How to Start an LLC in Alabama: 2024 Guide

Using an LLC Formation Service

Online LLC services specialize in filing the required documents to form an LLC. Business owners who already have their hands complete with a small business may find that the small price tag that comes with hiring an LLC service is well worth it. Most packages offer features like guaranteed acceptance by the state, EIN application, registered agent service, and operating agreement drafting. Many services are customizable, and if you like to shop around for the best fit, there are several options. Northwest Registered Agent, Swyftfilings, and Bizee LLC services are the most popular options with the best ratings.

 

Starting a Limited Liability Company (LLC) in Alabama can be exciting for anyone looking to launch a new business. An LLC offers the liability protection of a corporation with the flexibility and simplicity of a partnership. If you’re in Alabama and considering setting up an LLC, here’s a straightforward, step-by-step guide to walk you through the process.

 

Step 1: Choose a Business Name

The first step in creating your LLC is picking a unique name. Alabama has specific guidelines for naming your LLC, including the need for the name to be different from other businesses registered in the state.

Here are the guidelines you must follow: 

• It must be different from other business names already registered in the state.
• It can’t include restricted words or phrases (like implying it’s a bank unless it is one).
• It must end with “Limited Liability Company” or one of its abbreviations (LLC or LLC).

 

Step 2: Hire a Registered Agent

Like in other states, your LLC must have a registered agent in Alabama. A registered agent is a person or company that agrees to receive legal papers on behalf of your LLC, ensuring you get all important legal notices. The agent must have a physical address in Alabama and be available during business hours. You can act as your registered agent, choose someone you trust, or hire a professional service like Northwest Registered Agent, Swyftfilings, or Bizee.

Check out our blog: ‘Is a Registered Agent Necessary? Your Guide to Finding an Affordable Option‘

 

Step 3: File Your Certificate of Formation

Let’s make your Alabama LLC official by filing the Certificate of Formation. This document is crucial as it formally registers your LLC with the state of Alabama. Here’s what you need to include in your 

Certificate of Formation:

• LLC Name: Ensure you include the full legal name of your LLC, followed by “LLC” or “Limited Liability Company.”
• Mailing Address: If your business receives mail at a location different from its physical address, list that here.
• Registered Agent: Designate a registered agent who will handle official documents for your LLC. Include their full name, address, and contact information. They must formally agree to act as your registered agent.
• Management Structure: Indicate whether your LLC will be member-managed (by you and any other owners) or manager-managed. List the names and addresses of the members or managers. For privacy, you may use a P.O. box for addresses.
• Purpose: Provide a brief description of your business.
• LLC Organizer: Identify the person or entity completing and filing your work. This role is crucial for correctly setting up your LLC.
• Formation Date: Specify the date your LLC will officially begin. You can set this to the filing date or choose a date up to 90 days.
• Signature: After reviewing your Certificate of Formation for accuracy, sign and date the document. Ensure your registered agent has consented to their appointment.

How to Send Your Form

When you’re ready to establish your LLC in Alabama, filing your Certificate of Formation is crucial. This document officially registers your business with the state. Here’s how you can file your Certificate of Formation in Alabama:

• Online: For the quickest processing, file your Certificate of Formation online through the Alabama Secretary of State website. This platform offers an efficient way to submit your paperwork and payment securely.
• By Mail: If you prefer to file by mail, you can complete the Certificate of Formation and mail it with the appropriate fee. Ensure you include two copies of the form and a self-addressed stamped envelope for the return of your filed documents. Send everything to: Secretary of State, Business Services PO Box 5616 Montgomery, AL 36103
• In-Person: For those who wish to file in person, you can bring your completed Certificate of Formation to the Secretary of State’s office located at Secretary of State, Business Services 11 South Union Street, Suite 207 Montgomery, AL 36130 

Filing Fee

The filing fee for domestic LLCs is $200. This fee applies whether you file online, by mail, or in person. For foreign LLCs seeking authorization to operate in Alabama, the filing fee is $150.

Filing the Certificate of Formation is fundamental to establishing your LLC in Alabama. Before submitting your form, it is essential to review all information for accuracy and completeness.

