How to File an LLC in Alabama

Entrepreneurs looking to start small businesses in Alabama have a lot of options.

You could start an S corp or C corp. However, both options leave you accountable to shareholders and investors. Sole proprietorships can leave you personally liable for business debts or other issues. The best option, therefore, is to start a limited liability company (LLC).

Key Takeaways

• An Alabama LLC offers prospective small business owners more freedom in running a business compared to S or C corporations while still maintaining some liability protection.

• Alabama requires you to reserve your Alabama LLC’s name before you can form an LLC.

• An LLC Operating Agreement is not required to file an Alabama LLC. Still, it is strongly recommended to help with the future growth of the business.

What Is an LLC Formation?

A limited liability company is a business structure that offers liability protection to the owner. It’s the ideal business entity for those who want to protect their assets.

LLC formation requires filing the appropriate documents with the Alabama Secretary of State. In addition to paying several state filing fees, you must pay a minimum of $100 sales tax per year, which essentially acts as an annual filing fee for your business.[1] The state calls this a “business privilege tax.”

Beyond liability protection, LLC formation offers complete control over managing your business entity. As mentioned, this differs from both S corp and C corp structures, which require specific management types.

Why Form an LLC?

There are several reasons to consider LLC formation instead of other types of businesses:

• You limit your liability for business debts and legal issues

• You can leverage several tax advantages that S and C corporations don’t have

• You still have the option of bringing investors on board by making them members of your LLC

• You’re not beholden to as many regulations as you would be with a corporate business structure

It’s worth noting that you can’t use the LLC structure if you wish to start a nonprofit organization in Alabama. Instead, you must file the Domestic Nonprofit Corporation Certificate of Formation document with the Alabama Secretary of State.[2]

Step-By-Step Guide To Starting Your Alabama LLC

Every state has its own rules for filing for an LLC. In addition to following these rules, you must also pay a filing fee. Again, this fee varies depending on the state.

If you want to form an LLC in Alabama, our step-by-step guide takes you from choosing a business name to getting your business license.

Step 1: Choose a Business Name for Your LLC

Unfortunately, you can’t choose any old company name and start a business in Alabama. There’s a defined process to follow that involves checking for other companies that have the same name and reserving the name for your use.

Choosing your business name requires you to complete the following four stages:

Stage 1 — Check the Name Is Available

There are many reasons why you shouldn’t use the same company name as any other business operating in Alabama. Trademark issues are the most obvious. A business with a trademark on its name could sue your budding LLC if you use the same name.

Branding is also an issue. Using the same business name as another organization creates the possibility of confusion.

Thankfully, the state of Alabama makes searching for business entities that operate in the state easy with its Business Entity Records system.[3] You can use this system to search for businesses based on the following criteria:

• Name

• Entity Number

• Date

• Name Reservation or Registration ID

• Officer, Incorporator, or Agent

Use this facility to check your desired name isn’t already in use before moving on to the next stage.

Stage 2 — Reserving Your Name

Many states allow you to register your company’s name immediately to complete your formation documents. That’s not the case in Alabama. You must reserve your Alabama LLC name before you can form your LLC.

Domestic LLCs do this using the Name Reservation Request Form for Domestic Entities.[4] The form costs $25 to file, and you must mail it to the following address:

Secretary of State

Business Services

P.O. Box 5616

Montgomery, AL 36103

You can also reserve your name online via the Alabama Secretary of State’s online services website.[5]

The name you register must end with the words “Limited Liability Company” or a suitable abbreviation, such as “LLC” or “L.L.C.” You’ll receive a name reservation certificate if you’re successful.

Foreign LLCs follow the same basic process. However, they must file a specific name registration form for foreign LLCs, which is available via the Secretary of State’s online services portal.[6]

Finally, you can do business under a name different from the name you register with the state. This is called “doing business as” (DBA).

For example, you may reserve the business name “Alabama Real Estate Holding Limited Liability Company.” That’s an unwieldy name, so you prefer to do business as “Alabama Real Estate.” The state allows you to do this and requires you to already use your DBA name before you file for business registration.

Stage 3 — Register Your Domain Name

Your domain name is the web address people use to access your LLC’s website. Having a website is vital to the success of your business because it enables marketing opportunities and allows visitors to learn more about your business.

Checking for the availability of a domain name is easy. Type yourbusinessname.com into your web browser and see what comes up.

Suppose there’s already a website on the domain. In that case, that means it’s not available unless you purchase it from the domain owner. If the domain name returns a 404-page error or information about the domain being for sale, you should be able to buy it.

You can purchase a domain name via any domain registrar, such as GoDaddy. These services also include search features that help you quickly see which domains are available.

Stage 4 — Trademark the Name

Though you’ve reserved your business name, it doesn’t automatically have a trademark applied. Instead, you have to file for a trademark separately using the Alabama Secretary of State’s Application for Assignment of Trademark, Service Mark, or Trade Name form.[7]

As the form’s name implies, you should file for trademarks for any of the following:

• Your LLC name

• Any names you do business as

• Identifying marks and graphics, such as company logos

A trademark ensures no other company in Alabama can use your identifying names and marks. Furthermore, you must ensure you don’t violate another entity’s trademarks when registering your business. Doing so could lead to legal trouble, such as lawsuits for trademark violations.

