Are you staring an L.L.C. in Alabama and don’t know how to start? You have come to the right place. In this article, we will be sharing a step-by-step guide on forming a limited liability company in Alabama. However, before we get started, let us take a quick look at Alabama and the benefits of creating an L.L.C. in the city.
To make sure we are on the same page; a limited liability company is a business structure that can be owned by a single person or group of persons. Forming a business as an L.L.C. helps protect the owner(s) against a lawsuit, cuts down the expenses of paperwork, makes the company more credible, and prevents it from being taxed twice.
If you want to form an LLC in Alabama, you should note that the Alabama Secretary of State charges a $100 fee to file the Certificate of Formation. You must also pay a separate Probate Court filing fee, which is at least $50. You must reserve your business name by filing an LLC name reservation.
Table of Content
- How to Form an LLC in Maine
- STEP 1: Choose A Name for Your Limited Liability Company (LLC)
- Step 2: Appoint A Registered Agent in Alabama
- Step 3: Prepare and File Certificate of Formation with County Probate Court
- Step 4: Prepare an Operating Agreement
- Step 5: Acquire an Employer Identification number
- Step 6: File State Tax Return/Annual Report
- Step 7: Securing Business Licenses and/or Permits
- Step 8: Sort Out Taxes
- Step 9: Open Your LLC Bank Account
- Step 10: Apply and Obtain Your Business Phone Number
- Step 11: File Your LLC Biennial Report
- Step 12: Hiring of Employees
How to Form an LLC in Maine
Forming an L.L.C. in Alabama is affordable and simple. However, it comes with a filling different from other states in the United States. Read on to discover the things you need to do.
STEP 1: Choose A Name for Your Limited Liability Company (LLC)
Under Alabama law, an LLC’s name must contain the words “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.” Your LLC’s name may not contain a word or phrase which indicates or implies that it is organized for a purpose not contained in its articles of organization.
Your LLC’s name must be distinguishable from the names of other business entities already on file with the Alabama Secretary of State. You must reserve your LLC’s name with the Secretary of State before filing your LLC formation documents. You may do so online for a $28 fee. Your proposed name will be automatically checked for availability and you’ll receive your name reservation immediately at the end of the process. Alternatively, you can submit a Name Reservation Request Form for Domestic Entities form by postal mail to the Alabama Secretary of State’s office. This requires payment of a $10 fee. Before submitting the form, you should search the Alabama Secretary of State’s business name database to be sure the proposed name is available.
To give you a better understanding, here are some of the naming guidelines for Alabama:
- Your company name must contain the phrase “Limited Liability Company” or any of its abbreviations (L.L.C. or L.L.C.)
- Your company should not include words or phrases that might make the public confuse your company with a government agency such as F.B.I., State Department, NASA, Treasury. Examples of such restricted words include Bank, University, and Attorney.
- If you want to make use of restricted words like Attorney, Bank and the rest, you will need more paperwork as well as a licensed individual such as a lawyer or doctor to be members of your L.L.C.
- You can check if the name you intend to use is available by carrying a search business
So also, you must make sure that the name you want to use is not already taken. You can be check if the name is unique by searing the name on the State of Alabama Website. Also, make sure your business can use its name as a web domain. Even though creating a business website is not on your plan, it is best you purchase the URL to stop others from using it.
After you have registered a domain name, consider creating a professional email account. A professional email that makes use of your domain name is vital to establishing trust between your business and its customers. In this modern era, where scam is on a high, companies need to make use of a professional email address to provide a sense of professionalism and credibility.
Please note that you don’t have to use your LLC’s official legal name registered in your Articles of Organization when you do business out in the real world. Instead, you can use a trade name, also called a “DBA” (short for doing business as), assumed name, or fictitious business name. To do so in Alabama, you simply start using the trade name to identify your LLC in the state. You may also file an Application to Register Trade Name In Alabama with the Secretary of State by mail and pay a $30 fee. Registration is not mandatory or confer any legal rights, but does alert others the name is in use in Alabama.
Step 2: Appoint A Registered Agent in Alabama
Next, you are required to choose a registered agent for your L.L.C. in Alabama. A Resident Agent is the person or company who receives your LLC’s documents, notices and legal mail (called Service of Process). Because of this, the Resident Agent must have an actual street address in Alabama (PO boxes are not allowed by the state). Picture your registered agent as your company representative to the state.
