- Step 1. Naming Your Alabama LLC
- Step 2. Choose a Registered Agent
- Step 3. File Your Certificate of Formation
- Step 4. Create an Operating Agreement
- Step 5. Get an EIN/Tax ID Number
- Step 6. Keeping Your LLC Running
- Alabama LLC Resources
- Alabama LLC FAQs
Step 1. Naming Your Alabama LLC
One of the most important aspects of your LLC is its name. The name you choose must be unique and distinct from any other business name in the state, in addition to following several LLC naming rules
Legally Required Designation
To adhere to Alabama LLC regulations, the name of your business must contain the phrase “limited liability company” or one of the following abbreviations:
As we mentioned above, the name you choose for your business must be unique and distinct from all other businesses in the state. You can ensure this by performing a search for Business Entity Records via the Alabama Secretary of State’s website.
You should also keep in mind that the name you choose must not include a word that implies the LLC’s business is different from the purpose it is established for. This means you need to select an accurate name that honestly describes your business purpose without misleading potential customers.
The state of Alabama requires that you reserve your LLC name ahead of filing by submitting a Name Reservation Request Form for Domestic Entities. You can file this form either online or through the mail (send it to the address on the form).
Mail filing requires a $25 fee and must be filed approximately 2 weeks before you plan to establish your LLC. Online filing, on the other hand, carries a $28 fee and is instantaneous. You can file the name reservation along with your [ANCHOR TO #File Your Certificate of Formation]Certificate of Formation[END ANCHOR LINK] online, if you so choose.
Additionally, while looking for an LLC name, you may want to perform a domain name search. It is a good idea to purchase a matching domain name ahead of time regardless of when you want to set up a business website, as this will likely save you from future stress.
When choosing an LLC name, keep in mind that you cannot include any words that run the risk of confusing your business with a government entity. This includes words like “IRS”, “Treasury”, or “State Department.”
You should also be aware that using words such as “bank”, “attorney”, or “chiropractor” may require the presence of a properly licensed individual in your LLC; it may also require filing separate paperwork. Alabama does not recognize professional LLCs, but it does allow for the formation of professional corporations.
In certain cases, you can offer professional services through a traditional LLC, but this depends on the type of business. More information on this can be found here.
Using an Assumed Name
In Alabama, you can use an assumed or DBA (doing business as) name for your LLC. This means you continue using the legally registered LLC name on all official documents but use a different registered name when interacting with the public.
If you want to use a DBA name for your business, you can simply start using your chosen name to identify your LLC. You do not have to register your trade name in Alabama, but you may want to file an Application to Register or Renew Trademark, Service Mark, or Trade Name with the Secretary of State’s office to get your DBA name on the public record and alert others to its use. There is a $30 filing fee associated with this form
Step 2. Choose a Registered Agent
Every LLC operating in Alabama is required to obtain a registered agent. This entity will be responsible for receiving all legal documents, government communications, and tax documents for your LLC, essentially acting as a contact point between your business and state or federal agencies. They will also be the responsible party that is contacted in the event of a lawsuit against your LLC.
You can appoint any Alabama resident, including a member of your LLC, or a business that is authorized to conduct operations in the state as your registered agent. As long as your appointee has a valid Alabama street address and is available during regular business hours, they are eligible to be your registered agent.
If you need help finding a registered agent, you can check out this list of commercial registered agents provided by the Alabama Secretary of State’s office.
Step 3. File Your Certificate of Formation
Before 2021, Alabama business owners had to file with a Probate Judge and the Secretary of State’s office to get their LLC formed. However, the new rules state that you must file a Certificate of Formation directly with the Secretary of State’s office. This document contains essential information about your LLC, some of which you can preview below.
- Your LLC’s name
- Your LLC’s register agent name and address
- The type of LLC you are forming
- Your LLC’s effective date, if not immediate
- The signature of your LLC’s organizer
You can file your Certificate of Formation either online or through the mail. Remember that you will need to file a name reservation for your LLC; this can be done ahead of time or at the same time that you file your Certificate. There is a $200 filing fee for sending this document through the mail or a $208 filing fee for submitting the document online.
