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How to Form an LLC in Alabama

It’s always exciting for new entrepreneurs to start a new business. Sure, it takes a lot of hard work and dedication to get a business off the ground, but once it’s up and operating, the reward is sweet.

If you are looking to start a business in the state of Alabama and are wondering where to begin, this guide is here to tell you everything you need to know about opening an Alabama LLC. We will teach you how to start an LLC in Alabama through a step by step process.

For your benefit, we will break down the steps on how to form an LLC in Alabama so it’s really easy for you to learn about the process. After all, at LLC Formations, we enjoy offering you a fun, simplified, and educational lesson on how to start an Alabama LLC.

Let’s take a look at the summarized version of what to expect when forming an Alabama LLC. Then we will delve into the details for every step of the way.

What is A Limited Liability Company (LLC)?

A limited liability company, also known as an LLC, is a way of doing business while protecting your personal assets and keeping them separate from your business. When you operate as a limited liability company (LLC), your properties, bank accounts, and other possessions remain off-limits in the case of debts or lawsuits regarding your Alabama LLC. It’s wise to do business as a limited liability company because you can rest assured that your personal assets are safe, which can also give you the confidence for making tough business decisions for your Alabama LLC.

If you’re wondering if it’s the right choice for you to form an LLC in Alabama, contact the professionals at LLC Formations for more information about how to become incorporated in Alabama.

Listed above are the very basic components to forming an LLC in Alabama. For some of you, this may look like a foreign language! However, don’t fret! We are going to break everything down into very detailed steps. If you are ready, let’s start digging into it!

How to Form an LLC in Alabama

The very basics to starting an LLC in Alabama are listed below:

1. Reserve a business name for your LLC in Alabama.

2. Select a registered agent or registered agent service. Alabama requires this for all LLC businesses.

3. File the Certificate of Formation.

4. Create an Operating Agreement. This says that you own the business and understand the operational procedures of the business.

5. Retrieve an EIN number from the IRS.

6. Open your LLC’s bank account.

7. Taxes, forms, and fees: Understand the “Initial Business Privilege Tax” and the “Business Privilege Tax Return and Annual Report.”

8. Apply for any necessary business licenses and permits for your Alabama LLC.

Listed above are the very basic components to forming an LLC in Alabama. Although it may appear to be a lengthy process, the team at LLC Formations will break everything down into very detailed steps.

How To Form an LLC

1. Name Reservation

In Alabama you are required to reserve a name for your business prior to forming the LLC. Although most states don’t have this requirement, Alabama requires you to obtain a Certificate of Name Reservation. It’s crucial to know that the name reservation is the first place to begin when obtaining your LLC name.

Choosing the Best LLC Name

When forming an LLC, your name will be one of the most important things that represents your Alabama LLC. Once you come up with something unique, you will need to conduct a LLC name search to make sure it’s available before making the name reservation. But before you start conducting the Alabama LLC search, there are some basic things to keep in mind.

  • Alabama requires you to use the abbreviation , “LLC” at the tail of your business name.
  • You cannot add “Corporation” or “Incorporated” at the end of your name.
  • Alabama requires that your LLC name is unique and distinguishable. It cannot resemble any names of any other businesses in Alabama state.

How to Differentiate Between Different LLC Names

It’s important that you choose a name that does not resemble any other LLC name. You will not be able to make a name reservation for any LLC name that is too similar to another LLC. Your name reservation application will be rejected if you try. In order to obtain your Name Reservation Certificate, you’ll need to pick a unique name for your Alabama LLC and you will need to pay the name reservation fee.

Let's take a look at what we mean...

Hot & Cold, LLC versus Hot and Cold, LLC

Do you see the difference between the two examples? The difference is the ampersand and the word, “and”. That’s it. If you try to choose this name for your Alabama LLC, it won’t work. The second name is not distinguishable enough from the first.

Oranges, Apples & Bananas, LLC versus Oranges-Apples-Bananas, LLC.

The second example tried to differentiate itself by using dashes. The first name uses commas and the ampersand. This also is a big no-no. The two companies are not distinguishable enough from one another. This will not be allowed for any business in Alabama.

Four-Way BBQ, LLC versus 4-Way BBQ, LLC

By now, you should see the difference in the names. It’s the same name but with subtly different grammatical changes. One name has the number spelled out while the other name uses the actual number. This is not considered unique and distinguishable, so something like this won’t be allowed for your Alabama LLC.

If you need help choosing a unique name, contact the professionals at LLC Formations so we can help you form your Alabama LLC.

Alabama LLC

How to Ensure that Your Name is Distinguishable

To ensure that your ideal name is distinguishable, you’ll need to do an Alabama LLC search in the name database system before you can obtain your Certificate of Name Reservation. Simply go to the Alabama Secretary of State Website. Visit “Alabama’s Business Entity Search” page and type in the name you wish to choose. (There’s no need to add the “LLC” at the end of your name while conducting this search).

