- Depending on an entrepreneur's requirements, they may create an LLC in Alabama to limit their business liabilities and control their tax returns.
- The first step to starting an Alabama LLC is to reserve a tentative name with the Alabama Secretary of State. This name should be unique, and it should meet the terms and conditions of the state.
- Operating agreements are not required for Alabama LLCs. It is, regardless, a good idea to have one for organizational and goal-setting reasons.
- Entrepreneurs should be well-versed with the tax regulations of the state and the legal jurisdictions, and they should have an EIN assigned by the IRS.
A limited liability company (LLC) provides liability protection to its owners while simultaneously providing greater taxation leeway than a corporation. One or more persons may form an LLC, and the owners are referred to as "members." These members cannot be held personally accountable for the company's debts or legal liabilities. This sets LLCs apart from sole proprietorships and partnerships.
In the latter case, there is no legally established distinction between the owners of a business and the business itself. In contrast to corporations, LLCs are by nature pass-through companies, which itself does not need the owners to file federal taxes. However, any earnings are passed through to LLC members, who report them on their individual tax returns.
It may be wise to form an LLC if you have the following goals for your business.
To reduce your liability: As an owner of an LLC, your personal assets cannot be used to settle legal claims or settle debts, given that you are not personally accountable for the company's debts and legal liabilities.
To control tax liabilities: Contrary to corporations, which pay taxes on revenue earned at the corporate level, LLCs are taxed at the personal income levels of the members.
To ensure the sale of shares is not required to raise money: LLCs are different from C companies in that they do not have shareholders or issue shares. As a result, the capacity of the company to attract investors may be hindered, but on the other hand, the corporate model and executive policy-making mechanism are streamlined.
Steps To Start an LLC in Alabama
Reserving the name of an Alabama LLC
- Before you turn in your LLC formation documents, you must reserve the name of your LLC with the Secretary of State. For an amount of $28, you can do this online. After the process is complete, the name you have entered automatically be checked for availability. In case it is unique, your LLC will get its name reservation immediately. As an offline alternative, you can fill up a Name Reservation Request for Domestic Entities form, along with a $25 fee, to the Alabama Secretary of State's office.
- The name of your LLC must be distinct from those of other business entities whose names are already on record with the Alabama Secretary of State. Therefore, it is advised that you search on the Alabama Secretary of State webpage and check the business name database for businesses registered in Alabama before submitting the form to make sure the tentative name is available.
- When conducting business today, one need not use the exact legal name registered for their LLC in their Articles of Organization. A trade name can be used as a substitute. The Secretary of State will accept a $30 filing fee on applying to register a trade name via mail.
Putting together a business strategy
Alabama LLCs are no different from any other type of business in that they require a comprehensive business strategy. The name of your LLC and a brief explanation of what it does are all required to develop a solid business plan. Along with a thorough market study, a flowchart of the organizational structure, descriptions of the goods and services, and plans for marketing, logistics, and finances, it should also include a target customer profile.
Fill out a state tax return or annual report.
It is essential to sign up with the Alabama Department of Revenue (DOR) if you plan on conducting business in the state and if sales taxes are receivable on the commodity you provide. You also need to sign up with the DOR if you will be employing people from within the state. You can fill up the DOR Form COM:101 for integrated Registration and Application, or you can apply online via the My Alabama Taxes (MAT) portal. Each LLC should generate a minimal $100 in taxes yearly.
Obtaining an EIN and adhering to all other tax and regulatory requirements
An LLC can be subject to additional tax and legal responsibilities. They could consist of the following:
- EIN: Each member of your LLC must have their own IRS Employer Identification Number (EIN). If a single-member LLC is formed, an EIN must be obtained in case the LLC must submit a separate tax return. You can apply on the IRS online portal, following which an EIN will automatically be assigned to your LLC. There are no filing costs.
- Business licenses: Additional municipal and state business licenses may also apply to your LLC. To obtain information on these licenses, you may contact the county licensing board or probate office in the county where your LLC office is situated. By applying to the appropriate regulatory body, you may get a business license in Alabama either in person or on the internet. The kind of operation and location of your Alabama LLC will determine the general licensing needs. State, county, and local are the three main licensing jurisdictions, and there may be considerable overlap between them.
