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 the 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 an exhaustive 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 filing 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 Weebly to search 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
While other states require LLCs to file Articles of Organization, Alabama requires a Certificate of Formation instead. This document will ask for your business name, LLC type (series, professional or nonprofit), the name and address of your registered agent, a copy of your name reservation certificate, and a few other details about your business.
Make sure to read all of the instructions carefully. Alabama has some very 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 close attention to detail it could have serious consequences.
Since Alabama’s requirements are more complicated than other states, we definitely recommend consulting with an attorney or using an online filing service to help you through the formation process. From our perspective, the number of details you’ll have to handle can be distracting and overwhelming - taking time away from starting your business.
Step 4) Draft An Operating Agreement
If you’re starting a single-member Alabama LLC, you can skip over this step. However, if your LLC has two or more members, you’re going to want an LLC operating agreement. An operating agreement is a document that outlines the leadership/ownership structure of your LLC. This includes:
- The titles and responsibilities of each member.
- The percentage of ownership each member has.
- Profit and loss distribution.
- How ownership will be transferred in the event that a member leaves.
Like most states, Alabama doesn’t legally require your LLC to have a formal operating agreement in place. Section 10A-5A-1.02 indicates that an LLC’s operating agreement can be “written, oral or implied.” That said, it’s in the best interest of your business to have a written agreement to help resolve or prevent disputes when something changes in your membership structure.
What To Do:
There are several ways to approach writing an operating agreement, but the top two we recommend are:
- Using an online template. We’ve ranked our top 3 LLC operating agreement templates to help you find the most thorough and affordable resources.
- Purchasing a customized operating agreement through an online filing provider. If you’re already forming your LLC with the help of a business formation service, it’s worth checking out their rates for adding an operating agreement to your package.
Step 5) Get An EIN
Next, it’s time to get an EIN (Employer Identification Number) for your LLC. There tends to be confusion around when an EIN is actually required, so let’s clear that up now. You need an EIN for your Alabama LLC if:
- You plan to hire employees.
- Your LLC has more than one member (i.e. you’re not a single-member LLC).
- You’re a single-member LLC, but you intend to be taxed as a corporation instead of a sole proprietorship.
There are a few other specific instances when an EIN is required, which are detailed on the IRS website.
What To Do:
The best way to get an EIN is to apply using the IRS online application. It might take you a little while to fill out, but it’s much cheaper than having a filing service obtain it for you -- in fact, it’s completely free if you do it yourself. If the online method doesn’t work for you, you can also apply for free via phone, fax or mail. We take a look at what each approach entails in our EIN guide.
Maintain Your LLC's Personal Asset Protection
Using dedicated business banking and credit accounts is essential for personal asset protection.
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 protect your business with these two steps:
1. Opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
2. Getting a business credit card:
- Helps you separate personal and business expenses.
- Builds your company's credit history, which can be useful to raise capital later on.
Reduce the Liability of Your LLC
Business insurance helps you manage risks and focus on growing your business. 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 against claims of malpractice and other business errors.
- Workers' Compensation Insurance: A type of insurance that provides coverage for employees’ job-related illnesses, injuries, or deaths. In Alabama, businesses with five or more employees are required by law to have workers' compensation insurance. Note that officers and LLC members are counted as employees. Get a free quote with ADP.
The final step is to take care of any permits, licenses and taxes required of your Alabama LLC. It may be that your LLC only needs a general business license, but depending on your business type you may be obligated to fulfill several requirements on a federal, state and municipal level.
Here are some resources for each:
- Federal: You’ll find all the links you need to learn about and apply for federal permits and licenses on the Small Business Association website. They also have some helpful information on federal business taxes, but the best resource for tax information is the IRS website.
- State: The Alabama Department of Revenue website outlines all state-specific business taxes and licenses. Their FAQs page is a fairly thorough resource for quick answers to any questions you may have.
- Local: You’ll need to contact your local Chamber of Commerce to find out what requirements are unique to your locality.
What To Do:
Do some initial digging using the links above. If you find that this step is simply too complicated for you to do on your own, you might look into using a business license service. These companies will do all the research on your behalf and send you the necessary forms ready to be signed.
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 setup 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/tax filing for you all for one monthly fee. Mazuma ($95/month) is a one such reliable all in one tax service.
2) Employee Payroll
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 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.