This will allow you to see if your desired Alabama LLC name is unique enough to claim as your own and to form your Alabama LLC. If the name is not unique, then you’ll need to choose another name and search the database again in order to obtain your Certificate of Name Reservation. However, if you type in the desired name and it says, “no matches found,” then you’re free to use that name for your Alabama LLC.

Once you have a uniquely distinguishable name chosen and cleared for your business, you’re ready to obtain the Certificate of Name Reservation. This can be done online, or it can be filed by mail. To reserve the name of your Alabama LLC online, you’ll need to check out the Alabama Secretary of State LLC: Online Services to start the process. Keep in mind that the online service fee is $28.00, but this offers you an instant approval so you can continue with the LLC formation process.

To reserve it through the mail, the Alabama Secretary of State will have the mailing address and details for you to complete the reservation. There are two options for choosing the mail reservations:

1. For a one week approval, it only costs $10.00

2. For a three day approval, it only costs $25.00

We generally recommend that you use the online reservation service for the faster approval process. However, if you prefer to do it by mail, that will work too.

Finally, there are those few words that will need letters or proof of licensing before you can use them in the name of your Alabama LLC:

  • You must contact the Alabama State Banking Department before you can use, “banker,” “bank,” or “banking” in your name. You will need a letter of approval from them.
  • You must contact the Alabama Board of Engineers & Land Surveyors before you can use “engineer” or “engineering.” You will need to prove that you are a licensed engineer.
  • You must contact the Alabama Department of Insurance before you can use the “insurer” or “insurance” in your name. You will need a letter of approval from them.
  • Lastly, any LLC Alabama business that uses professional services such as medical, law, or veterinarian will require proof of an Alabama State License from one of the members of the organization.

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2. Select a Registered Agent for your Alabama LLC

Alabama requires that you select a registered agent before you file the Certificate of Formation. (This certificate will be discussed in the next step.)

So, what is an Alabama registered agent? A registered agent is someone who guarantees to be available to accept mail for your LLC in case a lawsuit were to ever be brought against the business. The person also serves as a place to receive other important documents, such as tax and business alerts. In other words, it’s someone of receives the Service of Process for your Alabama LLC.

The registered agent must have a physical address in Alabama state, and they must always be available during the hours of 9am to 5pm. P.O. Boxes are not allowed to serve as a physical address for an Alabama limited liability company even if they are in the state.

A registered agent can be yourself, a trusted family member or friend or a commercial agent who resides within Alabama state. The registered agent must have an Alabama physical address and be available from 9am to 5pm. If you’re opening as a foreign LLC from another state, it can be very beneficial to hire a registered agent service as your registered agent in Alabama since you will be across state lines.

What is a Registered Agent Service?

A registered agent service is actually a company that receives the Service of Process documents on your behalf and acts as your Alabama registered agent. They will forward to you all the important documents that are received for your LLC. However, they usually charge a yearly service fee around $200.00.

Many business owners prefer to hire an Alabama registered agent service for the protected liability of their LLC. For instance, should you ever have to physically move to a different state, the commercial agent’s physical address remains in Alabama. Your Alabama registered agent will always be able to accept mail on your behalf, which allows you to keep your business running in Alabama long after you form an LLC.

Or, if you don’t trust any relatives or friends with your LLC matters, then you can rest assured that a commercial agent has your best interest at heart with no emotions involved. It’s a matter of security and protection that influences many LLC owners to pursue a commercial registered agent.

For any business structure, it’s a wise decision to have a commercial agent for your business in Alabama. It’s especially crucial for foreign LLCs since the owners most likely live in another state. If you miss important mail, you could be fined or dissolved. That’s why it’s best to hire a service to act as your Alabama registered agent.

3. File the Certificate of Formation

Once you have selected a registered agent, it’s time to file the Certificate of Formation. In Alabama, you are required to file a Certificate of Formation with the Secretary of State and the Office of the Probate Judge for the county in which your Alabama LLC is based.

With that being the case, you will need to mail a check or money order to the Secretary of State for $100.00 and then a check to the Office of the Judge of Probate. Each county has a different fee for the Judge of Probate, so be sure to check and find out what will be necessary for your formation documents. You may be able to pay an extra fee to the Probate Judge if you’d like to expedite your LLC formation process.

How to Fill Out the Alabama Certificate of Formation

To fill out the Alabama LLC certificate, go online to the Alabama state “Domestic LLC Certificate of Formation” website. They provide eager business owners with a simple PDF certificate to fill out, print, and sign. It’s important to know that Alabama requires you to fill it out online inside the PDF form. You can then print it out and sign it.