Step 2: Fill Out the Alabama Certificate of Formation

With your name reserved, you can file your Articles of Organization. However, Alabama doesn’t use this name. Instead, the state requires you to file Certificate of Formation documents, the same thing as Articles of Organization in other states.

The filing process varies slightly depending on whether you have a domestic or foreign LLC. Regardless, you must file these documents to comply with state law and demonstrate that your LLC is in good standing with the state of Alabama.

Filing for a Domestic LLC

Alabama law states that you must complete the Domestic Limited Liability Company (LLC) Certificate of Formation for a domestic LLC.[8]

You must mail the original version of this form, along with two copies, to the probate judge in the county where you’ll have your registered office. Furthermore, you have to mail two copies of the form, along with a stamped and self-addressed envelope, to the Alabama Secretary of State at the following address:

Secretary of State

Business Services

P.O. Box 5616

Montgomery, AL 36103

It costs $200 to file the form, which you must pay via credit card, check, or money order. The Secretary of State delivers $100 of this fee to the county’s treasurer, where your registered office is located.

You provide the following information in your Alabama LLC formation documents:

• Your LLC’s name

• The company’s purpose

• The effective or starting date of the LLC

• Information about your principal office

• The details of at least one member of the LLC

• Information about how long you’ve traded as a business

• A copy of your LLC’s name reservation or registration certificate

• The name and addresses of your company organizers and its registered agent

Filing for a Foreign LLC

Filing formation documents for a foreign LLC is much the same as for a domestic LLC.

You send the documents to the Secretary of State and offer the same information about your business. However, there are a few differences.

The most significant difference is that you complete the Foreign Limited Liability Company (LLC) Application for Registration Form.[9] Though similar to the form for domestic LLCs, this application also requires you to provide details about the jurisdiction where you registered the business.

Beyond that, the process is the same, except that you pay a $150 filing fee instead of a $200 fee.

Annual Reports

In addition to your formation documents, LLC owners must complete an annual report.[10] This report shows the state that your company is still open and transacting within the state. Your LLC must submit this form each year before March 15 or April 15, depending on what your LLC does, to comply with state law.

In addition to the form, you must pay a minimum Alabama Business Privilege Tax of $100. Assuming your company is operational, you should be able to handle this tax easily as part of your general state taxes.

Failure to deliver your annual report and the privilege tax causes your LLC to fall out of good standing with the state. Though the form comes from the Alabama Department of Revenue, you send it to the same address you send your formation documents.

Step 3: Hire an Alabama Registered Agent

Every LLC in Alabama must have a registered agent. This agent takes on several responsibilities, including:

• Receiving and processing legal documents

• Maintaining a registered office, noted on your Certificate of Formation

• Keeping the registered address open during regular business hours

Any state resident aged 18 or over can serve as an Alabama registered agent. This includes you as the LLC owner, another member of the LLC, or an employee.

Furthermore, Alabama allows other business entities to serve as your registered agent. These companies often provide a specific registered agent service that offers expertise in addition to handling the agent’s responsibilities.

Should You Use a Registered Agent Service?

Serving as your own registered agent seems appealing. You get to cut some costs and fully control where you receive legal documents and notifications from the Secretary of State.

However, serving as your own registered agent comes with downsides, including the following:

• The address you register gets recorded on the public record

• You may receive sensitive legal documents while dealing with a client or your employees

• You have to take time out of your busy day to handle the duties of a registered agent

• You must keep an office open during regular business hours to receive documents

• You always have to be available to receive mail, which limits your ability to travel or take time off

These disadvantages lead many to work with a registered agent service.

Swyft Filings offers this type of service. Our team of experts can provide you with a dedicated registered office in Alabama. We process all of your legal documents and make them available via an online dashboard you can access anytime.

Starting at $149/quarterly, plus state fees, our service gives you access to expertise and ensures compliance with Alabama’s registered agent requirements. To learn more, visit the Swyft Filings website to discuss your needs with a member of our team.

Step 4: Create an LLC Operating Agreement

Alabama doesn’t require LLC owners to have a written operating agreement. As such, you don’t need to create an LLC operating agreement if you don’t want one.

However, having a written operating agreement is recommended for several reasons. The agreement is a contract between LLC members that details who owns what in the business entity. Furthermore, you can use the agreement to denote each member’s core roles and responsibilities.

That brings us to what you should include in your operating agreement. The following elements usually make their way into the document:

• Information about the company’s equity structure

• Allocations of profits, losses, and distributions

• Each LLC member’s capital contributions

• Details of your management structure

• Voting rights assigned to each LLC member

• Steps for what to do if a member wishes to leave or transfer their ownership

• Rules for dilution that you’ll follow when taking on new members

• The steps you’ll take if you decide to close the business or buy out a member

It’s also worth creating an owner’s manual, which acts like a business handbook that covers issues not raised in the operating agreement. For example, the manual could get into the specifics regarding employee vacation and illness policies. It may also cover the benefits you offer to employees and LLC members.

