Starting a corporation in Alabama comes with many benefits, starting with a really good platform aiding faster and higher business growth. Additionally, the state offers new businesses a wide range of abatements and credits on corporate taxes.
Alabama also includes The Enterprise Zone Program offering further tax incentives to business owners that extend within the designated enterprise zone.
The following step-by-step guide will show you how to start a corporation in Alabama.
1. Select a name for your corporation
The first step in the process of incorporating your business in Alabama is choosing a business name. The business name must comply with the Alabama naming requirements below:
General corporate name guidelines
The following naming rules will need to be adhered to when deciding on a business name for your Alabama corporation:
- The business name must not include words that may indicate or imply that your business is engaged in an activity that is not authorized by law
- Your business name should not include words that may confuse your corporation with a government agency such as treasury, FBI, State Department, etc.
- Your Alabama corporation name must be significantly different from any other business name registered with the Secretary of State
- If you decide to go with a name that uses a professional designation such as attorney or engineering, then you need a copy of the license of one officer alternatively, or alternatively a letter from the government agency giving you permission to use the name without licensing
- Additionally, you need to seek approval from the Alabama Banking Commissioner’s Office or the Alabama Insurance Commissioner’s Office in the event you decide on using a name that is banking related or insurance-related
- The Alabama corporation name must contain the words or abbreviations of incorporated or corporation
Prior to registering your Alabama Corporation name, you need to reserve the name online or by mail to the address below:
Alabama Secretary of State
600 Dexter Ave S- 105
Montgomery, AL 36130
If you’re reserving your corporation name by mail, it needs to be reserved at least two weeks before registration. When filing online, the name may be reserved at the time of registration
For domestic entities, the name reservation request form must be completed before or at the time of registration, depending on how you plan on filing.
For complete naming rules, refer to the Alabama state statute. To ensure that the name is indeed available in the state, go to the Alabama Secretary of State’s Business Entity Search Portal and conduct a name search.
While registering your Alabama corporation name as a trademark is not a requirement in the state, it does have its benefits. Your corporation’s name is arguably its most valuable asset.
Additionally, customers come to identify with your business through its name and the symbols associated with its band. Therefore, registering your business name as a trademark is essential for various reasons.
To trademark your Alabama corporation name, refer to the United States Patent and Trademark Office or USPTO and conduct a trademark search.
Once you’ve determined that the name hasn’t already been taken by another business entity in the state, complete the online application on the USPTO’s website.
A corporation’s entity name is simply the legal name registered with the state. This is the name that will be included or used in all of your Alabama corporation’s formation documents.
DBA (Doing-business-as) name
If you plan to conduct business under any other name other than your legal entity name, you must file a DBA with the state. A DBA is known as a “trade name” or (doing business as) name. File the Alabama DBA or trade name with the state’s office either online or by mail.
Call the Alabama Corporations Call Center at 334-242-7200 for further information on the forms needed to file your Alabama corporation DBA.
2. Nominate a registered agent
If you’re incorporating a business in Alabama, then you’re going to need to appoint an Alabama registered agent. A registered agent is also referred to as the service of process of a statutory agent.
Ultimately, their primary role is to accept legal documentation and government correspondence on your corporation’s behalf.
There are a few prerequisites to nominating a registered agent, such as:
- The Alabama registered agent must be at least 18 years of age or older
- They must have a physical address in the state
- They must maintain availability during normal business hours
- They must consent to the appointment
Nominating a registered agent is an essential step in the process, as not having one for your corporation could lead to negative consequences. In some cases, you could be penalized with fines and lawsuits and also lose good standing with the state.
Therefore, it is in your best interest to nominate a registered agent as soon as possible.
3. Appoint initial directors at the organizational meeting
Another essential step in the process is holding an organizational meeting. During this meeting, a few tasks will need to be addressed, such as selecting a corporate bank account, adopting bylaws, authorizing the issuance of shares of stock, and appointing initial directors. The meeting should be held within a short while after the corporation is formed.
You’ll need to nominate at least one initial director who will serve the board until a successor is nominated or until the first annual shareholders’ meeting.
You should also nominate corporate officers during this meeting. There are no requirements for the number of officers needed, and you may have anywhere between one to three officers as provided in the bylaws.
4. File Articles of Incorporation
To officially create your Alabama corporation, you need to file a Certificate of Incorporation, also known as a Certificate of Formation. The formation document will need to contain some basic information, including:
- The number of authorized shares the business is allowed to issue
- The registered agent’s name and address
- The name and principal address of the corporation
In the state of Alabama, the Certificate of Incorporation Form only allows space to list one share class. Therefore, if your corporation plans to issue more than one class of stock, you may attach information separately and check the box that states there is additional information included.
Secretary of State, Business Services
P.O. Box 5616
Montgomery, AL 36103-5616
5. Create and approve bylaws
Your corporation needs to keep complete books and records.
One of the first steps in establishing your corporate bylaws and public records. Your bylaws are basically a governing document for your business. It contains provisions for overseeing and managing the business as well as regulating the affairs of the corporation.
Therefore, it needs to be consistent with both the Articles of Incorporation as well as the law. The bylaws will be ratified in your first Board of Directors meeting.
The bylaws should contain some basic information regarding your corporation, such as:
- How contracts will be negotiated
- How the bylaws will be adjusted or amended in future
- How disputes will be handled
- The role of directors and officers
- The procedure for holding annual meetings, voting procedures, and the nomination of officers and directors
The bylaws do not need to be filed with the state; however, it is your business’s corporate records and governing policies. Therefore, it should be kept in a safe place for reference as and when needed.
6. Select a share structure
A shared structure refers to the series, type, and class of shares authorized by the corporation. In any corporation, there’s at least one class of shares. Additionally, a share class may have one or more series of shares, provided the special rights connected to the class allow it.
Since each share of stock represents the percentage of ownership of the corporation, if a corporation decides to issue stock or one share of stock to a stockholder, then that stockholder or stock owner owns a hundred percent of the company.
7. Obtain an EIN
Every Alabama corporation needs an EIN or Employer Identification Number. An EIN is also referred to as a Federal Tax Identification Number. This unique nine-digit code is issued by the Internal Revenue Service and is used by them to identify business entities in every state. It’s like a social security number for your business.
After forming the company, obtaining an EIN is 100% free of charge to the corporation owner. You may apply for the EIN online using the EIN Assistant or download IRS Form SS-4 and mail it to the following address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
The quickest way to apply for an EIN is online, as you’ll receive it immediately provided you print it out prior to closing your session.
The EIN is also needed for tax purposes and to open a business bank account.
8. File Alabama state taxes
The following taxes may apply to you irrespective of the type of corporation in Alabama:
- Corporate income tax: All Alabama corporations are liable for corporate income tax, which is a flat rate of 6.5% on all corporate income.
- Business privilege tax: Alabama also imposes a business privilege tax, which is essentially an annual tax on corporate shares based on a company’s net worth.
- Sales tax: If you plan to sell goods and services, you should register for sales tax. Certain items are considered exempt from sales tax, such as prescription drugs, motor oil items, gasoline, and seeds intended for planting purposes
Refer to the Alabama Department of Revenue website for further information on the Alabama corporation taxes that your company may be liable for.
9. Alabama business licenses and permits
Refer to the U.S. Small Business Administration (SBA) for federal licenses required. You may need one or more of the following state licenses and permits before conducting business in Alabama:
- State and county business privilege license: Every corporation conducting business in the state must obtain a business privilege license. The Department of Revenue administers the license, and it’s also issued at the local level by the county Probate Judge or License Commissioner.
- Sales tax license: If you plan to hire employees for your corporation, lodge taxes, or collect sales taxes, you need to register for an Alabama sales tax license. The sales tax rate for the majority of products sold in the state is 4%.
- Resale certificate: You’ll want to obtain an Alabama Resale certificate if you plan on purchasing merchandise to resell. This ensures that you won’t pay sales tax on merchandise resold to customers’
- Occupational or vocation privilege licenses: Depending on the occupational profession you’re involved in, you may need to apply for an occupational privilege license. This is because various occupations and professional corporations are regulated in the state of Alabama.
10. Annual report requirements in Alabama
Alabama corporations are required to file an annual report each year with the Alabama Secretary of State. The reason for providing the annual report is to declare that your business is still in operation and also to have good standing with the state.
The annual report needs to be filed every calendar year by the 15th of April. Additionally, any information that has changed since the last time you filed the annual report will need to be updated and declared when filing each annual report with the state.
11. Costs of starting a corporation in Alabama
The following filing fees are applicable to all Alabama corporations:
- Name reservation: $25
- DBA name: $30
- Articles of Incorporation: $200
- Annual report: $150
- Alabama Certificate of Good Standing: $28 (online) $25 (via mail)
Next steps after forming a corporation
After forming your corporation, you’ll still need to ensure that you maintain it. Here are some basic steps to get your Alabama corporation up and running:
Open a business bank account
One of the prerequisites to successfully maintaining an Alabama corporation is opening up a corporate bank account. Businesses that tend to mix business and personal finances run the risk of losing their liability protection. This is why it is advisable that corporations have their own bank accounts to separate personal and business expenses while protecting personal assets.
Additionally, a business bank account is important when it comes to accepting payments, holding funds, and paying bills. In order to open up a bank account for your Alabama corporation, you need to take a copy of your Articles of Incorporation, and bylaws along with you.
Additionally, unless your bylaws explicitly state that you have the power to open up a bank account, you need to take a corporate resolution along became before g with you. This corporate resolution should state that the person that is opening up the bank account is authorized by the business to open up a bank account in the name of the corporation.
Get Alabama business insurance
The reality is that there are various hazards associated with running a corporation. Therefore, it is advisable that all Alabama corporations consider getting business insurance. Some of these hazards include having a customer slip and fall on your premises. Another scenario is having an employee injured on the job.
While this is not always the case, it may lead to lawsuits and threaten a corporation’s cash flow if you don’t have the proper or appropriate business insurance.
Starting a corporation involves several processes. Firstly, you need to file and submit the relevant paperwork with the relevant government agencies. Next, you need to ensure that you register for the relevant taxes, business licenses, and permits in order to legally operate your corporation in the formation state.
The easiest corporation to start is a sole proprietorship. This is because it’s one of the simplest forms of business entity where one person is responsible for all of the corporation’s profits and debts. Additionally, starting a sole proprietorship is easy to set up, the costs are low, and since you and your business are a single entity, you are not liable for certain business taxes.
Limited liability companies or LLCs and corporations differ in the fact that one or more individuals own an LLC, while a corporation is owned by its shareholders. LLCs are also able to avoid double taxation. Corporations also offer personal liability protection to shareholders.
Starting a business with no money means that you have to start with what you have, whether it be your skills, experience, knowledge, or tangible resources. You should also take into account who you know and invest what you can afford to lose.
A C corporation or C corp is the default or standard corporation structure under Internal Revenue Service rules. On the other hand, the S corporation is a type of business structure that has elected a special tax status with the IRS. Therefore, an S corporation does come with more tax advantages than a C corporation.