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How to Start an LLC in Alabama
Choosing to start an LLC in Alabama is a great option for any entrepreneur looking for limited liability protections and tax related benefits. Forming a Alabama LLC will make your business separate from you as an individual and help protect your personal assets. Our 5 step Alabama LLC formation guide below has the information you’ll need to start your business as an LLC.
If you want to learn more about LLCs’ basics, you can read our guide, What is an LLC and how does it work, where we go over the benefits an LLC can provide. You can also use the table of contents below to jump ahead to a specific section.
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Steps to Starting an LLC in Alabama
If you want to start a Alabama LLC you must file a Certificate of Formation with the Alabama Secretary of State and pay a filing fee of $200.Many people file an LLC in Alabama because they want to establish a small business and limit liability. With an LLC, you don’t have to worry as much about your personal assets if your business has debt or legal problems. Your personal property is usually protected, so you don’t lose them if your business struggles. There are also many tax options and benefits if you have an LLC. LLC’s have the option to elect for Corporate and S-Corp taxation as well as the default pass-through taxation that LLC receive by default.
To complete the process to create an LLC in Alabama, follow the steps below.
1. Name Your Alabama LLC
If you are thinking about starting an LLC in Alabama, the first step is to come up with a name. When filing your Certificate of Formation, make sure your name follows the rules and regulations of the Alabama Secretary of State:
- Your LLC name must be different from any other Alabama business
- Name must include the word “limited liablity company” or a designator that denotes that it is an LLC such as “LLC” or “Ltd.”
- Cannot include phrases that could confuse the LLC with a government agency
- Should not include restricted words like Bank, Attorney, or Insurance unless accurately describing the business’s activity. Including these words often requires additional filings and/or a professional license to be approved.
- Cannot include designators of different entity types such as “Inc”, “Incorporated”, “Corp”, “Corporation”, “LP” or “LLP”
Name Search Process
- Conduct a Alabama Name Availablity Search:
Once you have your desired company name, you’ll want to conduct a Alabama name availability search to ensure that the name is not currently in use by an existing business or is not significantly similar to an existing business.
- Verify Domain Availability:
In addition to verifying that your LLC name is available for use, you may also want to take the time to register the domain name for your LLC. Even if you don’t plan on creating a business website, you can register your website domain to ensure that others cannot use your business name. You can register domains for less than $10 with namecheap.
Pro Tip: When conducting your name search, you may find that the name was used in the past, but that business has since closed or dissolved their LLC. While you can proceed with a previously registered name, we recommend choosing a different name. Using a previously registered name can lead to delays in getting your business started due to the high likelihood that your EIN application will receive reference error 101. This error can cause the obtain of your EIN to go from a 15-minute process to potentially taking weeks to receive.
When in this process, be sure to take some time to develop a good business name. If you’re struggling, you can get some help to get your creative juices flowing by visiting our guide: How to Come up with a Business Name.
2. Choose a Alabama Registered Agent
The second step to starting an LLC in Alabama is deciding on a registered agent. A registered agent is the person who accepts legal documents and notices for the business. When filing your Certificate of Formation you’ll need to list the person or business that will serve as your registered agent, so you’ll want to decide this prior to starting your filing.
Who Can Serve as a Alabama Registered Agent?
Any person who is a resident of Alabama or a company registered with the state, who has a physical address within the state, and is always available during regular business hours can serve as your registered agent. If an LLC member fits these requirements, they can serve as a registered agent. While some business owners will choose to list their business address and themselves as the registered agent, there are several reasons this could harm your business:
- You receive a lawsuit in front of a client: If you receive service of process for a lawsuit or other legal dispute at your business address, customers and clients could quickly become aware of the information you wish to keep private. You can avoid this embarrassing situation by choosing a third party as your registered agent.
- You miss important documents: Registered agents are expected to be available at all times during business hours. If you are frequently away from the office or expect to take a vacation this year, you should probably reconsider listing yourself as the registered agent. The last thing you want is to find out your business is tied up in a lawsuit or late on tax filings simply because you missed receiving service of process or other important documentation.
3. File Your Alabama Certificate of Formation
Once you’ve decided on a name and registered agent for your LLC, it is time to file your Alabama Certificate of Formation. This is the paperwork that you’ll file with the Alabama Secretary of State to legally form your LLC.
