How to Start an LLC in Alabama (AL)

Setting up a Limited Liability Company in Alabama ensures your business finances always stay separate from your personal finances. It’s a great business entity for any business owner, whether you’re a small, medium, or large company.

Since registering your LLC doesn’t take long, and the startup costs are reasonable (especially compared to a corporation), it’s an excellent option for new business owners who have many personal assets (like property or investments) that they’d like to protect.

Under an LLC, if your business is ever sued or experiences financial losses, you (and any additional LLC members) won’t be expected to pay for these losses out of your own pocket. 

All you have to do is follow the exact steps outlined below to make sure your Alabama LLC is registered correctly. 

How to Form an LLC in Alabama – A Step by Step Guide

You can apply for your LLC on your own or through a professional service. While filing on your own isn’t complicated and doesn’t take too much time, you still want to make sure you complete each step as outlined below, ensuring your LLC is set up correctly the first time around.

If you’d rather not handle your business’s legal side, we suggest hiring experts to file all your business paperwork for you (a more worry-free approach).

Otherwise, if you’re a do-it-yourself kind of person, follow these 5 initial steps:  

1. Name your Alabama LLC 

To form an LLC in Alabama you need to follow specific name requirements set by state law. Your business name needs to be unique, meaning no other company has a similar name. 

Name Requirements

Before checking to see if the business name you’d like is available, to abide by Alabama LLC law, make sure the name of your company contains one of the following:

• Limited Liability Company
• LLC
• L.L.C.

Your LLC name can be your business name, like Plumbing King L.L.C, or the name of one of your LLC’s members, such as Joe Smith LLC.  

Check Name Availability

Once you’ve decided on your name, you need to check to see if it’s available and there’s no other company in Alabama using it. The quick and easy way to do this is through a quick google search using your desired name.

If you don’t find any competing companies, you can move onto the next step – checking your business’s potential name through the Alabama business name search. 

Unlike most states, you must reserve a name before applying for an LLC (this is a mandatory step). This is to ensure the name is not already in use by another business in the state. You can reserve a name online through the Alabama Secretary of State for a $28 fee. You can also download the form and send it by mail for a $10 fee (although approval takes longer). 

Using a Fictitious Name

If you don’t want to use LLC in your business name, then you can add a fictitious name once your business is registered. Also known as DBA (“doing business as,”) or a trade name, a fictitious name allows you to run your business under a name that’s not the legal LLC registered name. 

You can also use a fictitious name if you plan on running several different businesses under your LLC formation. 

To use a fictitious name (called a trade name in Alabama), you simply start using your desired name when conducting business in the real world. Alabama does not require LLCs to register fictitious names; however, you can apply for an ‘Application to Register Trade Name’ to alert other businesses that the name is in use. It costs $30 to register a trade name. 

Once you’ve figured out what your business name is and you’ve made sure it’s still available, the next step is to choose a registered agent who will help you with the legal side of your business. 

2. Choose an Alabama Registered Agent

A registered agent is anyone who receives and sends legal documents on behalf of your company. They are the main point of contact between your company and the Secretary of State.

Alabama, an LLC must have a registered agent who lives in Alabama and has a valid street address (not a P.O. box).

An LLC registered agent can be:

• Yourself 
• A family member or friend 
• A Commercial Registered Agent  

Why you should use a registered agent

While the easier route seems to have yourself, or one of your LLC’s members, act as the registered agent, there are some benefits in hiring a professional. A registered agent will ensure your business is always in good standing with the state, helping you stay organized and up-to-date. It also adds a layer of protection since they’ll help you in the case of a lawsuit or any penalties/fines.

Once you’ve decided who’s the best person to be your registered agent, the next step is to submit your LLC application. 

3. File an Alabama LLC Certificate of Formation 

In Alabama, you need to file a ‘Certificate of Formation’ to the secretary of state to form your LLC. It costs $200 to file, and you can send your application to:

Secretary of State
Business Services
P.O. Box 5616,
Montgomery, Alabama 36103-5616

It takes between 4-7 business days for your LLC to be approved. 

