Form an Alabama LLC

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 wonder where to begin, then look no further. We will teach you how to start an LLC in Alabama through a step by step process. Rumors often circulate that the process is difficult and complicated; however, we assure you that that rumor is false. If you have a vision and desire to bring it to fruition, then you can effortlessly learn the steps to achieving that dream.

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, it’s our greatest privilege to share with you our knowledge and expertise in the business world. We enjoy offering you a fun, simplified and educational lesson on how to start an LLC in Alabama.

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.

How to Form an LLC in Alabama - A Summary

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

1. Reserve a name for your LLC.

2. Select 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.

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.

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!

1. Name Reservation

In the state of Alabama, you are required to reserve a name for your business PRIOR to forming the LLC. Most states don’t have that requirement; however, Alabama does. It’s crucial to know that the name reservation is the first place to begin. This isn’t an option; this is the law.

Before you start conducting the Alabama LLC search, there are some basic grammar rules to learn. These grammar rules are super important as they apply to the search of your LLC name.

The grammar requirements are as follows:

A. Alabama requires you to use the abbreviation , “LLC” at the tail of your business name. Some businesses like to use the grammatical format, “L.L.C.”, and that’s acceptable. However, most businesses use the abbreviation, “LLC”.

B. You cannot add the words, “Corporation” or “Incorporated” at the end of your name. It’s an absolute no-no. Why? An LLC is NOT a corporation and comes across as deceiving to others. It’s the rule; just follow it.

C. Thirdly, Alabama requires that your LLC’s name be unique and distinguishable. It cannot resemble any names of any other businesses in the state of Alabama. And don’t think that small, grammatical differences will create an acceptable form of uniqueness. Alabama doesn’t allow that.

Let’s take a better look at what we mean:

Hot & Cold, LLC versus Hot and Cold, LLC

Do you see the difference between the two names? The difference is the ampersand and the word, “and”. That’s it. Don’t even think of trying this as it won’t work. The second name is NOT distinguishable from the first.

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

The second name tried to differentiate itself by using dashes. The first name uses commas and the ampersand. This also is a big no-no. The names are not distinguishable from one another. This will not be allowed.

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. It’s not allowed.

How to Ensure that Your Name is Distinguishable:

To ensure that your name is distinguishable, you’ll need to do an Alabama LLC search in the name database system. Simply 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 name is unique enough to claim as your own and to form your LLC. If the name is not unique, then you’ll need to choose another name and search the database again. However, if you type in the desired name and it says, “no matches found”, then you’re free to use that name.

Once you have a uniquely distinguishable name chosen and cleared for your business, you’re ready to make the name reservation. This can be done online, or it can be filed by mail.

To reserve the name 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.

To reserve it through the mail, the Alabama Secretary of State LLC 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 folks use the online reservation service for the faster approval process. However, if you prefer to do it by mail, that’s fine as well!

Finally, there are those few words that will need letters or proof of licensing before you can use them in the name of you Alabama LLC. Let’s list them below:

A. You must contact the Alabama State Banking Department before you can use the words, “banker”, “bank”, or “banking” in your name. You will need a letter of approval from them.

B. You must contact the Alabama Board of Engineers & Land Surveyors before you can use the words, “engineer” or “engineering”. You will need to prove that you are a licensed engineer.

C. You must contact the Alabama Department of Insurance before you can use the words, “insurer” or “insurance” in your name. You will need a letter of approval from them.

D. 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 LLC

The state of Alabama requires that you select a registered agent BEFORE you file the Certificate of Formation. (That will be discussed in the next step.)

So what is a registered agent? It sounds super secretive and official, doesn’t it?

A registered agent is someone who promises to accept mail for your LLC in case a lawsuit were to ever be brought against the business. It 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 LLC.

The registered agent must have a physical address in the state of Alabama, and they must always be available during the hours of 9am to 5pm. P.O. Boxes are not allowed to serve as “physical addresses”.

A registered agent can be yourself, a trusted family member or friend or a commercial agent. They must have an Alabama physical address and be available from 9am to 5pm.

What is a commercial registered agent?

A commercial agent is actually a company that receives the Service of Process documents on your behalf. They will forward to you all the important documents that are received. However, they usually charge a yearly service fee around $200.00. Many business owners prefer to hire a commercial registered agent for the protected liability of their LLC. For instance, should you ever have to physically move, the commercial agent’s physical address remains in Alabama. You’re protected from that. 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.