The file will ask for specifics such as:

  • Name of the Alabama LLC
  • Form filled out by the registered agent
  • Effective date of the LLC
  • Signature

Simply follow the instructions and answer the questions that are listed on the form. You’ll want to type your LLC name as it was reserved. Don’t forget to include the, “LLC” at the end of your business’s name. Be sure to make two copies of the Certificate of Formation. You’ll need to send everything in in order to obtain your certificate.

It’s also good practice to create a cover letter along with the Certificate of Formation. For this, simply include the date, the address of the Office of the Probate Judge, the name of your LLC, your contact information and your entire name. You’ll include all of the paperwork and separate payments in an envelope to mail to the Office of the Probate Judge. Once it arrives there, it’ll be processed and forwarded to the Alabama Secretary of State in a few days.

How Do You Know If Your LLC is Approved?

You can check out the website at Alabama Secretary of State: Business Entity Search by Entity Name to see if your LLC is approved. Simply enter the name of your LLC in the “Entity” box and let it search the database. If you see the name of your LLC and is states beside it, “Exists”, then you know that your LLC is an approved business structure.

You can also order copies of your approval paperwork. On the same website, search through the records tab and request the documentation to be mailed to you. It’s really that simple!

LLC in Alabama

4. Your Alabama LLC Operating Agreement

Although an Operating Agreement is not required by Alabama state, we highly recommend it whether you have one member or many. There are many benefits that come with using an Operating Agreement for your business. You can’t go wrong with including an Operating Agreement for your small business since it will just make the process easier.

What is an LLC Operating Agreement?

An Operating Agreement offers an outline of your business’s operating processes and procedures as well as addressing the ownership details. This is a legal document that has tremendous power in protecting your LLC. It also helps to alleviate any disagreement or conflict among fellow members and preserves your credibility as a limited liability entity. It’s a very important part of the LLC formation process.

What Does it Outline?

An operating agreement follows this outline:

  • It states when the LLC was officially formed and who owns it.
  • It states how the LLC is managed.
  • It states how much money has been invested by each member.
  • It states how the profits and losses will be split among each member.
  • It states how changes in roles will be managed should anyone leave the LLC.
  • It states how all members of the LLC should dissolve the business should everyone agree to abandon it. It will outline that process.

Therefore, although the creation of an Operating Agreement is not mandatory by Alabama state, it is strongly recommended for the LLC formation process. This legal document protects you and all other parties as well as reserving your credibility as an LLC. These documents show the public that you mean business.

5. Apply for An Employer Identification Number (EIN)

An EIN, short for employer identification number, is a crucial part of setting up your LLC. Once your LLC is approved, business entities will apply for this through the Internal Revenue Service (IRS). To give you a better understanding, an EIN is like a “social security number” for an LLC. Your EIN is a tax ID for your business.

The sole purpose of the EIN is so the IRS can identify your company through the tax ID for tax purposes. Keep in mind that you don’t want to apply for the EIN until your LLC has been approved and is officially formed. Many people jump ahead of themselves and apply for the EIN only to learn that their LLC was denied.

However, assuming that your LLC was approved, you need an EIN to open bank accounts, a business credit card, or loans for your business as well as applying for various permits and managing your employees’ payroll. Company credit cards can make it very easy for you to grow your business.

Is It Free to Obtain an EIN?

Even better? There are no processing fees when applying for an EIN. It’s completely free in every state! Simply apply for it online for the fastest and easiest process. Visit the IRS website and navigate to the EIN application page. Follow the instructions, and you’ll get approved in no time. Once you are approved by the IRS, they will send you an official EIN Confirmation Letter. If you applied for it online, you’ll receive the confirmation letter at the end of your application. The IRS will also send you a paper copy via mail in about four weeks.

6. Open Your Company Bank Account

After you receive your EIN, it’s time to open your LLC business account for your company. You will want your company account to be separate from your personal account. This process isn’t as lengthy as the previous steps, but it’s worth knowing what documents you should take to the bank. In general, most banking institutions require that you bring the approved Certificate of Formation, the LLC Operating Agreement, the EIN Confirmation Letter and your driver’s license or passport.

However, it’s not a bad idea to call some banks in advance to learn what documents they require for opening a business banking account. Each banking institution has its own way of conducting business. This ensures that you don’t waste your time or theirs.

If you are opening a company in Alabama, you will need to open your business account in Alabama state.

7. Taxes, Forms, and Filing Fees

In Alabama, the Business Privilege Tax is filed with the Department of Revenue. As someone with a new LLC business, you are required to file two returns. However, the first return is a one-time ordeal. You won’t have to ever file that return again.

The one-time return is called the “Initial Business Privilege Tax”. This return is due within two and a half months after the formation of your LLC. It usually costs around $100.00, and is completed on the Form BPT-IN. (As always, we advise you to consult with an accountant on matters such as this. They know the ins and outs of the Department of Revenue.) Fortunately, once you make this important tax filing, you won’t have to revisit it again.