Be prepared to include the following information (and always read it over once before submitting): 

• Your LLC’s name
• The name and address of your LLC’s registered agent
• Whether your LLC is professional or nonprofit 
• The effective date the LLC will begin operations (if different from the filing date)
• The signature of the organizer or attorney-in-fact

What’s the difference between member-managed or manager-managed? 

Member-managed is if you (and the other owners of your LLC) are responsible for everyday business activities. In contrast, manager-managed is if you decide to hire someone who is not a member to manage your business’s day-to-day activities.

Member-managed is more common for smaller businesses, while larger companies typically use manager-managed. You’d usually only choose manager-managed if you are a passive investor and aren’t involved much in the business. 

Once you get approval, you can move onto step 4 – creating an LLC Operating Agreement. If you’re operating your LLC by yourself, skip to step 5. 

4. Create an Alabama LLC Operating Agreement

If your LLC has two or more members, it should have an operating agreement. Although it’s not required in Alabama, we suggest creating one to outline how the business is structured and how it will operate among its members (and/or managers). 

Some of the sections you’ll typically find covered in an operating agreement include:

• Organization
• Management
• Voting
• Capital distributions
• Distributions
• Dissolution

Again, while this is not a necessary step, as you don’t have to mail it to the secretary of state, it is recommended if your LLC has more than 2 members. It helps clarify the rules of your LLC and makes sure they are legally documented.

After you’ve agreed and created an LLC Operating Agreement, the next step is to create your unique employer identification number. 

5. Apply for your Alabama LLC Employer Identification Number (EIN)

Once your LLC is approved, you’ll need to get an employer identification number (EIN).
An EIN is a federal tax ID number that registers you with the Internal Revenue Service (IRS). This number identifies your company when filing taxes.

How to register for an EIN:

– Apply online or,
– fill out the Employer Identification Number form and fax it to 855-641-6935, or mail it to:

Internal Revenue Service,
Attn: EIN Operation,
Cincinnati,
OH, 45999

If you apply online, you’ll get instant approval. If you apply by fax, it takes up to 4 business days, whereas mailing can take up to 4 weeks. Applying for your EIN is completely free! 

Alabama LLC Registration – Final Checklist & Summary

Ready to get started? Use this simple checklist to make sure you’ve dotted your i’s and crossed your t’s! 

1. Name your LLC – LLC’s in Alabama are required to have ‘Limited Liability Company,’ or the abbreviation(s) LLC or L.L.C. Be sure to check the business name database to ensure your desired LLC name is not already in use. Then you need to reserve a name (a mandatory step) before you can apply for an LLC in Alabama.
2. Choose a Registered Office – A registered agent is a person who receives and sends legal documents on behalf of your company. It can be you, a friend or family member, or a commercial registered agent. 
3. File an Alabama LLC Certificate of Formation – In Alabama, the file for forming an LLC (called the Certificate of Formation) is sent to the secretary of state. The total cost for sending the Certificate of Formation is $200. 
4. Apply for your Alabama LLC Employer Identification Number (EIN) & File your Tax Registration Form -Once you get approval for your LLC, you need to apply for an employer identification number (EIN) through the IRS. This number identities your company when filing taxes. You can apply online for free, and approval is instant.
5. Create Alabama LLC Operating Agreement – If your LLC has two or more members, you should create an LLC operating agreement that outlines how the business is structured, who is responsible for what, and how much of the LLC each person owns. You don’t have to send your operating agreement to the Alabama state, but you should have one, so everything is documented and signed by all members.

Always double-check your LLC information is correct before submitting any paperwork. You want to avoid simple mistakes and ensure your business is set up correctly from the get-go.

If it’s within your budget, we recommend using a formation service to help form your LLC. They can act as your registered agent and make sure your company is always in good standing. Just make sure you do your homework and choose one of the best LLC services for your business.

Our first recommendation is to go with ZenBusiness, an LLC creation service that holds your hand from start to finish. Packages start as low as $49. 

How To Apply for an Alabama LLC Online

Now that you know the exact steps on what’s needed to form your LLC, it’s time to start the application process. There are two ways of going about this:

1. Do it Yourself 

Taking the DIY route is a good option if your budget is tight or you’ve previously opened an LLC and understand how it works.

