Step 1 – Choose an LLC Name
Before you file the critical documents necessary for your LLC, you have to choose an appropriate name. There are a few restrictions to keep in mind:
- Your LLC’s name can’t be taken by anyone else. You can search the Alabama Secretary of State’s database of business names to see if a potential name is available
- Your name must mark that your company is an LLC by including, “LLC”, “limited liability company”, “L.L.C” or other
- Your name can’t contain abbreviations, words, or phrases that indicate it is organized for a purpose not mentioned in the Certificate of Formation (more on that below). For example, you can’t call your LLC a “practice” if you aren’t a practicing doctor of some kind
If you find a great name that really suits your company, you can reserve it with Alabama’s Secretary of State by paying a $20 fee and following this link.
One other thing – it’s a good idea to see if your business name has a matching available domain name. If it does, you can make a website with an identical web address, making it easy for your customers to check out your online business once they get the name of your LLC.
Step 2 – Appoint a Registered Agent
Your Alabama LLC will also require a registered agent.
In brief, a registered agent is an official point of contact or recipient of service for your organization. They’ll be in charge of a variety of duties, including:
- Sending and receiving important documents for mail for your LLC
- Receiving court papers and legal documents, particularly in the event of a lawsuit – this is a crucial service, as a registered agent prevents company managers from being served court papers in front of their stakeholders, for example
- And more
Anyone in your LLC can be a registered agent, including yourself. But they have to be a resident of Alabama OR be a business entity authorized for business in Alabama. The registered agent also needs a physical street address in the state.
If you or someone else in your LLC doesn’t want to serve as the registered agent, you can contact a registered agent service: a business that hires registered agents to companies for regular fees.
Alternatively, you can look to a formation service to take care of appointing a registered agent for your business. LLC formation services can do this and more, including file important paperwork for your LLC or pay various fees.
Not sure where to start? We’ve already found the best registered agent services for future Alabama LLCs. Check out our list to get started.
Changes to Alabama LLCs Beginning in 2021
Previously, Alabama LLCs had to file their Certificates of Formation with their country’s Probate Judge and the Secretary of State. This involved paying two fees, sending two copies of documents in the mail, and much more complexity overall (as each county had its own rules and fees, etc.).
As of early 2021, LLCs only file their Certificates of Formation with the Secretary of State and pay a single $200 fee. Act 2020-73, which took effect Jan 1, 2021, also removed the probate judge requirements and allowed LLCs to file LLC forms online in the future. Both online and mail filing procedures can be found below.
Step 3 – File Certificate of Formation
The next big step for forming your Alabama LLC is filing the Certificate of Formation.
In most states, LLCs have to file Articles of Organization. In Alabama, new LLCs have to file a Certificate of Formation. These documents are essentially the same, the primary difference between them being where you mail the documents after finishing them. They both include organizational and structural details for your LLC and serve as the official records of your LLC for the state government.
Your Alabama Certificate of Formation will tell the state government:
- The purpose of your LLC (i.e. what kind of business it is)
- The names and addresses of the primary manager for the company
- The signatures of managers and officers for the LLC
- The lifespan of the LLC – you’ll be able to choose that it will exist in perpetuity or only for a certain amount of time
In other words, the Certificate of Formation tells the state government the type of LLC you are creating and the reason for its existence. It also nails down additional details, such as:
- Tax classification
- Member vs manager-managed
Tax Classification Choices
Your Certificate of Formation will require you to choose your tax classification for your LLC. Three choices are available:
- Disregarded entity, which is appropriate if you are the only member of your LLC
- Partnership, which is a good classification for a small LLC but with more than one member
- S or C Corporations, which are classifications for bigger LLCs that are nonetheless not full corporations
Your choice of tax classification is important as it will affect which tax breaks you can benefit from. Single-member LLCs classified as disregarded entities, for example, are not required to report their profits or losses separate from those of their owners/managers.
The resulting tax process is much simpler compared to the processes required for larger LLCs with separately reported profits and losses.
You’ll also have to outline your management structure in your Certificate of Formation. Your LLC can be either manager-managed or member-managed.
Manager-managed LLCs are suitable structures for larger companies. With this structure, only the managers of your LLC will vote on big decisions, leaving any junior or entry-level members out. A member-managed LLC is a better structure for a smaller company, as every member in the LLC gets to vote on decisions.
Think carefully about the structure you choose, as it will affect how rapidly your organization can make decisions or adjustments in the future.
How to File a Certificate of Formation in Alabama Online
You can file your Alabama Certificate of Formation either online or by mail. In either case, you’ll need to file a $200 fee with the Secretary of State.