The second tax filing is the ongoing, yearly filing called the “Business Privilege Tax Return and Annual Report”. This is legally required in the state of Alabama as it recognizes your privilege of running a business within its borders. To file the Business Privilege Tax Return, you must fill out the Form PPT. It’s due every year by April 15th and always has a minimum $100.00 tax fee. All LLC businesses must file the Business Privilege Tax Return.

8. Apply for the Necessary Business Licenses and Permits

Once you have completed all of the necessary steps to naming your LLC, selecting a registered agent, getting your Certificate of Formation approved, developing your Operating Agreement, applying for and receiving your EIN number, you’ll want to ensure that you obtain the permits or licenses that are in compliance with federal, state and local laws in terms of business licenses for your company.

The type of permits or licenses that you are required to have may vary depending on what your specific trade or expertise is. Many businesses also display their certificate at the place of business. If your business involves the need for special permits or licenses, then you need to stay on top of that. If you were to get caught operating a business and providing certain services WITHOUT the required permits or licenses, it will result in major penalties. These penalties could result in large fines, the loss of your business, lawsuits or worse.

Don’t let that be you! It’s not worth the risk. We will list some examples of the different types of licenses and permits that you many need in the state of Alabama. This won’t be an all-inclusive list, but it’ll will give you an idea of what you need to educate yourself on.

Permits and Licenses in Alabama that May Apply to You:

  • Sales tax license
  • Building permit
  • Health permit
  • Department of Revenue State Tax ID Number
  • Business operation license
  • Business privilege license
  • Seller permit
  • Home occupation permit
  • Signage permit
  • Land use permits
  • Withholding taxes

These are all prime examples of permits and licenses that you may need in order to operate your business legally. If you find yourself unsure about what type of licenses or permits that you may need, you can visit the Alabama Department of Revenue website. The Alabama Department of Revenue website has several references and tools that are there to help you learn what you will need for your specific situation.

Once you apply and obtain all necessary permits and/or licenses for your operations and services, you are free to exercise your right as a business owner. You will have a fully functioning LLC and well on your way to earning those profits. Remember that in order to maintain your Certificate of Good Standing, you must remain in compliance. This means that you must have the proper permits depending upon what service or services your LLC offers.

The team at LLC Formations is here to help you grow your company. Any questions or concerns that you may have about starting your first LLC in the state of Alabama can be directed to us and we will help you along the way.

How Can LLC Formations Help You?

Although opening an LLC in Alabama can seem like an overwhelming process, LLC Formations is here to help you through all of the challenging parts of forming an LLC in Alabama state. We explained how you can obtain your Certificate of Formation, how to contact the Probate Judge, how to pay your filing fees, and even how to remain in good standing with the Alabama Secretary of State.

By following all of the steps in our guide, you will be able to open up your Alabama LLC in no time. You can check out our LLCs in Alaska page for more information about becoming an LLC in another state.

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How to Start an LLC In Alabama: The Summarized Version

1. Reserve a name for your LLC. (Be sure to follow the grammatical rules.)

2. Determine a registered agent. Alabama requires this for all LLC businesses.

3. File the Certificate of Formation.

4. Create an operating agreement. This says that you own the business and understand the operational procedures of the business. (This isn’t required by the state of Alabama, but the state does highly recommend it.)

5. Through the IRS, retrieve an EIN number. (This is similar to a social security number but represents your LLC instead. You will need this to open bank accounts for the business, to hire employees and to file your taxes.)

6. Open your LLC’s bank account.

7. Taxes, Forms and Fees: The “Initial Business Privilege Tax” and the “Business Privilege Tax Return and Annual Report”.

8. Apply for any necessary licenses and permits for your business and operational services

Forming an LLC in the state of Alabama can be accomplished in these eight steps. At LLC Formations, we would love to guide you through these eight steps. When you are new to the business world, it’s often reassuring to rely on an unbiased party that understands the ropes, and how it works. You don’t have to stress over missing any of the forms or steps. It can easily overwhelm a person when they first embark on an LLC adventure! Why go through the process alone and without that trusted guidance?

Alabama does do things slightly differently from other states. If you’re from anywhere other than Alabama, then you’ll definitely want to educate yourself on the change in laws. For instance, in most states, starting an LLC only requires that you send the Certificate of Formation to the Secretary of State. That’s it. Honestly, that may be something you’re aware of and accustomed to. However, starting an LLC in the state of Alabama requires that you send the Certificate of Formation to the Secretary of State AND to the Office of the Probate Judge.

That’s where LLC Formations comes in. We want to look out for you and ensure that you have the smoothest journey into starting your own LLC in the state of Alabama. It’s our pleasure to serve and equip you!

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