Guide to Forming an LLC in Alabama
Follow our free guide to form an LLC in Alabama
- Pros and Cons of Forming an LLC in Alabama
- Starting Your Alabama LLC
- Maintaining Your Alabama LLC
- Additional Alabama Resources
Starting an LLC in Alabama can be complicated, but our comprehensive guide, which is divided into two main phases, walks aspiring business owners through every part of the Alabama LLC formation journey.
Pros and Cons of Forming an LLC in Alabama
Privacy for Owners
Alabama is among the states that do not require full disclosure of an LLC’s members in the incorporation paperwork. An organizer is allowed to sign and file the necessary documents.
No Annual Report
Alabama is one of the few states that does not require an annual report — business owners only need to file annual state tax returns in place of the report.
Complicated & Expensive Set-Up
Alabama is one of the least business-friendly states in the country. There are multiple fees required to file the formation documents, as well as a complicated tax fee structure that starts with a minimum $100 payment.
High Poverty Rate
Alabama’s poverty rate is approximately 3% higher than the national average (17.3% vs 14%), with almost 25% of the state’s counties registering as high as 25% above the US average. Recent reports show that almost 800,000 residents earn below the national poverty level of $12,000, making Alabama the sixth poorest US state.
Low Household Income
The average household income in Alabama is almost $15,000 below the national average — $46,250 compared to almost $60,000.
Cost of Doing Business
- $100 filing fee (+ fee to Judge of Probate)
- Min $100 Business Privilege Tax & Annual Report
Phase One: Starting Your Alabama LLC
Starting an LLC may not appear overly simple, but you will see that forming a business can be done without a lot of stress. The process is not that difficult when you have help.
- Step 1: Name your LLC
- Step 2: Establish Ownership of your LLC
- Step 3: Decide on a Registered Agent
- Step 4: File the Certificate of Formation
- Step 5: Create your Operating Agreement
- Step 6: Register for an EIN
Step 1: Name Your Alabama LLC
The first step in forming your Alabama LLC is to choose a name your business. There are state and federal regulations and restrictions concerning business names.
Tip: Use a free business name search tool to ensure your company’s desired name is available.
Business Name Guidelines
- The official name of your business must end with: Limited Liability Company, Limited Company, LLC, or L.L.C.
- Your business name cannot be intentionally misleading to consumers
- The name of your new LLC must not be similar to another organization’s name/trademark
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educational or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted - it depends on the state. Additional paperwork may be required.
Establishing an online presence is equally important for your new LLC. You can determine domain name availability at a number of online web services sites.
Step 2: Establish Ownership
The owners of an LLC are known as members and managers. All LLCs will have members, but not every LLC will have managers — the difference depends on the management structure of the business.
LLC Management Structures:
- Member-managed: All members participate in operating and making decisions for the LLC
- Manager-managed: An appointed manager oversees the daily operations of the LLC and the members are not actively involved.
Alabama LLC Member Guidelines
Required Number of Members
There must be at least one member or manager to form an LLC in Alabama.
Member Disclosure Requirements
An organizer/authorized representative may sign and file the Certificate of Formation in place of the LLC members.
LLC members in Alabama may be of any age.
There are no residency restrictions imposed on LLC members in Alabama.
Step 3: Find a Registered Agent in Alabama
The registered agent is necessary for all Alabama LLCs. Your business cannot be official without filling this position.
What is a registered agent?
A registered agent is a person or business who is authorized to accept official government mail and service of process notices on behalf of the LLC.
Why do you need a registered agent?
You are required to appoint a registered agent for your Alabama LLC so that the government has a consistent contact person for your LLC.
What are the main requirements for a registered agent?
- The registered agent must have a physical address — not a P.O. Box
- The registered agent must be available during business hours
Who can be a registered agent in Alabama?
- A state resident with a physical address in Alabama
- An LLC or corporation that is licensed to conduct business in Alabama
Is the registered agent’s contact information publicly accessible?
The name and contact information of the LLC’s registered agent is a matter of public record.
Can I be my own registered agent for my business?
You can be your own registered agent as long as you have a physical address in Alabama.
Is being my own registered agent discouraged?
LLC business owners who choose to be their own registered agent risk compromising their personal information.
Tip: Avoid the hassles and choose Swyft Filings to fill the registered agent needs for small businesses in Alabama. Find more information here.
Step 4: File the Certificate of Formation
The most important step in creating your Alabama LLC is filing the Certificate of Formation with the Judge of Probate.
What is the Certificate of Formation?
The Certificate of Formation is a legally binding document that must be filed with the Secretary of State and Probate Judge to officially and legally form your LLC.
Why do I need the Certificate of Formation?
The Certificate of Formation is necessary for your Alabama LLC will not be legally recognized without filing this document.
Where do I file the Certificate of Formation?
Unlike most states, LLC owners do not file the Certificate of Formation with the Secretary of State; instead, the documents are sent to the Judge of Probate’s office.
What is the filing process for an Alabama LLC?
You are required to send ONE signed original and TWO copies of the Certificate of Formation to the Probate Judge’s office in the county where your LLC is located.
Additionally, send two forms of payment with the documents — for the Judge of Probate and the Secretary of State.
What is the cost of filing the Certificate of Formation?
There are two filing fees to cover for an LLC in Alabama:
- Fee to the Secretary of State ($100)
- Fee to the Judge of Probate (varies; $50 — $75)
Please Note: The filing fee for the Judge of Probate varies and is based on the county where your LLC will operate.
What information is included in the Certificate of Formation?
