How to Start an LLC in Alabama (Step-by-Step Guide)

For many new companies, forming 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.

If you have been operating as a sole proprietor and are starting to grow your business and want to form a more official business structure, it is a good idea to form an LLC.

If you haven’t officially started your business but have a solid idea of the type of business you want to start, forming an LLC early can help make your life easier since you will be able to streamline your business documents under the same business entity from the start.

Alabama LLCs no longer have to file with a judge of probate thanks to ACT 2020-73, which has helped make the filing process much easier for Alabama corporations. In addition, the Alabama certificate of formation can now be filed with the Alabama Secretary of State online.

If you plan to register an LLC with the state of Alabama, you’ll file Articles of Organization with the state and pay $200.

Are there grants available to new businesses in Alabama?

If you fail to file an Annual Report, you’ll face fines, and your business won’t be in good standing until it is filed.

Startup funding is often the biggest challenge for entrepreneurs in Alabama state. The state does offer a handful of grants and recently launched a new funding program called Innovate Alabama that provides supplemental funds to businesses.

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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.

Need help coming up with a business name? Check out our free business name generator.

Reserve your name with the Secretary of State

After selecting a name for your LLC, you must reserve it with the Alabama Secretary of State in order to receive a Certificate of Name Reservation.

There are two ways to complete this step:

Reserve your LLC name online for a fee of $28. The Alabama SOS website will automatically check the availability of your chosen company name.
Submit a Name Reservation Request Form via postal mail to the Secretary of State. You must enclose a $25 payment with the form. When using this method, you must confirm that you have searched the Alabama Secretary of State business name database and that your proposed LLC name is available.

Register the domain name

Once you decide on a business name, check to make sure that the domain name is available. Sites like Namechk can show you which domain extensions are available for your business name. Although .com domain names are ideal, extensions like .net, .co, and .biz are becoming more commonplace.

Many entrepreneurs decide to use a DIY site builder, many of which allow you to easily buy the domain name and build a site. Consider GoDaddy or Domain.com to get your site up and running. With these platforms, you don’t need any coding experience, so you can avoid the cost of hiring a website designer.

Register social media profiles

It is vital to have a solid social media presence in today’s business environment. Be sure to register for your business name on the different social media platforms ahead of time so that no one can sign up for them. Think about which channels make the most sense for your business, too, and refrain from setting up business profiles on every channel. As a small business owner, your time will be limited, so set up accounts that you can maintain.

2. Designate a registered agent

As with every U.S. state, forming an LLC in Alabama requires the appointment of a registered agent to handle state and federal legal documents and service of process on the business’s behalf.

If you are not personally going to be your Alabama LLC’s registered agent, find a substitute Alabama resident or registered agent service to serve in this role. Be sure that the registered agent’s address is included in all your business documents and correspondence if you intend to use a different registered office.

Alabama registered agent requirements

Must be over the age of 18
Have a physical street address in the state of Alabama
Be available during normal business hours

Our picks of the best registered agent services

Northwest Registered Agent: Starting a business requires a lot of state-mandated paperwork, which can be confusing for new business owners. Northwest offers business services that can help entrepreneurs find the right documentation, fill it out, and file it on time with the right government agency. In addition to helping you set up an LLC, Northwest has a host of additional services, like registered agent services, that new owners will find useful too.
ZenBusiness: There’s no need to stress about filing paperwork when you work with ZenBusiness. This company offers a great variety of LLC services, the focus of which is to ensure your business is set up correctly with the proper paperwork filled out and delivered to the right branch of your state government. Of course, ZenBusiness does charge for their services, but customers say they get the most bang for their buck.
Harbor Compliance is a great fit for organizations that register in multiple states and for those who don’t want to pay excessive service fees. With their network and electronic document delivery, they help ensure your business never misses a legal notification.

FAQs

If you have been operating as a sole proprietor and are starting to grow your business and want to form a more official business structure, it is a good idea to form an LLC.

If you plan to register an LLC with the state of Alabama, you’ll file Articles of Organization with the state and pay $200.

Are there grants available to new businesses in Alabama?

If you fail to file an Annual Report, you’ll face fines, and your business won’t be in good standing until it is filed.

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3. File a Certificate of Formation

An LLC is officially formed in Alabama by filing a Certificate of Formation with the Secretary of State. There is a $200 filing fee. You must also provide a copy of the Name Reservation Certificate. The Alabama Certificate of Formation is referred to as Articles of Incorporation or Articles of Organization in other states.

The Certificate of Formation contains the following elements:

Name of LLC: Fill out the business entity’s name and be sure to include the words “Limited Liability Company” or the abbreviation “L.L.C. or LLC.”
Name of Registered Agent: Fill out the registered agent’s name that will be responsible for business correspondence.
Registered Office Address of Registered Agent: Enter the registered office address and be sure not to use a P.O. Box as the Secretary of State will not process the certificate of formation.
A copy of the Name Reservation certificate form must be attached to the certificate of formation to file the new entity with the Secretary of State.
Filing date: At the bottom of the certificate of formation form, there is an option to delay the formation of the LLC by 90 days. It can be advantageous to delay the processing of an LLC until the start of the next calendar year if it is toward the end of the year to avoid having to file a tax return.