It is important to note that not everyone can be a registered agent. For a person to be eligible to become a registered agent, the person or corporation must be a resident of Alabama. That is to say, the individual or corporation must have a physical address within the state. If any member knows the ropes of being a registered agent, you may elect him or her rather than hiring one. This will help you save some dollars, especially if you are running a small business. However, hiring a seasoned registered agent offers tons of benefits like privacy and peace of mind.
Please note that you, your friend or family members or a commercial resident agent are qualified to be your LLC’s Resident Agent.
Step 3: Prepare and File Certificate of Formation with County Probate Court
An Alabama LLC is created by filing a Certificate of Formation. Unlike most other states, the certificate is not filed with the Secretary of State. Instead, you must file it by postal mail with the Office of the Judge of Probate in the county where the LLC’s initial registered office is located. The Probate Court files the form and provides you with a stamped copy. The court then transmits the certificate to the secretary of state along with your fee. A list of the names and addresses of the probate judges for every Alabama county can be found at the Alabama Secretary of State website.
The certificate of formation must include the following information:
- the LLC’s name
- the name and address of the LLC’s registered agent
- an indication whether the LLC is a series LLC, professional LLC, or non-profit LLC by checking the appropriate box–not applicable to most LLCs
- the effective date the LLC will begin if different from the Certificate of Formation filing date, and
- the signature of organizer or attorney-in-fact.
A copy of the Name Reservation certificate from the Secretary of State must be attached.
The filing fee is $100 to the Secretary of State plus a separate Probate Court filing fee which is at least $50.
Step 4: Prepare an Operating Agreement
An LLC operating agreement is not required in Alabama, but is highly advisable. This is an internal document that establishes how your LLC will be run. It sets out the rights and responsibilities of the members and managers, including how the LLC will be managed. It can also help preserve your limited liability by showing that your LLC is truly a separate business entity. In the absence of an operating agreement, state LLC law will govern how your LLC operates.
Step 5: Acquire an Employer Identification number
An Employer identification number (E.I.N.) also known Federal Tax Identification number is a 9 – digit number similar to a social security number. The Employer identification number will be used to identify your business. It is like a social security number for your company. An Employer Identification number is essential because you will need it to open a business account for your company, to hire employees as well as tax purposes. You can obtain your E.I.N. from the I.R.S. after creating your company. You can do it via mail or online. Note: It won’t cost you a dime to get an E.I.N. from the I.R.S.
You can obtain an EIN from the IRS either
- Via mail (approval takes 4 weeks)
- Via fax (approval takes 4 business days)
- Via online application (approval is instant at the end of the application)
Step 6: File State Tax Return/Annual Report
Alabama requires LLCs to file a combined Business Privilege Tax Return and Annual Report with the Department of Revenue each year. The initial report (Form BPT-IN) is due two and one-half months after your LLC is formed. Subsequent reports (Form PPT) are due on or before three and one-half months after the beginning of the LLC’s taxable year. A minimum $100 tax must be paid each year. For details and tax forms, see the Alabama Department of Revenue website.
In some cases, for example if you will be selling goods and collecting sales tax or if you have employees, you’ll need to register with the Alabama Department of Revenue (DOR). You can register online (via the My Alabama Taxes (MAT) website) or on paper (using DOR Form COM:101, Combined Registration/Application).
Additional tax and regulatory requirements may apply to your LLC. These may include:
EIN: If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN). This is so even if it has no employees. If you form a one-member LLC, you must obtain an EIN for it only if you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online EIN application on the IRS website. There is no filing fee.
Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses. Check with the county probate office or county licensing commission for the county where your LLC office is located.
LLC Records: An Alabama LLC must keep the following records in its principal office and make them available for inspection by LLC members:
- a current list of the full name and last known business or residence street address of each member, and each manager, if any
- a copy of the filed articles of organization and all amendments, and executed copies of any powers of attorney pursuant to which any documents have been executed
- copies of the LLC’s federal, state, and local income tax returns and reports, if any, for the three most recent years
- copies of any then effective operating agreements including any amendments, and
- copies of any financial statements of the LLC for the three most recent years.
Step 7: Securing Business Licenses and/or Permits
The next step you are expected to take is to secure your business license and permits as the case may be. The type of business licenses and/or permits your LLC will need to legally operate in Alabama will depend on its location and the industry it is involved in.