To file your Certificate of Formation online, follow the below process:
- Visit the Alabama Secretary of State site
- Download the Alabama Certificate of Formation form and fill it out as a PDF
- Enter the name of your LLC
- Then enter the form preparer’s information. This is you – the form requires your name and full address
- Enter the name of the registered agent and their home address and mailing address
- You can skip the section about “special entity selection”, as it only applies to Series or Professional LLCs
- Mark the effective filing date. This tells the Alabama Secretary of State’s office when you want your LLC to “start” in an official sense. You can only delay the effective date of your LLC by up to 90 days after signing the Certificate of Formation
- Sign and date the Certificate of Formation
- Be sure to make two copies of your Certificate of Formation, then pay the applicable fees on the government portal. You can pay with a credit card in all cases, and some counties let you send checks or money orders
Filing by Mail
If you wish to file your Certificate of Formation by mail, download the above Certificate of Formation form and print it out. Then, after filling the form in, mail it to the following address:
Alabama Secretary of State – Business Services Division
770 Washington Ave., Suite 580
Montgomery, AL 36104
You can pay the fee by check to the Alabama Secretary of State Business Services Division.
Step 4 – File an Operating Agreement
An Operating Agreement is not required by law, but it’s a good idea to draw up and file one nonetheless. An Operating Agreement serves as a structural and guiding document for your LLC, dictating all of the rights and responsibilities for both members and managers. For example, the Operating Agreement will explain when discussions about salaries are held, what salary levels will be for members and managers, and more.
Operating Agreements are also important because they:
- Explain in detail how your LLC will be managed
- Ensure that you and other managers won’t be held personally liable for LLC activities, as the Operating Agreement distinguishes your LLC as a separate business entity
Imagine a scenario where one of the managers in your LLC disagrees with another about hiring family members. If your Operating Agreement has rules and restrictions against who can hire new members into the LLC, you can look to this document to resolve the disagreement before things escalate.
Additionally, an Operating Agreement will let you fire members and managers through established processes about having to worry about legal recourse. If someone tries to contest a legitimate firing, you can point to your Operating Agreement and use it in any future lawsuit to prove that your actions were supported by the LLC’s guiding document.
Naturally, it can be a bit of a headache to make an airtight Operating Agreement. In that case, you might consider hiring a professional LLC formation service, which can make sure you cover all your bases and make an Operating Agreement that protects you and the other managers from future problems.
Step 5 – Obtain an EIN
You’ll lastly need an EIN or Employer Identification Number. An EIN is a nine-digit number that acts as an identifying string for your business, sort of like a Social Security number. You need an EIN in order to hire employees, open a dedicated business bank account, and file federal and state taxes for your business separately from your own income.
Luckily, EINs are completely free and you can request one from the IRS either online or by mail. If you don’t want to take care of this extra step, an online formation service can tackle the process for you quickly and capably.
Request an EIN Online
- Click this link
- Click “Apply online now”
- Click “Begin application”
- Click “LLC”
- Fill out all the information on the following pages. Be sure to mark Alabama as the state in which you are forming your LLC
- When you reach “Authenticate”, choose between individual or business entity for your LLC. Click “Continue”
- Add your full name and Social Security number to verify your identity
- Add the physical contact information for your LLC, like its street address and phone number. The IRS will not accept a PO Box for the physical address
- Click “Accept Database Version” and “Continue”
- Add any other applicable details to your LLC
- The IRS will ask if you want to receive your confirmation letter online or by physical mail. Choose which one you prefer
- Review your EIN application and click “submit”
Requesting by Mail
If you want to request your EIN by mail, send a request to this IRS address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Alternatively, you can fax your application to the IRS at 855-641-6935.
Step 6 – File Annual Reports, Maintain Tax and Other Requirements
In Alabama, all LLCs are required to file both an Annual Report and a Business Privilege Tax Return with the Department of Revenue every year. You have to file the initial annual report 2 ½ months after forming your LLC.
Future annual reports are due on or before 3 ½ months after the start of your LLC’s taxable or fiscal year. All businesses in Alabama also have to pay $100 in tax minimum each year.
You should take pains to ensure that your business has any necessary licenses. Local and state business licenses may be necessary depending on where you operate, the kind of business you own, and more.
All of this can be a lot to keep track of, so a professional formation service may be invaluable if you want to make sure that your LLC doesn’t run to any hiccups early in its lifespan.
In the end, starting an LLC in Alabama isn’t too complicated, especially if you enlist the assistance of a professional LLC formation service. Be sure to follow the guide above and make sure you file all necessary forms and you’ll have your business running ASAP.