 

Step 4: Making an Operating Agreement for Your Business

Let’s discuss setting up some ground rules for your business. This is where an Operating Agreement comes in. Think of it as a handbook that explains how your business runs. It’s important because it helps everyone understand their role and what’s expected in your LLC.

Here’s what an Operating Agreement usually includes:

• Ownership: This part talks about who owns what percentage of the business. 
• Member’s Rights and Responsibilities: Here, you’ll write down what each person in the LLC can and cannot do and what they’re responsible for. It’s like a job description for each member.
• Joining & Leaving: This section covers how new people can enter your business and what happens if someone decides to leave. It’s good to have this figured out so there are no surprises later.
• Dissolution: This might sound a bit gloomy, but it’s practical. It’s about how to close down the LLC if you ever need to. It includes the steps to take and how to handle everything when wrapping up the business.

Creating an Operating Agreement is a smart move. It keeps things clear and organized so everyone knows what to expect, and it can save you a lot of time. 

 

Step 5: Getting Your EIN from the IRS

Your business needs a number called an EIN from the IRS. It’s like an ID number for your business. This number will help you as an identification number when getting bank accounts and credit accounts, filing taxes, and hiring employees.

It’s free, and you can get it from the IRS website at https://www.irs.gov/businesses/small. 

 

Alabama LLC: Permits, Licenses, Tax Requirements, and Annual Reporting

After forming your Limited Liability Company (LLC) in Alabama, navigating the state’s regulatory framework is crucial to ensure your business’s compliance and success. This encompasses obtaining the required permits and licenses, managing tax responsibilities, and fulfilling annual reporting obligations. Here’s what you need to know for your Alabama LLC.

Obtain Any Additional Permits and Licenses

Depending on the nature of your business and its location, your LLC may need specific permits and licenses.

Local Business Licenses

• Overview: Various municipalities in Alabama require businesses to obtain local business licenses.
• How to Obtain: Contact your city or county clerk’s office or visit their website to understand your area’s licensing requirements and application processes.

Professional Licenses

• Overview: Certain professional services in Alabama may require state-issued licenses.
• How to Obtain: The Alabama Department of Labor provides resources and guidelines for obtaining professional licenses. Check their website for detailed information on licensing requirements for your specific profession.

Health Permits

• Overview: If your business involves food, healthcare, or beauty services, you might need health permits to guarantee public safety.
• How to Obtain: These permits are generally issued by the Alabama Department of Public Health. Visit their website or contact your local health department for specific requirements and application procedures.

Tax Requirements in Alabama

Properly managing your LLC’s tax obligations is essential for compliance and the financial health of your business.

Employer Taxes

If you plan to hire employees, you will need to:

• Register for Unemployment Insurance Tax through The Alabama Department of Labor.
• Register for Employee Withholding Tax through The Alabama Department of Revenue.

State Taxes

• Pass-Through Taxation: LLCs in Alabama operate similarly to those in other states. They are typically treated as pass-through entities for federal tax purposes, meaning the business doesn’t pay income taxes. Instead, profits and losses are passed through to individual members’ tax returns. However, depending on your LLC’s earnings, you may be subject to certain state taxes.
• Sales Tax: If you own an LLC and sell physical products or specific services, you must register for a Sales Tax License with The Alabama Department of Revenue.
• EIN: If you own an LLC and sell physical products or specific services, you must register for a Sales Tax License with The Alabama Department of Revenue.

Annual Reporting in Alabama

Your LLC must comply with annual reporting requirements to maintain good standing with the state.

• Filing Requirements: Unlike some states, Alabama LLCs are not required to file an annual report with the Secretary of State. However, you must file an Annual Business Privilege Tax Return with the Alabama Department of Revenue.
• Fees and Filing: The Business Privilege Tax is calculated based on your LLC’s federal taxable income apportioned to Alabama. The Alabama Department of Revenue’s website provides more information and allows you to file a tax return.

By following these permits, licenses, tax obligations, and reporting guidelines, your Alabama LLC will be positioned for successful operations and state compliance. For more information and updates on regulations affecting Alabama LLCs, visit the official Alabama Secretary of State website and the Alabama Department of Revenue website. 

