs and Foreign LLCs to obtain a Certificate of Name Reservation before filing formation documents.
- Domain Name Search – Search here – You’ll want to ensure that your business’s name is available as a URL so that you can keep up your branding online. In many cases, the .com name may be taken. If this is the case, you can try adding “modifiers” to your name or use a different TLD (.co, .net, .biz, etc…) until you find an available domain name. Don’t skip this step. Even if you aren’t ready to start a website today, it’s important to register your domain name so that no one else snaps it up in the meantime.
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3. Social Media Search – Depending on your business, you may want or need to have a strong presence on the different social media platforms. Even if you don’t think you’re going to use them, it’s still wise to search Facebook, Twitter, Instagram, LinkedIn, and any other socials to see if your handle is available.
Alabama LLC Naming Rules
The Alabama Secretary of State has a few rules when it comes to naming LLCs:
- You must use an LLC designator (ie. “LLC” “L.L.C.”, or “Limited Liability Company”, etc…) in your LLC’s name.
- You cannot use a designator that could confuse your LLC with another business type (ie. “Corp”, “Inc”, “Non-Profit”, etc…).
- To use a term like “bank”, “university”, “law center” or other assuming words in your name, you must obtain approval from the proper authorities. This generally requires that your business hold the correct charters or have members with certain licenses before applying.
- Your name can’t be so similar to another business name that it could confuse customers.
To see the actual statutes and regulations governing the Alabama Limited Liability Company naming process, see this Alabama LLC Naming Statutes page.
The most common reason that LLC applications are denied is an issue with the name. If you follow the rules outlined above, you should be in the clear, but if you aren’t 100% sure then you may want to work with an LLC formation service to ensure you get it done right the first time. Our recommended LLC provider, Northwest Registered Agent is only $29 + state fees.
It’s worth noting that you should be fairly certain that the name you select is the name you are going to stick with. Changing an LLC’s name isn’t impossible, but there are a lot of headaches and fees associated with the process.
If down the road, you do decide that your LLC’s name no longer serves the branding of your business, a simple solution would be to create an assumed name (also known as a DBA). An assumed name allows you to keep your LLC name the same and operate under a trade name different from the LLC’s.
To learn more about naming businesses, check out our guide: Naming An LLC.
Once you’ve decided on a name that follows all of the guidelines above, move on to the next step.
Step 2. Assign a Registered Agent in Alabama
The Alabama Secretary of State requires all LLCs to appoint a registered agent.
A registered agent is a person or entity that is assigned to receive tax forms, legal documents, official notices, and any other documents or correspondence from the government on your business’s behalf. This person can be yourself, a friend or family member, another member of your business, or a hired registered agent service.
In order to act as a registered agent, the person or entity must:
- Have a physical street address in Alabama (not a P.O. Box)
- Be available at all normal business hours to accept service of process (official documents)
The registered agent will be assigned on the Certificate of Formation when filed.
Recommended Registered Agent Service
Northwest Registered Agent offers their Alabama registered agent service free for one year when you form your LLC ($29 + state fees) with them.
Should You Be Your Own Registered Agent?
A common question is whether or not you should “be your own registered agent”. Taking this position for your business is absolutely possible, but there are some downsides that you should think about before making this decision.
The first and most important downside in acting as your own agent is that you lose any anonymity that your LLC would have provided you. Since your LLC formation is a public record, this means that your name, address, and any other contact information will be available for anyone to see. This generally results in lots of junk mail, solicitations, and possibly even unwanted visitors at your home address.
The second issue is a bit less common but just as important for some folks. If you don’t have a physical address in Alabama, then you won’t be able to file for an LLC. This affects non-residents or those trying to form a foreign llc.
Fortunately, using a registered agent service solves all of these issues at a very low cost. These service providers hold a physical office in each state and make the process simple for small businesses.
Want to learn more about registered agents? Check out these articles for a deeper dive into their services:
- Why You Need a Registered Agent
- Benefits of a Registered Agent Service
- Best Registered Agent Services
- How to Find a Registered Agent in Another State
Step 3. File Your Alabama LLC Certificate of Formation
After choosing your registered agent, the next step is to file the LLC Certificate of Formation with the Alabama Secretary of State. This is the document that actually forms your LLC as a separate legal entity.
With your application, you’ll need to pay the Alabama LLC Filing Fee: $200.
