How To Start An LLC In Alabama

By Bazal Razzaq

Chief Editor

Updated: July 21, 2023, 12:30pm

Editorial Note: We earn a commission if you use the services recommended on this page. Commissions do not affect our opinions or recommendations.

how to start an llc in alabama

Alabama is experiencing a big increase in new businesses, which has continued even during and after the pandemic. And why not? The state boasts many business perks like tax benefits and limited liability protection while also being home to 13 Metropolitan Statistical Areas that shelter many growing businesses, honored colleges and universities, nationally-renowned health centers and doctors, and an affordable housing market.

Starting a Limited Liability Company in Alabama is fairly easy. Through this guide, we’ll walk you through the process, ensuring you have a solid foundation for your business.

Pick a name for your Alabama LLC

The very first and most fundamental step to tick mark when forming an LLC is selecting the perfect name for your business. If you’ve thought of a few potential names for your business, it’s time to narrow down your choices and select one. It’s always best to adhere to a set of rules while choosing a name for your Alabama LLC. They are:

  1. The name shouldn’t be registered with another business entity. It should be different from an existing business in Alabama. For reference, you can check in with the Secretary of State‘s website to check if a particular name is already in use. 
  2. Avoid using words that might confuse people and make them think your business is something it’s really not, like a bank, corporation, FBI, or CIA.
  3. The name should have no rude, forbidden, or obscene words.
  4. Stay away from terms like “trustee,” “board,” or “insurance” that could restrict your business’s identity.
  5. Check that the name is not already used as a website domain to avoid trademark or legal issues.
  6. Your LLC’s name should show that it’s a limited liability company. It’s a good idea to end the name with abbreviations like “LLC,” “LLC,” or “Ltd.” Most people just use “LLC.”
  7. Some terms like “lawyer,” “credit union,” and “attorney” have special restrictions given their professional nature. You’d need to provide additional documents and licensing to the state government.  

Also, if you don’t feel ready enough to launch your business fully but would prefer if your name remains safe and no other business entity claims it, you can reserve it for a small fee. In Alabama, you can reserve a name for up to one year by paying $25 and submitting the right form to the state authority.

 

Prepare a business plan

Before diving completely into the process of forming your LLC, it’s important to create a detailed business plan. A proper business plan is the roadmap for your company’s success and provides direction in achieving your professional goals. It should include:

  1. Main Summary: Highlight a brief overview of your LLC, its mission, goals, and objectives.

  2. LLC Description: Provide detailed information about your business, its products or services, and the target market.

  3. Market Analysis: An industry and competition assessment to determine your market position.

  4. Organization and Management: The structure of your LLC and the roles of key team members.

  5. Service or Product Line: Outline in-depth descriptions of what your LLC offers and how it addresses customer needs.

  6. Marketing and Sales Strategy: This section will include how you plan to market your products or services and attract customers.

  7. Funding Request: If you need funding, mention the amount required and how you plan on using it.

  8. Financial Estimates: You must include projected financial statements, income statements, balance sheets, and cash flow statements.

  9. Appendix: Any additional information, such as resumes of key team members, product images, or market research data.

Appoint a Registered Agent for your LLC

Next, assign a registered agent for your LLC. For those who don’t know, a statutory agent is an individual or entity responsible for accepting legal, official, and financial documentation on behalf of your LLC. You can serve as your company’s registered agent(though it’s generally not recommended). Typically, the only requirements to be an agent in Alabama are,

  1. The registered agent must be a resident of the state or a business entity authorized to conduct business in the state.
  2. They should be 18 years of age or older.
  3. The agent must have a physical street address in Alabama.
  4. They should be available during normal business hours(9 AM to 5 PM) to accept official mail, legal documents, and other important notices for your business.
  5. They should provide written consent to serve as your registered agent. 

Remember that a Registered Agent is also known as

  1. Statutory Agent
  2. Resident Agent
  3. Agent for Service of Process

So the next time a form or notice contains the above vocabulary, there’s no reason to get confused.

File the Articles of Organization document with the Secretary of State

To officially form your LLC in Alabama, you need to file Articles of Organization with the Secretary of State. You can do it yourself or hire an attorney to do it for you. The filing fee is around $200-$250, and the processing usually takes about two to three weeks.

Even though it sounds like a complicated, really long process, it simply involves filing and submitting a basic form. To prepare your Articles of Organization form, you need the following details:

  1. The name and address of your LLC
  2. Registered agent’s name and address
  3. The main purpose of your LLC
  4. The number of shares authorized
  5. The management structure of your company
  6. Check the boxes to indicate whether your business is a nonprofit, series, or professional LLC. 
  7. The signature of the organizer(person forming the LLC)

The Alabama SoS will review your filing, and once they’ve stamped the approval, your LLC will become a legal business entity. 

Draft an Operating Agreement

While this isn’t a mandatory requirement in the state of Alabama, we’d still advise creating one to consult in the event of future fights, confusion, or misunderstanding between the members/owners of the LLC. If your business doesn’t have an agreement in place, the court makes decisions based on state law, which won’t necessarily be in the best interest of your company. 

A well-drafted Operating Agreement outlines the roles, responsibilities, and ownership percentages of each member/owner of the LLC. An ideal agreement would also include profit-sharing rules, decision-making, and dispute resolution. 