If you create an owner’s manual, note that you’ll refer to it as needed in your operating agreement.

As a side note, you don’t have to worry about creating an operating agreement if you own a sole proprietorship. You have complete control over every aspect of the business and don’t need to form a contract with yourself.

Step 5: File for an Employer Identification Number and Business Licenses

Your initial business licenses are covered as part of your formation documents. For example, you’ll file the Business Privilege Tax Return with the Alabama Department of Revenue and your county probate offices. You can find a complete list of these offices on the Alabama Department of Revenue website.[11]

Beyond this license, your Alabama business may have to apply for licenses for every brick-and-mortar store. You can apply for these licenses via the relevant city or county’s website.

Finally, you need a business tax permit, also called a seller’s license, if you lease or sell tangible goods. Plus, you may have to file for additional licenses depending on what your business does. You can find more details on the My Alabama Taxes website.[12]

Applying for an Employer Identification Number (EIN)

With all other business licenses secured, you have one more thing to worry about: Employees.

If your LLC has employees or intends to hire some in the future, it needs an EIN. This nine-digit number identifies your LLC for federal tax and income tax purposes and denotes you as an employer. Think of it as a Social Security number for your business.

You’ll also need an EIN to open a business bank account, file tax returns, or apply for business licenses. As such, it’s essential, even if you have a single-member LLC with no employees.

The best way to apply for an EIN is to use the Internal Revenue Service’s (IRS) EIN Assistant service.[13] You can also apply online directly and get more information about who does and doesn’t need an EIN from the IRS website.[14]

Let Us Handle Your LLC Paperwork

As you can see, setting up an Alabama LLC is more complicated than it initially appears. You have to deal with the Internal Revenue Service and submit several documents to the Secretary of State.

It can all feel too much for an entrepreneur who wants to form a small business.

That’s where Swyft Filings comes in.

We offer various business services, including an LLC online formation service. Having served over 250,000 businesses since 2015, we understand the legal frameworks and compliance requirements you must meet to form your LLC in Alabama.

That’s not all.

Swyft Filings offers customer service that’s tailored to your specific needs. We even file the paperwork on your behalf, allowing you to get on with the critical business of running your company. If you’d like to learn more about our LLC formation service, contact a member of our team online today.

FAQs

How much does it cost to set up an LLC in Alabama?

There are several fees to consider when setting up an LLC in Alabama, including the $25 fee for reserving your name and the $200 fee for submitting your formation documents. You may also have to pay additional fees for specific business licenses.

How is an LLC taxed in Alabama?

LLC owners in Alabama may have to pay the following taxes:

• Self-employment tax on your company’s profits

• Federal income tax on profits

• State income tax on profits

• A sales tax if you offer tangible goods

• Payroll tax on any salaries offered to employees

Furthermore, your employees have to pay federal and state income taxes.

What are the benefits of an Alabama LLC?

The two key benefits of having an Alabama LLC are personal liability protection and more control over your company than you get with a corporation.

How do you dissolve an LLC in Alabama?

You must complete and send copies of the Domestic LLC Articles of Dissolution form to dissolve an LLC in Alabama.[15] You must send two copies to the probate judge in the county where you formed your LLC. You also have to provide the original file’s signature.

Dissolving your LLC doesn’t end any legal proceedings against it. You also have to pay a filing fee of $100 to the Secretary of State, alongside a separate fee of $50, to contact the relevant probate judge so you can verify their recording fees.

Bibliography

1. Alabama Department of Revenue. “Business Privilege Tax Incentives.” Accessed January 24, 2023.

2. Alabama Secretary of State. “Domestic Nonprofit Corporation Certificate of Formation.” Accessed January 24, 2023.

3. Alabama Secretary of State. “Business Entity Records.” Accessed January 24, 2023.

4. State of Alabama. “Name Reservation Request Form for Domestic Entities.” Accessed January 24, 2023.

5. Alabama Secretary of State. “Secretary of State Online Services.” Accessed January 24, 2023.

6. Alabama Secretary of State. “Secretary of State Online Services.” Accessed January 24, 2023.

7. Alabama Secretary of State. “Trademarks.” Accessed January 24, 2023.

8. State of Alabama. “Domestic Limited Liability Company (LLC) Certificate of Formation.” Accessed January 24, 2023.

9. State of Alabama. “Foreign Limited Liability Company (LLC) Application for Registration Form.” Accessed January 24, 2023.

10. Alabama Department of Revenue. “Alabama Business Privilege Tax Return and Annual Report.” Accessed January 24, 2023.

11. Alabama Department of Revenue. “County Probate Offices Directory.” Accessed January 24, 2023.

12. Alabama Department of Revenue. “My Alabama Taxes.” Accessed January 24, 2023.

13. Internal Revenue Service. “EIN Assistant.” Accessed January 24, 2023.

14. Internal Revenue Service. “Apply for an Employer Identification Number (EIN) Online.” Accessed January 24, 2023.

15. Alabama Secretary of State. “Domestic LLC Articles of Dissolution.” Accessed January 24, 2023.