Form An LLC
Step 1) Verify & Reserve Your LLC Name
First off, in order to launch a successful Alabama LLC, you need to give it the right name. Your business name needs to be catchy for branding purposes and legitimate for legal purposes. We go into depth on this topic in our LLC naming guide, but we’ll go over the legal basics below.
Legally, your business name must:
- Contain the words limited liability company or limited company, or the abbreviation LLC or L.L.C.
- Not contain restricted words or phrases (these often include words like bank, attorney, and university) without proper approval.
- Not contain any word that indicates or implies that the LLC is engaged in a business that it is not authorized by law to pursue.
- Be distinguishable from any other entity or trade name registered in Alabama.
For a complete list of naming rules, you can visit the Alabama Secretary of State website.
If you’re having trouble coming up with a name that captures your brand, don’t let that stop you from forming your LLC. For now, you can focus on the legal requirements and consider applying for a trade name after you’ve nailed down your branding.
What To Do:
Once you’ve decided what you’d like to call your LLC in Alabama, do a business name search to find out whether or not it’s in the cards. Keep in mind that Alabama requires LLCs to take the additional step of reserving a business name before it is registered. If your business name is available, you’ll be able to lock it down when you file your Articles of Organization.
Quick Note: Before you commit 100% to a name, you should see if there’s a decent URL available. Use GoDaddy to search for your options. If there’s a quality domain name for purchase, we advise buying it right away because even if launching a business website isn’t on your radar right now, it’s going to be soon.
Step 2) Appoint A Registered Agent
Before you can officially form your business, you need to appoint an Alabama registered agent.
Your registered agent will be responsible for receiving important legal documents like tax forms and service of process notices on behalf of your LLC. They can be an individual who’s a resident of the state, or a company that’s legally authorized to represent businesses in Alabama.
Alabama state business law does give you the option to act as your own registered agent, but many business owners choose to appoint a professional instead.
Here are a few things to think about before you decide to act as your own:
- You’ll have to maintain normal (9 am - 5 pm) business hours at the address you provide.
- If you run your business from home, you’ll be required to make your personal address public.
- You might risk missing important notices, or accidentally tossing them out with the junk mail.
- You could be served in front of your family or coworkers.
What To Do:
If you’re considering acting as your own registered agent, do some more research, starting with our registered agent guide. If you decide you’re up for the task, go ahead and list your own name and address on your Certificate of Formation. Just make sure that you understand 100% of the duties it will entail before you commit.
If you’re leaning toward hiring a professional, we recommend doing so through an online LLC formation service. Many of these companies (like IncFile) offer up to one year of registered agent service for free when you form your LLC with them.
Step 3) File Certificate Of Formation
Now that you’ve decided on a registered agent, it's time to file your Alabama Certificate of Formation online or by mail. This document will ask for your business name, LLC type (series, professional or nonprofit), the name and address of your registered agent, and a few other details about your business.
Make sure to read all of the instructions carefully. Alabama has particular rules for submitting the Certificate of Formation, and filing incorrectly may result in extra fees and delays. As outlined in the form instructions, you must:
- Type all of your responses -- don’t write them by hand.
- Provide one signed original and two copies of your completed certificate of formation.
- Include a check for $100 made payable to the Secretary of State.
- Contact your local Judge of Probate’s office about county filing fees (in addition to the $100 state fee), and ask whether or not they accept payment by credit card.
- Mail everything above to your local Judge of Probate’s office, not the Alabama Secretary of State.
What To Do:
Registering an LLC with the state is a hugely important step toward bringing your business to life and if it’s not done with attention to detail there could be serious consequences.
Since Alabama’s requirements are more involved than other states, we recommend consulting with an attorney or using an online filing service like IncFile to help you through the formation process. From our perspective, the number of details you’ll have to handle can be distracting and time-consuming - taking time away from starting your business.
Step 4) Draft An Operating Agreement
Creating an LLC operating agreement is the only way for you and your members to fully define your roles and lock down your LLC’s management and ownership structure. Having this document in place will also give you all something to return to if a dispute or lawsuit ever arise.
Your operating agreement should at least outline the following:
- each member’s responsibilities
- how new members will be admitted
- how existing members may transfer or terminate their membership
- how profits and dividends will be distributed
You can add as many provisions as you want to your operating agreement, provided they aren't in conflict with Alabama business law.
To access a free operating agreement and learn more about how this document works in Alabama, click here.
Step 5) Get An EIN
The Employer Identification Number (EIN), or Federal Tax Identification Number, is essentially a social security number for your company. State and federal agencies use this number to track your business activity.
Your EIN will also come in handy when it’s time to:
- Open a business bank account
- File Federal and State taxes
- Hire employees
Maintain Your LLC's Personal Asset Protection
Using dedicated business banking and credit accounts is essential for personal asset protection.