2. Use an Online Formation Company

Using an online formation company is a better option if it’s your first time opening up an LLC and if it’s within your budget (formation services cost anywhere between $49 – $199). This is typically a better choice if you want to avoid headaches and have peace of mind knowing professionals handle everything for you. 

If using a professional service is more up your alley, here are our top 3 recommendations: 

ZenBusiness

ZenBusiness built its platform to meet the needs of your business throughout its lifetime. When you pay for their services, you’ll receive a personalized dashboard for your business to store documents, receive alerts, and manage your website.

ZenBusiness charges work on a tier system. There are three different tiers with pricing as follows:

• The Starter = $49 annually
• The Pro = $199 annually
• The Premium = $299 annually

Visit ZenBusiness and File Your LLC Today

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IncFile

IncFile provides you with a full suite offering startup services to best support your business formation.

Their pricing model also depends on the state you are filling. You can generate a personalized quote on their website by entering the necessary information about your business.

Visit IncFile and file your LLC today

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Legal Zoom

LegalZoom is an online legal service provider that helps you to be able to create legal documents without having to pay the expensive lawyer fees. Some of the services they provide assistance to includes business formation, copyrights, and trademarks.

LegalZoom has many different pricing options available. For their LLC service, pricing begins at $79 + the allotted state fee.

Visit LegalZoom and file your LLC Today

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After Starting Your Alabama LLC

You’re approved – now what? The journey doesn’t stop here – there’s still a handful of things you need to do to get your business off the ground. We recommend ticking off the following items to make sure your LLC gets off on the right foot. 

Purchase A Domain For Your Business

Even if your business is local, having an online presence is essential in creating trust, professionalism, and a way for people to find you. If you haven’t already thought about getting a website, now’s the time. In a tech-saturated world, you need a domain to not only attract new customers but help create a good first visual impression of what your business does and how it can help. 

Get A Business Phone Number

Since your business is now an approved Alabama LLC, you should think about getting a business phone number. Having a business number is a great way to show professionalism to your clients and customers. It makes you more serious and, more importantly – more trustworthy.

There are various online phone services you can go with, or you could go the traditional route and open an account through a local branch. You can get a local number or a 1-800; the options are endless!  

Open Your Alabama LLC Business Bank Account

You’ll want to open a business account that’s separate from your personal banking. This will not only make accounting easier, but you won’t have to worry about your finances mixing in with your business finances.

USA Business Bank Accounts

If you already have online banking, it might be easier to open a business account through your current bank, so all your banking (although in separate accounts) will be accessible in the same place. If you prefer to open something new, keep these checking accounts in mind: 

Chase – Free checking account with no extra fees – as long as you keep a $1,500 minimum balance.

BlueVine – Free checking account with mobile banking and a debit MasterCard. 

Bank Novo – Open a free checking account with Free transfers and free ATM fees.

Merchants Bank of Alabama – Open up a checking business account and access remote deposits, Ag lending, and multiple and loan options. 

Alabama ONE – Open up a checking account with unlimited transactions plus no monthly service fee. It only requires a $25 opening deposit. 

Along with your business checking account, you should apply for a business credit card too. Having a business credit card is an excellent way to establish your business credit score (which may help if you ever need a loan). It also makes it easier for online purchases, and again, it will keep your personal and business finances separate. 

Find Accountant/Buy Accounting Software

Taxes get complicated fast and can be a burden to handle. We recommend getting an accountant or using accounting software to ensure all your spending actions are tracked (payroll, bills, invoices, receipts, etc.). Here are some popular options to look into:

Wave – Free invoicing & accounting software with credit card processing & payroll services.

Intuit Quickbooks – Online accounting software to track expenses, customize invoices, and run reports.

Freshbooks – Accounting software to send invoices, track time, manage receipts, expenses, and accept credit cards.

Directory of Federal Tax Return Preparers with Credential – If you want to use a local tax specialist, you can search for a certified public accountant (CPA) through the IRS online directory.