Here’s a complete list of all the details that could be factored into an agreement. An operating agreement can include(but isn’t limited to) the following,

  1. The name and address of your LLC
  2. LLC’s duration(for how long will it exist)
  3. The name and address of your registered agent
  4. Details included in your Articles of Incorporation
  5. The main purpose of your LLC
  6. Profit and loss sharing between the members/owners.
  7. Rules for adding new members or dealing with members who leave
  8. The management structure of the company
  9. Information about the members/owners and their contributions
  10.  Liability and Indemnification clauses

Apply for an EIN with the IRS

After filing the Articles of Organization, get a nine-digit Employer Identification Number from the IRS(Internal Revenue Service). It’s like a tax ID for your LLC, quite similar to a Social Security Number(SSN) for American citizens. An EIN recognizes your LLC for taxation purposes and can be obtained by mail or online through the IRS website. 

Maintain Accurate Records of Documents

For a smooth sailing LLC journey, you must maintain important, accurate, detailed records of the following at your registered office.

  1. Current list of all LLC members/owners, especially including their names and addresses
  2. A copy of the filed Articles of Organization, any changes made, and documents showing the powers of attorney for actions already taken.
  3. A copy of the LLC’S operating agreement and any changes/alterations made.
  4. Provide copies of the latest financial statements that you submitted to the Department of Revenue.

Also, if your LLC offers a special professional service, all the members/owners should be licensed or registered to perform that service.

To mail any intended documents, you can use the following address:

Secretary of State, Business Services

PO Box 5616

Montgomery, AL 36103 

Submit a Business Privilege Tax Return

All the LLCs in Alabama need to file an annual BPT form or Business Privilege Tax Return with the Alabama Department of Revenue. It’s basically a privilege tax form for pass-through entities within 3.5 months before your tax year begins. 

The tax is a small % of your LLC’s net worth, ranging from 0.00025% to 0.00175%.

You need to include the following information with your Business Privilege Tax Returns:

  1. A copy of pages 1 to 4 of your federal tax return.
  2. A copy of Form 65(Alabama apportionment schedule)
  3. Documentation that proves any exclusions or deductions claimed by you.
  4. A copy of the balance sheet you used to calculate your net worth.

What If I Messed Up My Documents in the State Filing Process?

If you made some errors while filing for your Alabama LLC, don’t worry! There are enough ways available to rectify them. If you spelled your business name incorrectly, complete the Name Correction Form. Or maybe you forgot to include some or correct company details in your Articles of Organization document. Simply use a Certificate of Amendment or Statement of Correction. You can use the amendment certificate mentioned above to fix any such mistakes you made during the formation process.

The sooner you fix your blunders, the easier it’ll be to get your Alabama LLC up and running. 

Final Word

Once you’ve formed your Alabama LLC, the next thing to focus on is maintaining your business’s good standing. How to do it? Well, we’ve got you covered! There’s a whole blog on our website providing guidance on just that.

Meanwhile, here are some things to take note of after you’ve set up your company. 

  1. LLCs in Alabama are required to file an Annual Report within 2.5 months of initiation. 
  2. If your LLC sells things and has employees, you might have to pay additional taxes. These taxes could be due every three months.

Don’t sit pretty so easily. Running a business is a full-time job worth every risk in the professional guidebook. Once your LLC is a registered entity, you can officially complete the formalities mentioned below:

  1. Buy insurance to protect your LLC from potential risks and accidents. 
  2. Open a professional business bank account and apply for a business credit card.
  3. Trademark your name and logo to safeguard your brand image.
  4. Register your LLC with the state tax agency.
  5. Get the correct permits and licenses you need to run your Alabama LLC. These could include health permits, zoning permits, home occupation permits, and professional licenses. In some states, you might need a seller’s permit for sales.

Armed with this guide, you can confidently take the first steps toward making your business dreams a reality in the Heart of Dixie.

  • Montana
  • Nebraska
  • Nevada
  • New Hampshire
  • New Jersey
  • New Mexico
  • New York
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • West Virginia
  • Wisconsin
  • Wyoming

Frequently Asked Questions​

Starting an Alabama LLC can benefit many entrepreneurs and small business owners. But whether or not it is truly worth it depends entirely on your specific business goal, the nature of your LLC, and your personal situation. 

 The cost to start an LLC in Alabama can vary based on several factors. Here are some essential expenses to consider:

  1. Filing Fee: The filing fee is typically around $100-$200.
  2. Name Reservation: The fee is around $25-$30.
  3. Registered Agent: This could cost approximately $100-$300 annually.
  4. Business Licenses and Permits: These can range from nominal fees to a few hundred dollars.
  5. Additional Costs: Depending on your business needs, there could be other expenses like business insurance, professional services (legal, accounting), and initial operational costs.

Overall, the total cost to start an LLC in Alabama could be approximately $200-$600 or more, depending on your choices and requirements. Please research thoroughly and consult a professional to ensure accurate budgeting for your personal situation.

 The main steps to form an LLC in Alabama are:

  • Choose a name and check for its availability.
  • Hire a registered agent with a physical street address in Alabama.
  • File Articles of Organization with the Secretary of State and pay the filing fee.
  • Create an Operating Agreement to outline the LLC’s internal operations (optional but recommended).
  • Obtain necessary licenses and permits for your business.

 

A few entrepreneurs go this way, and you always have the option of forming your own LLC. The process can especially be time-consuming because each and every state of the United States of America has its own rules and regulations regarding how LLCs are set up and maintained. 

Conversely, some entrepreneurs hire a lawyer to form their new business entity. However, this process is much more costly than an online formation service.

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