3. File the Certificate of Formation

Once you have reserved your LLC’s name and 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 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 Probate Judge. Each county has a different fee for the Probate Judge, so be sure to check and find out.

How do you fill out the Certificate of Formation?

Go online to the State of Alabama: Domestic LLC Certificate of Formation website. They provide eager business owners with a simple PDF file to fill out, print and sign it. It’s important to know that Alabama requires you to fill it out online, inside the PDF form, then print it out and sign it.

The file will ask for specifics such as:

  • Name of LLC
  • Form Filled Out By
  • Registered Agent
  • Effective Date
  • 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!

(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 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 is search the database. If you see the name of your LLC and is states beside it, “Exists”, then you know that your LLC is approved.

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!

4. Alabama LLC Operating Agreement

Although an operating agreement is not required by the state of Alabama, it does highly recommend it.

What is it, and why does the state recommend it?

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.

What does it outline?

An operating agreement follows this outline:

A. It states when the LLC was officially formed and who owns it.

B. It states how the LLC is managed.

C. It states how much money has been invested by each member.

D. It states how the profits and losses will be split among each member.

E. It states how changes in roles will be managed should anyone leave the LLC.

F. 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 the state of Alabama, it is strongly recommended by the state. 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 EIN if Your LLC is Approved

EIN is short for “Employer Identification Number”. Once your LLC is approved, you will apply for this through the IRS. To give you a better understanding of what this is, it’s similar to a social security number for a person. The only difference, is this is like a “social security number” for an LLC. The sole purpose of the EIN is so the IRS can identify your company 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, credit cards and loans for your business as well as applying for various permits and managing your employees’ payroll. (You may not have any employees. Either way, you’ll need the EIN for tax purposes and for opening your business financial accounts.)

Even better? It doesn’t cost a single penny to apply for an EIN! 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.
If you prefer to do the entire process by mail, the IRS website will provide you with the information and guidelines to follow.

It’s important that you hold on to the EIN Confirmation Letter. You will need this letter whenever you visit the bank to open your financial accounts.

6. Open Your LLC'S Bank Account

After you receive your EIN, it’s time to open your LLC Alabama bank account. You will want this to be separate from your personal bank 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. (Your passport would also suffice.)

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. (By the way, since your LLC was formed in Alabama, you will need to open your business’s bank account in Alabama as well.) It’s always best to be prepared than to ever be unprepared!

7. Taxes, Forms and Fees- The Initial Business Privilege Tax and The Business Privilege Tax Return and Annual Report

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. There is no exception.

Don’t forget the other taxes!

Of course, there are other taxes to tend to when owning an LLC in the state of Alabama. This is all dependent upon the structure of your business. If you have employees, you’ll have more taxes to file than the business that has no employees. But, in short, you’ll need to file and pay taxes such as Sales and Use Tax, Income Tax, Corporate Tax, Franchise Tax and possibly more. Any business owner should seek the advice and help of a trusted tax accountant or CPA for handling daily taxes. It only takes one wrong calculation to hugely affect your business in a negative manner. The state and federal governments expect your numbers to be correct and true. Release the stress and burden from your shoulders and trust a tax accountant or CPA. It would be worth your while.

8. Apply for Necessary 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 operational agreement, applying for and receiving your EIN number, opening your LLC financial accounts and settling tax business, you’ll want to ensure that you obtain the permits or licenses that are in compliance with federal, state and local laws.

Obviously, the type of permits or licenses that you are required to have may vary depending on what your specific trade or expertise is. However, if your business does involve 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 Alabama’s Department of Revenue website. They have several references and tools that are there to help you learn what you will need for your specific situation. Again, us at LLC Formations are here to help you as well! Any questions or concerns that you may have about upstarting your first LLC in the state of Alabama, we will gladly answer them for you. It’s our joy to guide you along the way.

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.

Conclusion

How do you feel about studying through the intricate steps of becoming an LLC owner? It can be a complicated process, but it doesn’t have to be! You have just read, in detail, how to form an LLC in Alabama. Let’s not forget the basics! Check out our LLCs in Alaska page next.

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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!