- The name and address of the LLC
- The name of the organizer filing the paperwork
- The name and location of the registered agent
Additional Alabama Filing Information — Professional LLCs
Professional service businesses in Alabama are allowed to form a specific professional LLC (PLLC).
Example professions that may form PLLCs:
- Physicians and Medical Professionals
- Professional Counselors and Psychologists
- Architects and Engineers
- Social Workers
A few points to consider:
- All members of the PLLC must be licensed in the profession of the business.
- The PLLC is only allowed to provide services for which the business was formed.
- The members are still subject to whichever licensing boards govern the PLLC’s profession.
Step 5: Create an LLC Operating Agreement
An LLC Operating Agreement is necessary for the successful formation of your Alabama LLC.
What is an LLC Operating Agreement?
The LLC Operating Agreement defines the rights and responsibilities of the LLC members/managers and lays out the details involving the business’s operating guidelines.
Why do I need an LLC Operating Agreement?
The LLC Operating Agreement is necessary because it provides structure, protects business assets, and reduces disputes among members.
Do I need to file the LLC Operating Agreement?
The Operating Agreement remains in-house and does not need to be filed.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC Operating Agreement, most documents include the following information:
- List of the members/managers and their roles
- Designation of authority in the LLC
- Initial capital contributions of the members
- Voting designations and percentages of the members
- Member transfer/addition rules and restrictions
- Distribution of profits
- Meeting schedule
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Add structure to your LLC now.
Step 6: Register for an EIN
Most businesses formed in Alabama must register for an EIN. Your Alabama LLC will not be able to conduct business without this ID.
What is an EIN?
The EIN is a nine-digit number that is assigned to your business by the Internal Revenue Service (IRS). The EIN identifies your business with the government much like a personal Social Security number.
What does EIN stand for?
EIN is an acronym for Employer Identification Number. It is also known as a Federal Tax ID.
Are all businesses required to have an EIN?
Federal law dictates that certain types of business entities register for an EIN:
- Any business with employees (even if owned by one person)
- Any business with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is not required to have an EIN, but it is still recommended.
Why does my LLC business need an EIN?
The more common reasons you would need an EIN are:
- To hire employees
- To open a bank account in the U.S.
- To file your company’s taxes
- To pay independent contractors
In short, if you make money through your business and it has employees, you must have an EIN.
Is the EIN publicly listed?
The EIN for your LLC will be part of public record.
Can I use my Social Security Number as the EIN?
If you are a sole proprietorship who wants an EIN for your business, you can elect to use your social security number; however, your EIN is part of public record.
Swyft Filings offers EIN services for small businesses in Alabama. Find more information here.
Phase Two: Maintaining Your Alabama LLC
Now that you have finished the initial phase of setting up your Alabama LLC, the following steps help move your business forward and stay compliant. The next few steps are:
- Step 1: Register for Taxes in Alabama
- Step 2: Apply for Permits and Licenses
- Step 3: File the Initial Business Entity Tax Return
- Step 4: File the Business Entity Tax Return
- Step 5: Request a Certificate of Good Standing
Step 1: Register for Alabama State Taxes
All businesses in Alabama that limit personal liability (C-corp, S-corp, LLC, LLP) must pay the Business Privilege Tax (BPT) that ranges from $0.25 to $1.75 per $1,000 of taxable business income. There is a minimum BPT payment of $100. See table below:
Important: The Business Privilege Tax Return takes the place of the Annual Report.
State Income Taxes
Alabama’s state income tax rates are listed in the table below:
Corporate Tax Information
You can also choose to have your LLC taxed as a corporation; if so, you will be responsible for paying both the Business Privilege Tax and the 6.5% corporate income tax.
Additional Tax Information
Other taxes your LLC may need to pay:
- Sales and Use Tax at 4%
- Employee Withholding Tax
- Unemployment Tax
Step 2: Obtain Business Licenses and Permits
The licenses and permits required for an LLC in Alabama can vary, depending on a number of variables:
- Location (city and county)
- Type of Business
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: File the Initial Business Entity Tax Return
All businesses formed in Alabama are required to file an initial business entity tax return with the Department of Revenue.
Fees and Due Date
Fee: Min $100 fee (see BPT tax chart)
Due Date: within 2.5 months of LLC formation
Frequency: only once
Swyft Filings helps you stay compliant by providing stress-free solutions. File your initial business entity tax return with us today.
Step 4: File the Business Entity Tax Return
Alabama businesses must file a business entity tax return with the Department of Revenue in place of the annual report.
Fees and Due Date
Fee: Min $100 fee (see BPT tax chart)
Due Date: April 15th
Step 5: Request a Certificate of Good Standing
Your Alabama LLC is almost ready for business, but the last step is requesting a Certificate of Good Standing.
What is a Certificate of Good Standing?
The Certificate of Good Standing is a state notification that confirms a business is in compliance with state regulations.
Who issues the Certificate of Good Standing?
The Certificate of Good Standing is generally issued by the Secretary of State.
When can I request a Certificate of Good Standing for my business?
You can request a Certificate of Good Standing formed from the Secretary of State after your LLC is officially formed.
Why do I need a Certificate of Good Standing?
Having a Certificate of Good Standing is important because it gives more credibility to your new LLC. Banks, financial institutions, and other businesses will want to see this certification.
Does the Certificate of Good Standing have an expiration date?
The Certificate of Good Standing does not expire/does not need to be renewed.
Swyft Filings can create a Certificate of Good Standing for your Alabama LLC. Click here for more information.