Now that you’ve made it through the formation process for your LLC, you’ll need to take steps to protect your personal assets and establish your business as an independent entity.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
You can go a long way in protecting your assets with these three steps:
1. Open a business bank account.
A business bank account separates your personal assets from your company's assets, which is necessary for personal asset protection. A designated business bank account also makes accounting and tax filing easier.
Get $200 when you open a business checking account with Chase.
2. Get a business credit card.
A business credit card helps you separate personal and business expenses. A business credit card will also build your company's credit history, which can be useful to raise capital later on.
3. Designate an authorized representative.
Make sure all documents are signed by a representative of your LLC and not by you (or other LLC members) directly. This will help separate you from liability incurred by the LLC.
Reduce the Liability of Your LLC
Business insurance helps you manage risk and focus on growing your business. Carrying the right coverage protects your LLC from liability and keeps you safe in the event of a loss.
The most common types of business insurance are:
- General Liability Insurance: A broad insurance policy that protects your business from lawsuits. Most small businesses get general liability insurance.
- Professional Liability Insurance: A business insurance for professional service providers (consultants, accountants, etc.) that covers claims of malpractice and other business errors.
There are free services available that quickly assess your business’s insurance needs. These services suggest customized policies with various insurance carriers so that you can choose the best value. One such reliable service is CoverWallet.
You can reduce your LLC’s liability by being fully compliant with employment laws such as:
- Verifying new employees are allowed to work in the US.
- Reporting employees as "new hires" to the state.
- Withholding employee taxes.
- Printing compliance posters and placing them in visible areas of your workspace.
If you plan to hire employees, you might also be required to invest in Workers' Compensation Insurance. This type of policy provides coverage for employee job-related illnesses, injuries, or loss of life.
Find out more information from Alabama's Department of Labor.
As a new LLC, you will need to stay compliant with permits, licenses, taxes, and state filings. This is serious business; failure to comply can lead to fines, tax penalties, and dissolution (the end) of your LLC.
Business Licenses and Permits
To operate your LLC, you must comply with federal, state, and local government regulations. The details of business licenses and permits vary from state to state, so make sure you research carefully and plan accordingly.
Find out how to obtain necessary licenses and permits for your business or have a professional business licensing service do it for you:
Federal: Use the U.S. Small Business Administration (SBA) guide.
State: Use Alabama's Secretary of State website.
Local: Contact your local county clerk and ask about local licenses and permits.
This certificate allows a business to collect sales tax on taxable sales.
Sales tax, also called "Sales and Use Tax," is a tax levied by states, counties, and municipalities on business transactions involving the exchange of certain taxable goods or services.
Here’s a sales tax guide to find out more.
If you have employees in Alabama, you will need to register for Unemployment Insurance Tax through the Alabama Department of Labor. You will also need to sign up for Employee Withholding Tax through the Alabama Department of Revenue.
Alabama requires all LLCs to file an annual report and privilege tax form. If you miss state filings like the annual report, you could face fines or even automatic dissolution. A quality registered agent, like IncFile, service can help protect your assets by keeping track of filing requirements for you.
If you are not making a payment, mail to:
Alabama Department of Revenue Business Privilege Tax Section
P.O. Box 327431
Montgomery, AL 36132-7431
If you are making a payment, mail to:
Alabama Department of Revenue Business Privilege Tax Section
P.O. Box 327320
Montgomery, AL 36132-7320
Due Date: Due each year by April 15th.
Fee: Minimum of $100 with the total, depending on income.
Reduce Administrative Burden
There will be lots of demands on your time once you start your business. With that in mind, it’s a good idea to streamline your workflow and reduce administrative overhead from the get-go. The two most important business tasks to get help with are:
Getting your books in order right up front will save you headaches in the future. At the very least, you can have a professional set up your bookkeeping and accounting for you. This will save you money and time in the long run.
There are all-in-one services that will do your bookkeeping, invoicing, and tax filing for you all for one monthly fee. Mazuma ($95/month) is a one such reliable all in one tax service.
If you have employees, a payroll service will save you a lot of time and also save you from having to become an expert on state compliance or employee tax withholdings and filings.
Gusto is a reliable and good payroll service for small businesses.
Need Help Forming an LLC?
If you’ve got too much on your agenda to worry about all the paperwork and state-requirements, there are a handful of LLC formation services that can take care of everything for you.
Here are the two most popular:
– IncFile ($49 + state fee) = Best Price & Overall Value
– LegalZoom ($79 + state fee) = Best For Brand Recognition
Note that this guide for forming an Alabama LLC isn’t a legal document or legal advice. It’s for informational purposes and the information above is subject to change. For specific legal questions regarding how to form an LLC in Alabama, consult with a business attorney.