Step 1) Verify & Reserve Your LLC Name
What’s the very first step toward starting an LLC in Alabama? Choosing a stellar business name. Of course, there are a few limitations you have to abide by when naming your business. For instance, you must:
- Choose a name that hasn’t been taken by any existing Alabama business.
- Make sure your business name is free of any prohibited words, like “bank,” “engineer” and “olympic.”
- Include “Limited Liability Company” or the abbreviation “LLC” at the end of the name.
Keep in mind that in Alabama, you’re required to reserve your business name before you can form your LLC.
What To Do:
Check if your ideal name is available by doing a business entity name search on the Alabama Secretary of State website. If it’s available, go ahead and reserve it (mail-in name reservations cost $10 and online reservations $28).
Remember, this isn’t optional in Alabama -- it’s mandatory.
Quick Note: Before you commit 100% to a name, you may also want to check that there’s a decent URL available for your business. Use Weebly to search your options. If there’s a quality domain name for purchase, we advise buying it right away. Even if launching a business website isn’t on your radar right now, it’s going to be soon, and you might as well nail down a domain name that’ll make it easy for customers to find you!
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) 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 have/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.
Step 5) 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 need 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 6) Open A Business Bank Account
This is crucial, even for single-member LLCs. Without having a designated bank account for your business expenses:
- Your taxes will be unnecessarily messy.
- You’ll miss out on all the write-offs and other perks business banking offers.
- You could put your personal assets at risk.
Your business will likely need to start building its own credit, so make sure to open the account using your Employer Identification Number rather than your personal Social Security Number.
What To Do:
Shop around. Local and national banks both offer incentives for small businesses. Do your research on:
- Local banks, like North Alabama Bank.
- Local credit unions, like Alabama Credit Union.
- National banks, like Capital One.
Look through their websites, visit local branches and find out which will be the best fit based on the specific circumstances of your business. Again, both local and national options are worth considering, but we’ve ranked our 5 favorite business bank accounts to get you on your way.
Once you’ve set up your account, make sure to sync it with an accounting software. Managing your finances from the very beginning is necessary for any business to thrive, and it’s especially important if your LLC doesn’t have an accountant yet.
Step 7) Handle LLC Taxes & Licensing
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.
Need Help Forming an LLC?
Forming an Alabama LLC takes some serious time and energy, especially if you’re trying to do it all on your own.
If you'd rather have professionals handle the paperwork for you, here are the three services we recommend looking into. We have reviewed each to outline exactly what you get.
– IncFile ($49 + state fee) = Best Price & Overall Value
– LegalZoom ($79+ state fee) = Best For Brand Recognition