To file your Certificate of Formation online, you need to access the Alabama Secretary of State Online Services portal. From there, follow the instructions to create an account and file your Certificate of Formation. You will be given the option to file your LLC name reservation at the same time or upload proof of previous reservation. There is a $208 filing fee when submitting this document online and you will get the approval of your document (if everything is correct) within 1 business day.
If you would like to file your Certificate of Formation by mail, you will need to complete and print out this form. Then, you must place it in a secure envelope along with your proof of LLC name reservation or application for reservation (with the applicable $25 fee), and a check made out to the Secretary of State’s office for the $200 Certificate filing fee. Send the sealed envelope to the address below.
It will take between 4 and 7 business days for your LLC to be approved when filing through the mail.
Secretary of State
P.O. Box 5616 M
Montgomery, Alabama 36103-5616
Step 4. Create an Operating Agreement
Alabama does not require LLCs to create an operating agreement, but it is a good idea to draft one anyway. This document sets clear guidelines for exactly how your LLC is managed, the rights that members or managers have, and what to do in the case that your LLC dissolves or experiences a lawsuit.
If you choose not to create an LLC operating agreement, Alabama LLC law will dictate how your LLC is to be managed in the event of dissolution, conflict, or lawsuit. This may not be in your best interest, so creating an operating agreement is a good idea to protect yourself and your assets.
For help creating an operating agreement, check out a template online or consult with an attorney and business advisor. If you are using a template, make sure you change and tailor it to your specific LLC and business needs.
Step 5. Get an EIN/Tax ID Number
After your LLC is established, you must apply for a Tax ID number, also known as an EIN (Employer Identification Number) through the IRS. Any LLC that has more than one member — or any single-member LLC that wants to hire employees or chooses to be taxed as a corporation — is required to apply for an EIN.
Your EIN will be used to identify your business to the IRS on all tax documents and necessary government filings; the number acts much like a social security number for your LLC. If you want to hire employees, file federal taxes, open business bank or credit accounts or apply for business funding, you will need an EIN.
Applying for your EIN is free with the IRS, and you can file online or mail it in. Keep in mind that if you are a foreign filer or do not have a social security number, you must file for your EIN through the mail.
The quickest and easiest way to apply for your EIN is online; you will receive your number once your application is completed. Visit the IRS website to apply for your EIN for free.
You need to fill out this form when applying for your LLC by mail. If you are a foreign filer or do not have a social security number, leave section 7b blank. Mail the completed form to the address below. You can follow up on any questions with the IRS at (267) 941-1099.
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Step 6. Keeping Your LLC Running
Once your LLC has been established in Alabama, you must meet certain ongoing requirements to ensure that your business stays running smoothly.
File Annual Reports
All LLCs in Alabama are required to file an annual report and Business Privilege Tax (BPT) Return with the Alabama Department of Revenue. The first filing is due 2 and a half months after your LLC is first formed, with subsequent reports due on or before 3 and a half months after the beginning of the LLC’s taxable year.
How much you pay to file depends on your LLC’s income, but there must be a minimum of $100 in taxes paid each year. More information on registering your LLC, filing the report and BPT return, and calculating how much you owe can be found on the Department of Revenue’s website.
Separate Your Business Finances
The state of Alabama does not require you to open a business bank account, but it may be a good idea to establish one anyway. A business credit or debit account can keep your LLC’s finances separate from personal ones; this establishes the LLC as an independently operating business.
You most likely need to show your Articles of Organization, Operating Agreement, EIN, or possible other LLC documents to open a bank account for your LLC. Compare all your options before making a choice on which bank account to open, as different banks have varying minimum required balances or credit spending limits; you want to be sure that you select something that is the best for your LLC’s needs.
Keep up With Federal and State Taxes
It is important to keep up with both federal and state taxes while running your LLC to avoid any major penalties or fines.
Federal Tax Requirements
There are several different tax structures you can choose from to use in your LLC that may meet different company needs; each tax structure comes with its own unique type of federal taxation. This article can help you gain an in-depth understanding of the differences between each type and help you decide which is best for you.
