How to form an LLC in Alabama in 6 easy steps
While fewer things are more prominent in Alabama than football and aerospace innovation, entrepreneurship is a burgeoning sector in the state that’s giving rise to a slew of new businesses and business ideas.
If you’re looking to join the next wave of Alabama business owners, you might find that starting an LLC accomplishes the goal of incorporating quite well. The following is a quick step-by-step guide to starting your own Alabama LLC so that you’re better prepared for running a successful venture right out of the gate and can hit the ground running in pursuit of your dreams.
1. Check if your business name is available
The first step to running your brand new Alabama LLC is to choose a name for your business. The company name you select should be both memorable and distinguishing from your competition, which is why it’s best to spend some quality time thinking about which name makes the most sense for your operation.
When choosing your business name, you’ll also want to be mindful of the naming requirements Alabama has in place for LLCs. Your chosen business name must include the phrase “Limited Liability Company” or one of the abbreviations “LLC” or “L.L.C,” and cannot include certain words like “FBI,” “State Department,” or “Treasury” because they could inadvertently confuse your company with a government agency. Other words like "Attorney,” “Bank,” and “University” are restricted words, meaning you can only use them if certain licensed professionals are part of your LLC and you intend to fill out additional paperwork.
Once you’ve verified your Alabama LLC name meets all state LLC naming requirements, you’ll next want to check the name’s availability utilizing the business name search on the Alabama Secretary of State’s website. If the name is available, you’ll be able to secure it for a $28 filing fee. You may also want to register the corresponding domain name for your LLC so that you’re good to go when the time comes to launch your website.
If you’re torn between a few available names and are unsure which one to choose, you have the option to submit a Name Reservation Request for Domestic Entities Form, which allows you to reserve an LLC name for up to 1 year for $10.
For those who want to conduct business under a different name other than the name they’re registering, a DBA (Doing Business As) or trade name can be filed with the Alabama Secretary of State by filing an Application to Register Trade Name in Alabama. Just pay the $30 filing fee, and you’ll be on your way. DBAs are especially useful if you’re trying to launch multiple companies under one banner.
2. Claim your name
After you’ve locked in the name for your Alabama LLC, your next step is to secure a registered agent—or agent for service of process—to handle all of the legal documents and government correspondence for your company. The Alabama registered agent you appoint can even help you with your LLC online registration or mail-in documentation. The registered agent can be either a company such as a registered agent service or an individual.
To be a registered agent in Alabama, the appointed person or company must first accept the service of process before being officially designated as the registered agent. They must also be a resident of Alabama with a physical street address, not a P.O. box, a company located in Alabama, or an out-of-state business entity with offices in Alabama. Additionally, if you meet those requirements as the LLC owner, you may also act as the registered agent for your company.
One of the first tasks your registered agent can help you with is filing your Alabama LLC Certificate of Formation documents with the Alabama Secretary of State. You can file your Certificate of Formation online or by mail for a filing fee of $200.
The following information needs to be included in your submission: The name of your LLC, the address of your LLC, the name and address of your registered agent, a designation for which type of LLC you’re operating, and the signatures of all LLC owners. If you reserved a business name, you’ll also need to include the Name Reservation Form to receive your name reservation certificate.
Suppose you operate an existing LLC in another state but now want to conduct business in Alabama. In that case, you’ll need to fill out a Foreign LLC form, which allows an LLC to operate as a single entity across many states. The form can be submitted online or by mail to the Alabama Secretary of State’s office in Montgomery, along with a $150 non-refundable filing fee.
3. Write your operating agreement
The next step in your LLC’s formation process is to draft an Alabama LLC operating agreement—or as it’s known in Alabama—a Limited Liability Company agreement. While a Limited Liability Company agreement isn’t a requirement in Alabama to start your LLC, it’s still recommended you create one given the benefits it can provide your business.
A Limited Liability Company agreement is a document that outlines your LLC's ownership and operating procedures, as well as the rights and responsibilities for each LLC member. Think of the agreement as a blueprint for your organization’s day-to-day functions and a roadmap for how you envision your LLC running in the future. Your Limited Liability Company agreement also helps establish your LLC as a separate business entity from any of your personal assets.
Without a Limited Liability Company agreement in place, you might encounter legal complications if your LLC ever becomes subject to a lawsuit. Your LLC would also be governed by the default Alabama state LLC rules rather than the vision for your LLC’s business structure that would have been outlined in the agreement, if one were to exist.
4. File your Statement of Information
In the state of Alabama, your Statement of Information—or annual report—is known as a Business Privilege License, which is mandatory to purchase in each county your company conducts its business. You can buy Business Privilege Licenses from the judge of probate in each county.
5. Pay your taxes
Paying taxes isn’t something you’ll be doing at the onset of your LLC’s formation, but it is something you’ll be doing by year’s end and each ensuing year for as long as you own and operate your LLC. Suppose your LLC is taxed as a C corporation or S corporation. In that case, you’ll need to apply for a Federal Employer Identification Number—or EIN—through the Internal Revenue Service to pay your taxes and for other tax purposes.