At the bottom of the Certificate of Formation form, there are options to designate the LLC as a Series or Professional LLC:

Series LLC: A Series LLC is a limited liability corporation that provides liability protection to multiple businesses under a single LLC filing. It is called a “series” because each series of the LLCs operates similarly to its own stand-alone business.
Professional LLC: A professional limited liability company (professional LLC) is an LLC with one or more members who are licensed professionals. To qualify for professional corporate status, the member or members must be engaged in the practice of law, accounting, architecture, chiropractic medicine, dentistry, optometry, osteopathic medicine, or another similar profession that requires the highest level of licensure.

4. Create 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 perform a number of other important functions.

You can apply for an EIN via the IRS website without paying a filing fee.

6. Fulfill your legal obligations

File state reports

An Alabama-based LLC is required to file a combined Business Privilege Tax Return and Annual Report once a year with the state’s Department of Revenue. The first report must be filed 2.5 months after LLC formation. Afterward, the annual report must be filed 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.

Apply for any required business licenses and permits

Business Privilege License: If you plan on selling goods or services in the state of Alabama, you’ll need a Business Privilege License, which the Alabama Department of Revenue issues. There’s no cost for this license.
Occupational licenses: Certain types of businesses, like those that serve liquor, are required to obtain additional licenses. The state has compiled a handbook that explains, in detail, which businesses need a license and how to apply for them.
Local licenses: Keep in mind that local offices, like city and county, may have their own business requirements, too. Check with your city and county clerk to ensure you’re in compliance.

Pay Alabama state taxes

For tax purposes, LLCs are considered pass-through entities, which means all income and expenses are passed to your personal income tax. You’ll pay state and federal income tax on your earned income.

Alabama tax rates: Alabama has a graduated individual income tax, with rates ranging from 2 to 5%. While Alabama’s tax rates are fairly low compared to others in the country, the tax codes can be complicated. Many business owners hire an accountant to help file their taxes, especially since there are special deductions you can take as a business.
Register with the Department of Revenue: You’ll need to acquire a tax ID from the state to pay your taxes. It’s similar to an EIN, just the state’s version. You can get the number from the Alabama Department of Revenue.

File a BOI report

As of 2024, businesses must also file a Beneficial Ownership Information Report. This report asks businesses to provide contact information for all business owners and stakeholders. Why? The new law is meant to aid federal authorities in their attempts to crack down on financial crimes like money laundering or hiding income in shell companies. To file your report, visit the Financial Crimes Enforcement Network (FinCEN) website.

Learn more about BOI reporting.

~~LegalZoom can help you file a compliant and stress-free BOI Report for only $149.~~

FAQs

If you have been operating as a sole proprietor and are starting to grow your business and want to form a more official business structure, it is a good idea to form an LLC.

If you plan to register an LLC with the state of Alabama, you’ll file Articles of Organization with the state and pay $200.

Are there grants available to new businesses in Alabama?

If you fail to file an Annual Report, you’ll face fines, and your business won’t be in good standing until it is filed.

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Post LLC tasks

Start a business bank account

When you start your business, it’s a good idea to open business bank accounts at the same time. By opening a business checking account and a business savings account, you’ll keep your business and personal finances separate. You’ll need an EIN to open your account, so make sure you have your nine-digit EIN in hand before you begin the application process.

Consider digital banks: LLC owners have many banking options to choose from. Whether you opt for an online bank specializing in business transactions or a local brick-and-mortar bank currently holding your personal accounts, weigh your options before you pick one. Consider looking into Found, Relay, and Mercury. With your bank accounts opened, you can manage payroll, pay bills, deposit earnings, and any other financial transactions your business may have.

Obtain a Certificate of Good Standing

Once your Alabama LLC is registered, you can request a Certificate of Good Standing through the Alabama Department of Revenue. You place a request online and receive an electronic copy of the certificate within three business days. Processing time is longer for mailed copies. As a business owner, you may need the certificate when you apply for a loan or when you’re planning to work with a new vendor. The state filing fee for this certificate is $10.

Cost to set up an LLC in Alabama

Average cost to set up an LLC in Alabama: $300-$500

Wondering how much it costs to set up an LLC in Alabama? Here’s a look at the initial costs you’ll need to budget for:

Incorporation fees: Every LLC must register their business with the state via LLC formation documents known as a Certificate of Formation. When you file, you’ll pay a fee of $200.
Annual Report filing fee: You must file an Annual Report within the first three months of the year. The minimum tax that an LLC must pay is $100.
Registered agent service fees (optional): Some LLC owners choose to hire a registered agent service. While the owner or an employee can serve as a registered agent in South Dakota, some owners prefer a commercial service for confidentiality and consistency. If you choose to use a registered agent service you’ll likely pay between $50 to $200 for a year of service.

Foreign LLCs

LLCs formed outside of the state that plan on doing business in Alabama must follow the steps above and register using one of the following methods:

Register your foreign LLC online 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 the Alabama Secretary of State, Attn: Business Entities Division, P.O. Box 5616, Montgomery, Alabama 36103

Learn more about starting LLCs in the U.S. as a non-U.S. citizen.

FAQs

If you have been operating as a sole proprietor and are starting to grow your business and want to form a more official business structure, it is a good idea to form an LLC.

If you plan to register an LLC with the state of Alabama, you’ll file Articles of Organization with the state and pay $200.