In general, most LLCs are taxed as sole proprietorships or partnerships. This means you will be expected to file a Schedule C along with your individual income tax return to declare any income that you receive through your LLC. When using this tax structure, you should keep in mind that you most likely need to pay self-employment tax (which has a rate of 15.3%), in addition to any income tax. You may also need to make quarterly estimated tax payments to avoid IRS fines; the IRS website gives more details on this.
If you want, you can choose to have your LLC taxed as a corporation, like an S Corporation or a C Corporation. You will need to fill out IRS Form 8832 and IRS Form 2553 to declare this. After these forms have been processed, your LLC will be treated as a corporation and expected to file a separate corporate tax return with the IRS.
Alabama Business Taxes
In addition to the Business Privilege Tax Return, your LLC will need to file each year, you may also be liable for individual income tax in the state. This is generally only applicable when your LLC is taxed as a sole-proprietorship or partnership, making it a pass-through entity. You will declare any profit from your business on your state tax return and pay applicable taxes on it at the end of the year.
If you elect to have your LLC taxed as a corporation, you may be eligible to pay corporate tax at a rate of 6.5 percent. More information on this can be found on the Department of Revenue’s website.
Sales and Use Taxes
For LLCs that sell goods or services, you may be required to register for sales and use taxes with the Alabama Department of Revenue. Forms, registration information, and instructions on how to calculate your potential tax burden can be found here.
State Employer Taxes
If your LLC is hiring employees, you may be liable to pay both withholding and unemployment insurance taxes. These may also need to be paid on a federal level, so make sure to meet with a professional tax adviser if you have questions about your overall tax situation.
In Alabama, withholding taxes will be registered for and paid through the Department of Revenue, while unemployment insurances taxes will be registered for and paid through the Alabama Department of Labor.
Acquire Necessary Permits and Licenses
In addition to the Business Privilege License, your LLC may be required to obtain permits and licenses on a local level. You need to check with your county’s Probate Office to ensure you are meeting all licensing requirements. If you are offering professional services out of your LLC, you may also need to meet state or national professional licensing requirements. More information on business licensing can be found here.
On a federal level, you may be required to obtain certain permits and licenses for your LLC, depending mostly on the type of business you run and the services you offer. For help determining if you need to meet additional federal licensure requirements, you can use the directory on the US Small Business Administration’s website.
Alabama LLC Resources
These resources can help guide you through every step of the Alabama LLC establishment process.
- Available LLC name search
- LLC Name Reservation form
- Online LLC Name Reservation file
- Domain name search
- LLC DBA name application
- List of Alabama commercial registered agents
- Certificate of Formation
- Certificate of Formation online file
- IRS EIN online file
- Annual Report/Business Privilege Tax information
- Alabama Department of Revenue
- Alabama Department of Labor
- Business licensing information
Alabama LLC FAQs
The below list of frequently asked questions can help put to rest any worries about starting up your LLC in Alabama.
In Alabama, it costs $200 or $208 to file your Certificate of Formation, depending on if you file by mail or online. It will also cost $25 to file a name reservation by mail or $28 online. You may also want to pay to register a DBA name, which carries a $30 filing fee.
The cheapest way to start your LLC in Alabama is to file your name reservation and Certification of Formation through the mail without registering a DBA name. Doing this will cost you a total of $228.
In Alabama, it will take approximately 1 business day to establish your LLC when filing online or between 4 and 7 days when filing your Certificate of Formation through the mail.
How much your Alabama LLC pays in taxes depends on the individual tax structure you have set up. Keep in mind that you also must pay the state’s Business Privilege Tax in addition to any individual state income, corporation, employer, or sales taxes you are liable for.
You need to file reports for your LLC on an annual basis. These reports are combined with your annual Business Privilege Tax filing and are due within the first 3 and a half months of your LLC’s calendar year to the Department of Revenue.
If you are finished conducting business under your LLC, you need to file Articles of Dissolution with the Secretary of State. This form carries a $100 filing fee and must be mailed to the address listed on the form.
You may also need to consult any applicable operating agreements to proceed down the predetermined terms for closing your LLC’s operations.