When completing the Alabama Certificate of Formation filing, you’ll need to provide the following information:
- Name of your LLC
- Business address
- Name and contact information for each member
- Name and contact information for the registered agent
- Official start date of the LLC
- How the LLC will be managed (member-managed vs. manager-managed)
Key Information about the Alabama Certificate of Formation Filing Process:
- How much does it cost to start an LLC in Alabama:
Standard Filing Fee: $200
Expedited Filing Fee: N/A
- How long does it take to form an LLC in Alabama:
Standard Filing Turnaround Time: Immediate
Expedited Filing Turnaround Time: N/A
4. Create a Alabama LLC Operating Agreement
An operating agreement is a legal document that establishes the duties of the members as well as rights, responsibilities, ownership percentage, and other important legal guidelines. It is advised to have an LLC operating agreement, but it isn’t required in Alabama. Without an operating agreement an LLC is at increased legal and financial risk.
There are three main reasons why your LLC needs an operating agreement:
- Protects the LLCs limited liability status:
An operating agreement helps prove that your LLC is a legitimate business venture and isn’t operating as a sole proprietorship or partnership. Without an operating agreement, you could be at risk of losing your personal liability protection if you were sued or had outstanding debts that were unable to be paid.
- Provide Clear Rules for Resolving Disputes:
While it may not seem likely now, disputes regarding business operations and strategic decisions are common. It can save you a lot of hassle by outlining formal processes to resolve conflicts and outline operating procedures.
- Protection against default Alabama governing rules:
If an LLC does not have an operating agreement, they are subject to the state’s default rules. These rules are very general and, as a result, are not ideal for most LLCs and can have significant downsides. Creating an operating agreement can ensure that your LLC is not subject to the default state governance rules.
Having a professionally created operating agreement is your best bet. However, not everyone can afford to have a lawyer draft a custom operating agreement. If you want to create a basic one yourself, be sure that you include these items:
- Percentage of ownership allotted to each member
- Members’ responsibilities and powers
- Voting rights (if applicable)
- General internal structure of the LLC
- How profits will be distributed
- Buyout and buy-sell rules outlining the procedures for transferring ownership interest
5. Get an EIN
If you are a multi-member LLC (have two or more owners), you are required to obtain an EIN. EINs are also needed to open a business bank account or hire employees. Because of this, we recommend that every LLC get an EIN.
EINs are an ID number issued by the IRS for tax and employment reporting purposes. You can think of an EIN as a social security number for a business. You can apply online for free directly with the IRS by using their online application system, know as the EIN assistant. Note that the EIN assistant is only available from 7 AM – 10 PM Eastern.
Alabama LLC EIN Filing Tips:
When applying for your EIN, be sure to wait until the Alabama Secretary of State has approved your LLC. If your Alabama LLC filing is rejected, you will need to either amend your EIN filing or obtain a new EIN under the correct name.
When applying for an EIN for an LLC, you must list your LLC name correctly. In the LLC name field, be sure that your name is listed exactly as it appears on your approved a Certificate of Formation document. A conflict in your name could result in delays when setting up a business bank account or applying for loans and lines of credit.
The online IRS EIN Assistant has a timeout security feature that will end your session if you are inactive for 15 minutes or longer. As a result, you’ll need to complete your EIN application in one sitting. Because of this timeout feature, we recommend that you collect all the information you’ll need to complete the application and have it on hand before starting. This information includes:
- Number LLC members (the owners of an LLC are referred to as members)
- Designate a Responsible Party – A responsible party is the designated person with financial control over the entity. You’ll need to provide this person’s name, address, and SSN.
- Physical Address and Phone Number of the LLC
- The legal name of the LLC
- County where the LLC is located
- State where the LLC is located
- State where the Certificate of Formation were filed – Alabama
- LLC Start Date
- If the LLC owns a high motor vehicle with a taxable gross weight of 55,000 pounds or more
- If the business involves gambling
- If you will need to file excise taxes
- If you will sell or manufacture alcohol, tobacco, or firearms
- If you will have or expect to have any W-2 employees within the next year, and if so, how many
Steps After Your Alabama LLC is Formed
Now that your LLC is legally registered with the Alabama Secretary of State, there are still several steps to take before you start conducting business. Often, when you search how to start an LLC in Alabama, the instructions stop once the paperwork is filed. Yet, there are several more steps you can take to ensure your business is set up for success.