The simplest way to file this document is online with the Alabama SOS Online Services. You’ll need to create an account using the name of your business, an active email address, and a credit card that you’ll use to complete your purchase. The system isn’t extremely user-friendly, but everything you’ll need is there.
If you don’t want to use the online system, you can also apply by mail. If you choose this option, you’ll need to download the Alabama Certificate of Formation and fill two copies out completely and accurately. Mail both copies of this form and a check or money order (not cash) for the $200 fee to:
Secretary of State
P.O. Box 5616
Montgomery, Alabama 36103-5616
Step 4. Create Your Alabama LLC Operating Agreement
Once you’ve filed your Certificate of Formation, your next task is to complete your Alabama LLC Operating Agreement.
A Limited Liability Company Operating Agreement is a governing document that lays out the inner workings of your business’s structure. Think of this document as something similar to a prenup, except a lot simpler and less expensive. It will protect the interests of all parties involved in the case of any sort of trouble in the future.
There are six articles in a standard Operating Agreement:
- Organization – Lays out the members and business structure of the company (ie. single-member, multi-member, series LLC, limited partnership, etc…)
- Management and Voting – Goes over how the management operates and votes about changes in the LLC
- Capital Contributions – Discusses initial and subsequent capital contributions made by members
- Distributions – Explains how the profits and losses will be distributed among members
- Membership Changes – Outlines how members are added and removed from the company
- Dissolution – Describes how the affairs of the LLC will be wound up in the event of dissolution
In Alabama, you don’t need to file your operating agreement with the state, but this doesn’t mean that you should skip this step. If you don’t have this document in place and something happens to you or another member, it’s possible that the state could step in to settle any disputes. It’s better to have everything lined up at the beginning, rather than wait until it’s too late.
If your business needs an Alabama Sales Tax License to operate, you will be required to submit your operating agreement in that application. More about tax licenses later.
Free Alabama LLC Operating Agreement Template
Our friends over at TRUiC offer a free Alabama LLC Operating Agreement PDF for download. It’s robust enough to handle the needs of most single-member LLCs. If you have a multi-member LLC, manager-managed LLC, or other, more complicated setup, they offer a fill-in-the-blank Operating Agreement for all other uses. It’s also free of charge.
Step 5. Get an EIN (Employer Identification Number)
The last formation step for your business is to get an EIN (Employee Identification Number). An EIN is essentially like a social security number for your LLC. The IRS issues EINs and will use it to keep track of your business’s tax reporting.
The main reasons that you’ll need an EIN are:
- Opening a business bank account and/or credit card
- Hiring employees
- Tax purposes
- Further separates your personal identity from your business
To get your EIN, head to the IRS EIN Assistant and fill out the form. One of the requirements to obtain an EIN for your business is that you’ll need to enter either your personal Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN). If you don’t have either of these, then you’ll need to jump through a few more hoops to get your EIN.
Check out TRUiC’s article on getting an EIN as a foreign person for more information.
Steps After Forming Your Alabama LLC
First off, congratulations on forming your LLC! Taking this first big step shows that you are serious about your new business and shows its legitimacy to the rest of the world!
Now that your LLC is formed and you have a separate legal business entity, you’ll need to take care of a few more things before you start selling.
Open a Business Bank Account
The main job of an LLC is to separate the business’s assets from you, the business owner’s personal assets. This separation is called the corporate veil. Essentially, it ensures that if your business is ever sued or has any other financial debts that your personal assets are sheltered from these liabilities. This is where the “limited liability” in LLC comes from.
The easiest way to break your corporate veil is to mix your personal bank account with your business’s. This mixing of funds is called commingling. This opens your personal bank account up to undue exposure and completely breaks the asset protection that your LLC was meant to provide.
The good news is that avoiding this danger is extremely simple. Open a business bank account using your EIN number, transfer any initial funds (keep a record of this transfer), and do your best to never cross personal and business funds in the future.
If you ever need to take money out of the business or invest more of your personal funds in just be sure to keep records of these transactions. This includes the transfers you make when paying yourself a “salary”.
Build Your Business Website
No matter what type of business you operate, you need a website in order for your customers to take you seriously. Almost all businesses transactions today start with an online search, so if you aren’t there to be found then your customers will find your competition. It’s that simple.
Luckily, it’s gotten a lot simpler to build and maintain a website on your own without any prior experience or knowledge of data science or code. Drag-and-drop website builders have improved to the point that anyone can get their business online with about a day’s work.