 

New 2024 Reporting Requirements (BOI)

Effective from January 1, 2024

Big news! Starting January 1, 2024, there are new reporting requirements for both domestic and foreign reporting companies. This includes LLCs, corporations, and other entities. Here’s what you need to know:

First Report Deadlines:

• Existing Entities: If your LLC was already around before 2024, you’ve got until January 1, 2025, to submit your first report.
• New Entities: If you’re forming your LLC in 2024, you must file your report within 90 days of your company’s creation.

Who Needs to Report:

• Domestic Reporting Companies: This includes LLCs and similar entities within the U.S.
• Foreign Reporting Companies: Entities registered foreign entities must also adhere to these new rules.

Exceptions to Reporting:

• For specific exceptions, you’ll want to refer to the Beneficial Ownership Information Reporting Regulations at 31 CFR § 1010.380(c)(2) and the Small Entity Compliance Guide.

What Must Be Reported

What you need to report is all about transparency. The exact details can be found in the compliance guide, but it generally involves information about your LLC’s ownership and control.

When Must Reporting File Reports

Remember, if you’re an existing entity, your deadline is January 1, 2025. For new LLCs formed in 2024, it’s within 90 days of creation.

Filing Reports & Noncompliance Penalties

Starting January 1, 2024, all BOI reports must be filed electronically. Here are some critical points:

• Filing Before the Date: You must file on January 1, 2024.
• Accuracy: Filer certification of accuracy is mandatory – you need to double-check that everything you report is correct and accurate.

Penalties for Noncompliance:

• False Information Penalties: Mistakes or misinformation can lead to a fine of up to $10,000 or up to 2 years in prison.
• Penalties: If you slip up here, you could face a fine of up to $10,000 or even imprisonment for up to 2 years.
• FinCEN’s Approach: The Financial Crimes Enforcement Network (FinCEN) focuses on education and outreach to ensure compliance. 
• Safe Harbor Rule: Did you make a mistake? If you discover inaccuracies in your initial report, you have a 90-day grace period to submit a corrected report.
  

If you need more information or specific guidance, please visit the FinCEN website for all the details.

 

What to Do After You’ve Started an LLC 

1. Open a Separate Business Bank Account: Keeping your personal and business money apart is super important. Mixing them up can cause significant problems, like losing the protection of having an LLC. This mix-up is sometimes called “piercing the corporate veil,” it can put your stuff, like your car or house, at risk if your business runs into trouble. To open a business bank account, you’ll need:

• Your LLC’s Articles of Organization.
• Your Operating Agreement.
• Your Employer Identification Number (EIN).

When picking a bank for your business, consider the fees, minimum deposits, and benefits (like earning interest) they offer. Look for features that help your business, like using a debit card to pay for things.

Get a Business Credit Card

A business credit card is an excellent tool for handling business purchases and can help build your company’s credit history. Just like with personal credit, a good business credit score can make it easier to get loans and may qualify you for better terms. Visit our website to see our favorite business cards review. 

Check out our blog: Novo Review: The Best Business Banking Account in 2024.

2. Set Up Your Finances Right: Use good habits to track your money. This means not mixing your cash with your business’s. Good record-keeping makes tax time less stressful and helps avoid problems with the rules. You should use a program like QuickBooks to track your money, inventory, payroll, and sales. Talking to professionals like accountants or business lawyers is also intelligent, especially when understanding your LLC state’s tax rules. Find experts who know a lot about the area where your business is.

3. Create a Professional Website: A website makes your business look legit. WordPress is a great tool to build your site. You can check out SiteGround or Hostinger for web hosting. They’re both good options to get your site up and running.

4. Announce Your Business with a Press Release: A press release is a fantastic way to promote your new business and attract customers.

Starting an LLC in Alabama involves a series of straightforward steps. From choosing a unique business name to filing your initial report and managing your finances, each step is designed to help establish your business on a solid foundation. This guide lets you easily navigate the process, setting your LLC up for success. If you need help, services like Northwest Registered Agent, Swyftfiling, or Bizee exist. They can handle any legal details your LLC requires, like getting your EIN and sorting out your operating agreement.