Having all of your business reports in one spot is highly beneficial, so you can keep an eye on your cash flow. To run a successful business, you will need to analyze how your business performs and narrow down what’s working or what isn’t working. Finding areas for growth will ensure success. 

Don’t Forget to File a Business Privilege Tax Return

In Alabama, LLCs are required by law to send in the “Initial Business Privilege Tax,” and the ‘Business Privilege Tax Return.’

The Business Privilege Tax is based on your federal taxable income. The first report is due 2.5 months after your LLC was formed and costs a minimum of $100 (it might cost more depending on your business’s net worth). This is a one-time report.

Afterward, each year (3.5 months after the beginning of your LLC’s taxable year), you’ll need to send the second report. The second report is ongoing and again a minimum of $100 (or more depending on your net worth). 

To calculate how much your business owes, you need to multiply your net worth (assets minus liabilities) by the corresponding tax rate. You should speak to your registered agent or accountant on how to properly calculate what you owe. 

You can find all the forms through the Alabama Department of Revenue. 

Notify Alabama Of Any Changes You Make To Your LLC

If at any time you make changes to your LLC you need to inform the state. If you’re using a registered agent they can do this for you. If you’re going about this alone, you can update changes through Alabama’s business portal or through your registered agent. 

8 Benefits of Forming an LLC in Alabama

Setting up an LLC in Alabama makes sure your business finances stay separate from any personal finances and that each member’s personal possessions are safe.

It’s a great business entity for small, medium, or large businesses as it gives you the freedom of a sole proprietorship or partnership with the protection of a corporation. Best of all, it’s easy to get (approval is instant), and it won’t cost you an arm and a leg. Some of its major benefits include:

1. Protect Your Personal Assets

The LLC will have its liability that does not automatically extend to the owners, unlike a sole proprietor, where you are legally responsible for everything. That means Alabama LLC protects the liabilities and debts incurred by the business. In most situations, your assets, such as your car, home, or savings, will never be at risk if your Alabama LLC is faced with lawsuits or bankruptcy.

2. Benefit From Business Profit Taxation

In an LLC in Alabama, your profits and losses can pass through to your income without having to have corporate taxation.

3. Simple to Create and Maintain

The formation of an Alabama LLC requires minimal paperwork and requirements. They are known for being easy to start and simple to maintain.

4. Minimal Restrictions

Your business matters can be managed by more than one owner or member while still being one main business to the public. This means all decisions and transactions behind the scenes can be equitably distributed while presenting one entity as you move forward.

5. Heighten Your Credibility

As you move forward, your Alabama LLC will continuously be recognized as an entity. People and other businesses prefer doing business with a legitimate entity because it shows your level of professionalism.

6. Gain Access to Business Loans

When you form your Alabama LLC, you will obtain a DUNS number and build your business credit, helping you to further build upon your business.

7. Benefit From Flexible Profit Distribution

In an LLC, you are not required to spread the distribution of profits equally across the owners. You have complete control over profit distribution in your Alabama LLC.

8. Good For Any Kind Of Business

An LLC business structure in Alabama is an excellent choice for both medium and higher-risk level businesses. You might always want to consider opting to go with an LLC if you have a significant amount of personal assets to protect from your company. And lastly, LLCs are great for owners who are interested in paying lower tax rates than corporations.

Conclusion 

Filing an LLC in Alabama is a great option for business owners who don’t want to be double-taxed or if you’re looking for security and flexibility. To get your initial approval, all you need to do is follow the first 5 steps outlined in the instructions above. After that, be sure to keep up with your LLC records and stay on top of filing your ‘Business Privilege Tax.’

Since an LLC is a legal business entity, you always want to double-check that everything is accurate and correct before submitting it to the state. Failure to do so might result in your LLC being denied, delayed, or formed incorrectly.

If it’s in your budget, we suggest using a formation service, like ZenBusiness, which can act as your registered agent and file all your legal paperwork. Choosing to file with an all-around service is an affordable option that will help make sure your LLC is registered properly the first time around. 

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FAQ About Forming Alabama LLC

There are several different steps you’ll need to take to form your LLC legally. It’s a lot of information to take in and can get confusing. To help out, we’ve compiled some answers to the most frequently asked questions: