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For many new companies, forming as an LLC is the best option as it is an uncomplicated business structure that affords business owners legal protection by separating personal assets from business debts. Additionally, LLCs often enjoy a lower tax rate than corporations. However, forming an LLC can be a little complicated, and each U.S. state has its own checklist for starting an LLC with minor procedural variations.
An LLC is formed in Alabama by filing a Certificate of Formation through postal mail with the local Office of the Judge of Probate. The process of LLC formation in Alabama is unique compared to other states, where it is common for LLCs to file formation documents known as Articles of Organization directly with the Secretary of State.
In order to avoid a misstep in the filing process, follow these steps to start an LLC in Alabama, and refer to the checklist at the bottom of the post to familiarize yourself with the legal and financial requirements for LLCs in the state.
Starting an LLC in Alabama step-by-step
1. Select a name for your Alabama LLC
Follow naming requirements
There are three major guidelines to follow when naming your LLC in the state of Alabama:
- Alabama law states that an LLC’s name must include the words “Limited Liability Company”, “LLC”, or “L.L.C.” in order to be created.
- An LLC’s name must be distinguishable from other Alabama business entities that have filed with the Secretary of State.
- Your LLC can not contain misleading words or phrases that suggest that it provides a service not mentioned in the LLC’s Certificate of Formation.
Reserve your LLC name with the Secretary of State
After selecting a name for your LLC, you must reserve it with the Alabama Secretary of State. There are two methods of completing this step:
1. Reserve your LLC name online for a fee of $28. The Alabama SOS website will automatically check the availability of your chosen company name, and if a similar name is in use in the state by another business entity, you can try again until a name is approved.
2. Fill out and submit a Name Reservation Request Form for Domestic Entities via postal mail to the Secretary of State. You must enclose a $10 payment with the form. When using this method, you must manually confirm that your proposed LLC name is available by searching the Alabama SOS business name database.
2. Designate a registered agent
As in every U.S. state, forming an LLC in Alabama requires the appointment of a registered agent service to handle state and federal legal documents and service of process on the business’s behalf.
The registered agent must either be a state resident with a street address in Alabama OR if the individual or professional service is based out-of-state, they must have a business office in Alabama.
Click here for a PDF list of Alabama registered agents supplied by the Secretary of State.
3. File a Certificate of Formation
An LLC is officially formed in Alabama through the filing of a Certificate of Formation with the Office of the Judge of Probate in the county where the LLC’s office is located. Additionally, you must provide a copy of the Name Reservation Certificate from the Alabama Secretary of State along with the Certificate of Formation. The certificate must be filed by postal mail and cannot be filed online.
There are two filing fees that must be paid along with the certificate:
- A $100 Secretary of State filing fee
- A $50 filing fee to the Probate Court.
Processing times will vary depending on locality.
Upon receipt of the Certificate of Formation, the Probate Judge will file the form and return you a stamped copy. Then, the Probate Court will transfer the certificate to the Secretary of State.
LLCs formed outside of the state that plan on doing business in Alabama must register with the Secretary of State. In order to do so, foreign LLCs must follow the proper naming guidelines posted above and complete the following steps:
- Appoint an Alabama registered agent.
- Acquire a Certificate of Name Reservation.
- Register your foreign LLC using one of the following two methods:
- Register your foreign LLC online on the Secretary of State website for a fee of $156 (payable by credit card).
- Register your foreign LLC by postal mail by mailing two copies of the Foreign Limited Liability Company Application for Registration, the Certificate of Name Reservation, and a $150 fee payment(check, credit card payment, or money order) to one of the following addresses:
Alabama Secretary of State
Attn: Business Entities Division
P.O. Box 5616, Montgomery, Alabama 36103
770 Washington Ave., Suite 580, Montgomery, AL 36104
4. Draft an operating agreement
Although not a legally mandated step for forming an LLC in Alabama, drafting a comprehensive LLC operating agreement is strongly recommended for all nascent limited liability companies. This document should describe the LLC’s business structure, establish the individual responsibilities and obligations of LLC members, and detail how the LLC will be run.
Without an operating agreement clarifying the specific duties of its members, an LLC may face significant legal and operational difficulties.
5. Obtain an IRS Employer Identification Number (EIN)
All newly formed LLCs in the United States must acquire an Employer Identification Number (EIN) from the Internal Revenue Service (with the exception of a single-member LLC). The nine-digit EIN is like a social security number for a business and is necessary to pay income tax, file tax returns, open business bank accounts, and to perform a number of other important functions.
You can apply for an EIN online on the IRS website without paying a filing fee.
6. Fulfill your Alabama’s LLC’s regular legal obligations
Once an LLC is registered, it is important that its members devote significant attention to successfully fulfilling legal requirements that apply indefinitely for the duration of the company’s existence.
An Alabama-based LLC is required to file a combined Business Privilege Tax Return and Annual Annual Report once a year with the state’s Department of Revenue.
The first report must be filed 2.5 months after the LLC’s formation, and then the LLC must file an additional annual report 3.5 months after the start of every taxable year. The minimum tax that an LLC must pay is $100.
Visit the Alabama Department of Revenue website for the necessary forms and additional information.
Alabama LLC checklist
Alabama LLC’s name must obey the following guidelines:
- Include the words “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.”
- Be distinguishable from the names of other business entities on file in the state.
- Not contain misleading words or phrases suggesting the company offers a service or product not mentioned in the LLC’s formational documents.
Required formation documents and filing fees:
- Certificate of Name Reservation: $28 if filed online or $10 if filed by postal mail
- Certificate of Formation: $100 Secretary of State fee, $50 Probate Court filing fee
- All prospective Alabama LLCs must file a Certificate of Formation with the Office of the Judge of Probate in the county where the LLC’s office is located.
Additional legal obligations:
- Each year, Alabama LLCs must file a combined Business Privilege Tax Return and Annual Annual Report with the Department of Revenue.