Our Recommended Website Builder
We recommend the GoDaddy Website Builder for all small businesses. It’s flexible enough to handle most types of small businesses and simple enough to actually use. Its AI-powered generation process will help you to get your site up and running in about 5 minutes. Seriously. After that you can change the text and images to match your business and that’s it; you have a fully functioning website.
Get the Proper Licenses, Permits, and Insurance
When starting a business, there are often several licenses and permits required before transactions can begin. Which licenses you need will depend greatly on the type of business you plan to operate and the location.
Alabama Business Licenses and Permits
Finding the specific licenses and permits your business needs to operate will start with a few simple searches. To get started, you’ll need to quickly search the websites of:
- The state-level (Alabama DOR Business & License Tax)
- The county-level
- The city-level
Once you’ve identified the different location-based permits, you’ll need to acquire any licenses required by your industry. This includes licenses like the Alabama real estate license, the Alabama insurance license, the Alabama liquor license, and so on.
Alabama Business Insurance
Once you’re up and running, it’s important to have the proper insurance policies in place for your Alabama business. Some coverages will be required by the state if you have employees, while others will be required by landlords. Others still are “optional” but widely accepted due to their protective nature.
A few of the most common business insurance policies are:
- General Liability Insurance – Protects against claims of bodily injury, personal injury, or property damage. This coverage is generally required to rent office or warehouse space and to bid on certain jobs.
- Professional Liability Insurance – Protects against claims of inaccurate or negligent work. This coverage is most common in the “professional” space where businesses offer services or advice to other businesses or consumers.
- Workers’ Compensation Insurance – Protects your employees from on-the-job injuries or illnesses. Alabama requires to carry workers’ compensation coverage for businesses that have four or more employees.
How Much is Business Insurance?
94% of businesses have a requirement for business insurance. Policies range in price, and the only way to understand the true cost for your business is to get a personalized quote.
Register Your LLC for an Alabama State Tax Permit
Certain businesses will need to apply for an Alabama State Sales Tax Permit. Not all businesses are required to register for sales tax, but if your Alabama-based business engages in any of the following, then you will need to apply:
- If your business sells or leases personal property (tangible items)
- If your business offers taxable services
To apply, visit the Alabama Department of Revenue website and fill out the required forms. You’ll need to allow 2-3 weeks for processing, so be sure to take action on this as soon as possible.
Alabama LLC Business Privilege License and Tax
Each year, your Alabama LLC is required to purchase an annual license in the county where you do your business. The amount varies per county and it can be purchased from your Local County Probate Judge.
Also, every LLC in Alabama has to file an annual privilege tax return and pay the business privilege tax which is 0.00025% – 0.00175% of your LLC’s net worth with a minimum amount of $100. This report is due by April 15th each year and is required for all Alabama LLCs and corporations.
Information on these can be found at the Alabama Department of Revenue’s website.
This report can be quite complicated depending on your business operations, so we recommend working with a licensed CPA to ensure you are filing correctly.
Alabama Secretary of State Contact Information
Business Entities Division
P.O. Box 5616
Montgomery, AL 36103-5616
RSA Plaza – Suite 580
770 Washington Ave.
Montgomery, AL 36104
Monday – Friday, 8:00am – 5:00pm
Phone: (334) 242-5324
Alabama LLC FAQ
How much does it cost to start an LLC in Alabama?
How long does it take to get an LLC in Alabama?
The general filing time for Alabama LLCs is 3-5 business days.
Can I start an Alabama LLC for free?
No. When filing an LLC in Alabama there is a $200 filing fee for all applicants.
What taxes do LLCs pay in Alabama?
While there is no state income tax or personal income tax in Alabama, there are several other Taxes that your LLC may encounter. We recommend speaking with a licensed tax professional to ensure you are filing and paying the proper taxes.
What is the cheapest way to get an LLC in Alabama?
The cheapest way to get an LLC in Alabama is to follow the steps above and file yourself. There is an LLC filing fee of $200, but this is required whether you file on your own or use an LLC filing service.
Can I be my own registered agent in Alabama?
Yes. See above for more information.
Do Alabama LLCs expire?
LLCs in Alabama don’t “expire”. If you fail to file annual Business Privilege Tax Return and Annual Reports, then your LLC may be subject to fines and fees. Over time, this could lead to an “automatic dissolution”. We recommend working with a professional registered agent service who will inform you of upcoming reports and even help you file them.