Alabama LLC Formation Guide

How to Start an LLC in Alabama

Choosing a business structure is one of the most important things to do when forming a business in Alabama. There are numerous options available, and each has its own set of benefits and functions.

Because of its convenience, versatility, and ability to protect personal assets, a limited liability company (LLC) is a perfect option for most businesses in Alabama.

LLCs may be owned by a single individual or by more than one person referred to as LLC members. Here's how to start a limited liability company in Alabama.

1. Pick a Business Name for Your LLC

The right name choice of your LLC will make or break your business future. Your name is remembered for a long time and becomes an integral part of your brand, as well as the prestige of your business. To ensure that people will find you when they're looking for you, create your LLC title simple to spell.

The name of the LLC must be distinct and conclude with the words "Limited Liability Company", "L.L.C." or "LLC." It cannot mean that it is a corporation.

Alabama LLC Name Reservation

Alabama also has a name-reservation requirement. To reserve a name, the applicant must either mail/fax the PDF form or complete it online. The name that is reserved in Alabama can be used for up to one year before it expires.

There is also a $25 filing fee associated with reserving an entity name. The reservation of the name of LLC must be conducted in compliance with Alabama State Law that is Section 10A-1-5.11.

Make sure that the business name which you have chosen for your Alabama LLC is available.

You can do this by visiting the Alabama Secretary of State website and checking Alabama's business entity records free of charge.

If you need help with your LLC name lookup, please see our guide about Alabama business entity search.

What is an LLC?

LLC stands for limited liability company, which is a US business entity that can protect the personal assets of a business owner from business debt and lawsuits. Unlike corporations, LLCs are relatively easy to form and maintain and are not subject to double taxation.

2. Appoint a Registered Agent

A person or company appointed on public record to receive legal documents (service of process) and notices from the Alabama Secretary of State's office on behalf of a corporate entity is known as an Alabama Registered Agent. Alabama mandates the use of a Registered Agent for LLCs and corporations established in the state.

Who Can Be a Registered Agent?

A registered agent must be an Alabama resident, or a corporation approved to do business in Alabama, such as a registered agent service. You have the option of electing someone from your company, including yourself.

However, there are several disadvantages of being a registered agent for your Alabama LLC, because you will have to do all the filing and communication with Alamaba's SoS as well as you will have to publicly disclose your address.

If you prefer to keep privacy, then using a registered agent service is a better option.

What is a Registered Agent?

A registered agent (or a resident agent) is an individual or a business entity that has been designated by the LLC to receive service of process notices, government correspondence, and compliance-related documents on behalf of the LLC. The registered agent must be residing in Alabama.

3. File LLC Formation Documents and Fees

A Certificate of Formation is required to form an Alabama LLC. This document will ask for your company name, the type of LLC, the registered agent's name and address, and a few other information about your company.

The certificate of formation is now filed with the Secretary of State, as it is in most other states. Before January 1st, 2021 you would have to file it with the Office of the Judge of Probate in the county where the LLC's initial registered office was based.

Act 2020-73, which took effect on January 1st, 2021, made numerous changes to the Alabama Business and Nonprofit Entities Code and among other things is got rid of the Probate Judge filings for Alabama LLCs.

Here are the changes made to Alabama LLCs, effective 1/1/2021:

  • The filings are now done with the Secretary of State only, not the Probate Judge
  • The Certificate of Formation for all business entities is now $200
  • LLCs can be filed online with the Alabama Secretary of State
  • Alabama LLC Business Name reservation fee is now $25

A copy of the business name reservation certificate must be enclosed with the Certificate of Formation.

Having an Official Address

Every Alabama limited liability company (LLC) must have a mailing address. That may be your home address (if you're running the business from home), your company's office building, or some other physical address.

The requirement is that the address should be in Alabama. P.O. Box addresses do not qualify for this. If you want to keep your privacy, then consider using a registered agent service.

4. Create an Operating Agreement for Your LLC

An operating agreement is a document of your business that regulates the activity of your limited liability company. It outlines the members' and managers' rights and obligations, as well as how the LLC will be handled.

It will also help you keep your limited liability status by demonstrating that your LLC is a separate legal entity.

It is recommended to create an operating agreement after your LLC is formed. While Alabama law does not require an operating agreement to be filed with any government entity, it is a smart move to make one.

The operating agreement covers a variety of subjects, including but not limited to:

  • Members' and managers' rights and responsibilities;
  • the management structure;
  • how to become a member;
  • what happens when a member dies.

If the LLC does not have an operating agreement and it ends up in court, the default Alabama LLC laws would apply. These default laws may not be in your company's best interests. It's a good idea to write down your LLC's rules and regulations ahead of time to play safe.

What is an Operating Agreement?

An operating agreement is an internal legal document that establishes how your LLC will be run. It sets out the rights and responsibilities of the members and managers, the ownership structure, and operating procedures.

5. Get an Employer Identification Number (EIN)

The IRS will issue your Alabama LLC an EIN, which stands for Employer Identification Number. An EIN is pretty much like the Social Security Number for your Alabama LLC. It assists the IRS in recognizing the business for tax and filing purposes.

With an EIN, you can open a separate bank account in the name of your Alabama LLC, apply for some licenses and permits, and control employee payroll (if applicable). Even though the number is considered an Employer Identification Number, it does not indicate that you must employ people.

You can apply for an EIN number for your Alabama LLC online at the IRS website and get it immediately.

Other common terms for an EIN are:

  • Employer ID Number
  • Federal Tax ID
  • FEIN
  • Federal Tax Number
  • Federal Tax Identification Number

Avoid Double Taxation in Alabama

All of the company's losses, gains, and expenditures are passed on from the company to the individual members. You avoid double taxation of paying both corporate and individual taxes. In most cases, this would result in a tax benefit.

What is an EIN?

EIN stands for Employer Identification Number. EIN is a unique nine-digit number assigned by the IRS to help identify your businesses for tax and filing purposes. An EIN is sometimes referred to as a FEIN (Federal Employer Identification Number) or FTIN (Federal Tax Identification Number).

Conclusion

As stated above, there are several critical factors to creating an Alabama LLC that is compliant and eligible to do business in Alabama.

Starting an LLC in Alabama generally requires a significant amount of legal documentation. Make sure you're doing your research and properly filling out each of the required forms.

Instead of risking being refused by the Alabama Secretary of State due to errors in your formation documentation or missed deadlines, you can always hire an expert to help you start an LLC in Alabama.