Your Federal Employer Identification Number—also known as a Federal Tax Identification Number— acts like a Social Security Number for your LLC and is how the IRS monitors your business’s financial activities and income tax reporting. Obtaining your Federal Employer Identification Number is free, and you can by mail or online via the IRS website.
Applying for a Federal Employer Identification Number also allows you to open your LLC's credit card or bank account. To do so, you’ll need:
- Your Federal Employer Identification Number
- Your Articles of Organization
- Your driver’s license
A business bank account is essential to running a successful LLC because it helps keep your business transactions separate from your personal transactions, making it harder to mix them together. A business bank account and business credit card also help keep all of your LLC transactions in one place, making it easier to organize and compile all of your important financial documents for your tax returns. Should you ever be involved in a lawsuit or be taken to court, having a business bank account—in addition to your operating agreement—can also help mitigate any case against you by demonstrating that your LLC is its separate entity and is unaffiliated with your personal assets.
6. Wrap up other regulation and sales tax requirements
Congratulations! You’ve just learned the main steps to creating your own LLC. As you finalize the LLC formation process, you’ll want to tie up any remaining Alabama tax requirements and other state business licenses and permits that may be necessary for your business to function at its optimal potential. Generally speaking, most LLCs will report their income tax to the IRS as either a multi-member LLC or single-member LLC. Multi-member LLCs will use Form 1065, while single-member LLCs will use Form 1040 Schedule C.
In addition to the Business Privilege License, all Alabama LLCs must submit a business privilege tax return form for pass-through entities, also known as an annual PPT form. The tax is a small percentage of the total worth of your LLC and must be submitted prior to the third week in April. The exact percentage you’ll need to pay is based on your LLC’s income from the previous year, which you’ll file along with a $100 filing fee.
You’ll next want to identify the other types of taxes you’ll be on the hook to pay for by year’s end. For example, if you’re going to sell any physical products, you’ll need to secure a seller’s permit through the Alabama taxation website, which will allow you to collect sales tax and sales and use tax on all sales. Ultimately, you should consult your business accountant or business services tax professional to help you determine which licenses, permits, taxes, tax rates, and state fees apply to your LLC so that nothing slips through the cracks.
While Alabama state law does not require a universal business license, certain companies in select industries might require one. For example, restaurants might need specific health, building, and signage licenses. Other companies might require local licenses, which you can secure from a county clerk’s office. You can also consult the Alabama Department of Revenue’s licensing section or The U.S. Small Business Administration (SBA) website to further understand any local license or permit requirements and answer any licensing FAQs.
If you have employees, you’ll need to withhold payroll taxes from their wages by signing up for the Employee Withholding Tax on the Alabama Department of Revenue website. You’ll also need to register for Unemployment insurance tax through the Alabama Department of Labor.
The last housekeeping item you’ll want to explore before launching your LLC is small business insurance. Small business insurance keeps you and your business legally protected from the unexpected, which helps put your mind at ease knowing you can spend more time growing your LLC and less time navigating potential legal headaches. While there are many insurance options for your LLC, the following are three of the most common types of insurance that could address most of your LLC’s needs:
- General Liability Insurance: This general policy offers a wide range of liability protection from potential lawsuits to you and your LLC.
- Professional Liability Insurance: Professional service providers such as consultants or accountants are the primary beneficiaries of this policy since it helps cover against different types of business errors and malpractice.
- Workers’ Compensation Insurance: Provides coverage to your employees in the event of illnesses, on-the-job injuries, or even death. If you employ three or more employees in Virginia, you'll be required to purchase workers' compensation insurance.
You may also want to consult your business accountant for advice on the other types of business insurance that might be relevant to your specific LLC’s operation. They can also ensure your LLC remains compliant with all federal tax and state tax laws and filing requirements.
Get LLC insurance in minutes by following these steps
Choosing the right business insurance for your LLC can be an overwhelming process, but it doesn’t have to be. That’s where Huckleberry can help.
Huckleberry is a quick and easy solution for all your business insurance needs, making purchasing business insurance simple. Here’s how you can get started:
- Go to Huckleberry.com and choose the “Instant Estimate” option. We’ll then provide you with quotes for LLC insurance and other types of coverage designed to meet the needs of your specific LLC.
- Input the type of work your LLC is involved in, which helps Huckleberry customize your insurance options.
- Answer a few basic questions about the nature of your company, helping Huckleberry tailor its insurance option results to only those that can directly benefit your LLC.
- After a few short minutes, you’ll receive a quote containing customized small business insurance options.
- The Huckleberry workers’ comp calculator provides an accurate cost estimate for workers’ compensation insurance.
Let’s hear it for you! You’ve just learned how to create your very own Alabama Limited Liability Company! But before you start promoting your business across southern states and throughout the gulf, don’t forget first to snag a quality business insurance policy to keep you, your assets, and the future of your LLC safe and protected.
For all things business insurance, Huckleberry has you covered. In less time than it takes to peel a shrimp, Huckleberry can provide you with a multitude of insurance quotes and policy options that will protect your LLC now and in the years to come.