Please note that in order to operate your LLC you must comply with federal, state, and local government regulations. For example, restaurants likely need health permits, building permits, signage permits, etc.
The details of business licenses and permits vary from state to state. Make sure you read carefully. Don’t be surprised if there are short classes required as well.
Fees for business licenses and permits will vary depending on what sort of license you are seeking to obtain.
To find out more, contact your local agencies in the city, town or county where your LLC is located.
Step 8: Sort Out Taxes
Federal taxes: LLCs in Alabama have what’s called “pass through” taxation. This means your Alabama LLC does not pay separate federal taxes; instead, all its profits/losses “flow through” to you and are filed with your personal tax return (Form 1040), usually on a Schedule C.
Alabama State and local taxes: In addition to your Personal Property Tax Return, your LLC may also need to file and pay additional taxes, both at the state level, and the local level (county, city, township, etc.)
Depending on the nature of your business, you may be required to register for one or more forms of state tax.
Sales Tax: If you are selling a physical product, you’ll typically need to register for a sellers permit through the Alabama Combined Registration Online Application website. This certificate allows a business to collect sales tax on taxable sales.
Sales tax, also called “Sales and Use Tax,” is a tax levied by states, counties, and municipalities on business transactions involving the exchange of certain taxable goods or services.
Employer Taxes: If you have employees in Alabama, you will have to register for the Unemployment Insurance Tax, and the Employee Withholding Tax through the Alabama Department of Labor, Licensing, and Regulation.
Step 9: Open Your LLC Bank Account
In order to keep your business finances apart from your personal finances, it is advisable that you open a separate bank account for your Alabama LLC. It will help you maintain your personal liability protection. A separate bank account helps maintain your liability protection and it also makes business accounting and taxes a lot easier.
The items needed to open an account in Alabama are your approved Articles of Organization, EIN Confirmation Letter from the IRS, and your driver’s license or passport. We also recommend calling the bank ahead of time to find out if additional documents are required.
Tips: Look for free business checking: Call a few banks in Alabama and take down notes for comparison. Some banks charge monthly maintenance fees for your LLC’s checking accounts, others don’t.
Debit card: A debit card for your LLC will be issued when opening the account.
Credit card: If you want to start building business credit for your Alabama LLC (or get travel and cashback rewards), you can get a credit card or two for your LLC. We recommend using creditcards.com to find a business credit card.
Step 10: Apply and Obtain Your Business Phone Number
Instead of using your home telephone number or your cell phone, you can purchase an affordable “virtual business number” specifically for your Alabama LLC. You can set this virtual business phone up to forward to your cell phone, go through voice prompts, or configure it any way you’d like.
You can check out Phone.com as they have the cheapest plans and their customer service is excellent.
They offer local phone numbers as well as 1-800 toll-free numbers. You can easily setup call forwarding, pre-recorded prompts, and get voicemail messages forwarded to your email.
Getting a separate business phone number for your Alabama LLC is also a good idea in order to keep your actual number private from those pesky “public record” websites.
Step 11: File Your LLC Biennial Report
It is important to point out that in Alabama, an LLC may face fines and even automatic dissolution when they miss one or more state filings. When this happens, LLC owners risk loss of limited liability protection. A quality registered agent service can help prevent this outcome by notifying you of upcoming filing deadlines and by submitting reports on your behalf.
Step 12: Hiring of Employees
Of course, registering an LLC means that you will need employees and in order to get it right as regard hiring employees, then you should ensure that you stay on the side of the law and here are some steps you should follow:
- Verify that new employees are able to work in the US
- Report employees as “new hires” to the State
- Provide workers’ compensation insurance for employees
- Withhold employee taxes
- Print compliance posters and place them in visible areas of your workspace
Lastly, ensure that you find out more information from the Alabama Department of Labor, Licensing, and Regulation website.
If you provide a licensed professional service in Alabama, you will be required to form a professional limited liability company (PLLC). Examples of professional services include architects, attorneys, dentists, certified public accountants, and more. Generally, if you provide a service that requires you to obtain a Alabama state license before practicing, then you are a professional service. Under Alabama law, LLCs can be formed to provide professional services. However, only one specific type of service may be provided and all the owners of the LLC must be licensed or registered to perform the professional service for which the LLC was organized.
Please, note that the information in this article is provided only for general purpose and it is no way a legal advice. No lawyer – client relationship is established or should any such relationship be assumed. For legal advice, please consult a professional lawyer.
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