- The state level: A business permission and shop license are required if your LLC plans to offer goods or services. You can only receive these via your Alabama county probate office, even after your LLC has been registered and legally recognized by the state. To determine which office is relevant for your LLC, check the state's web directory. Additionally, if you intend to sell something that would typically be subject to sales tax if it were bought and sold at a store, you must apply for a seller's permit. On the My Alabama tax site, you can submit an application for a seller's permit.
- County and regional levels: All local regulatory organizations that demand licenses are included in a directory provided by the Alabama Department of Revenue. Your tax and business licenses in Alabama must be renewed yearly. The county or city where your LLC conducts business will determine the amount you must pay for renewal.
The LLC Records: To comply with Alabama law, an LLC must maintain the following documents in its main office and make them available to its members for review.
- An up-to-date list of each member's complete name and most recent address
- A record of the filed articles of incorporation and all revisions
- Records of all powers of attorney that have been signed
- The latest three years' worth of the LLC's federal, state, and local income tax returns
- A copy of each operating agreement, together with any modifications
- The records of the LLC's latest three years' worth of financial statements
Creating an Operating Agreement for an LLC in Alabama
An operating agreement is legally binding, outlining an LLC's ownership, management structure, and operational processes. A good operating agreement would include the following.
- The percentage of ownership that each firm owner, also known as members, have
- An outline of the tasks and responsibilities of members
- Guidelines on what to do when a member wishes to leave the LLC or when the LLC is being closed down
- The specifics of the model of taxation included in the business plan of your LLC
Contacting a Registered Agent
All important legal charters for your LLC, including court orders or tax filings, can be received and handled by a registered agent on your behalf. Adults can alternatively represent themselves provided they have a physical address in Alabama and are available there during regular business hours. However, working with a registered agent service can help address privacy concerns.
In addition to additional fees for customized services, hiring a registered agent typically costs between $49 and $300. To get the greatest value, you may evaluate other companies operating in Alabama and investigate their legal management and representation.
Key Considerations after Launching an LLC in Alabama
Alabama's possibilities for business insurance
Getting insurance for your Alabama LLC can play a crucial role in the risk management aspect of your business plan. For companies in Alabama, typical insurance packages include the following.
Insurance for workers' compensation: If a company in Alabama employs five or more individuals, it must carry workers' compensation insurance.
A general liability policy: General liability insurance offers comprehensive defense against legal action, monetary losses due to property damage, and workplace injuries. Even though many business leases include it, you are not required by state law to get this insurance.
Insurance covering fiduciary liability: Financial losses brought on by human errors like erroneous counsel are covered by professional liability insurance for services provided by consultants, accountants, doctors, or real estate agents.
Financial implications of starting an Alabama LLC
You might need to make other investments in addition to insurance to create your Alabama LLC. These can include paying rent toward a lease on a physical storefront, hiring a designer for a website or social media management, or investing in furniture and software. You could also choose to hire independent contractors and other experts, such as attorneys and accountants, to help your company in addition to paying staff. Resources are available to assist business owners in obtaining start-up finance to aid with these expenses.
Publicizing an Alabama LLC
Once the administrative setup is complete, the next step is to promote your Alabama LLC and plan a marketing mechanism to make it stand out. A good marketing strategy for any small business should include the following components.
Market evaluation: Before distributing your goods or services in the market, you need to grasp your target market and be aware of the competition.
Advertising: You may advertise your LLC by purchasing print, TV, radio, or digital ads. These advertisements may also be outsourced from other firms.
Social media: It is smart to let people know about your Alabama LLC on platforms such as Facebook, Instagram, and YouTube.
Public relations: Paid media can only be used so much. You may also try to garner some traffic for your company by connecting with regional and national media outlets.
Located at the center of Southern states, Alabama comes with a wide range of options for entrepreneurs starting small businesses. Not only does the state provide tax cuts on income, sales, and usage, but it also boasts the third-lowest property tax in the nation. The state of Alabama is a great place to form your LLC because it has low income and sales tax rates, inexpensive utilities, a very low cost of living, and many tax incentives.
Most Alabama business owners find that forming an Alabama LLC is the fastest and simplest way to launch a company. It provides you with the advantages and protections that larger Alabama corporations enjoy but with less onerous rules and regulations. If a Corporation is not the best legal structure for the type of business you are starting, you might want to think about establishing an Alabama LLC.
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