To establish a corporation in Alabama, here's everything you need to know.
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To form a corporation in Alabama, you need to take the steps set forth below. To find out what's required to form a corporation in any other state, see Nolo's 50-State Guide to Forming a Corporation.
1. Choose a Corporate Name
Your corporation's name must not be the same as, or too similar to, an existing name on the Alabama Secretary of State's records, or misleading to the public. The corporation's name must contain the word "corporation" or "incorporated" or an abbreviation of one of those words.
You must reserve your corporate name before filing your Certificate of Formation. File a Name Reservation Request Form for Domestic Entities with the Secretary of State. The form may be filed online or by postal mail.
A free preliminary check of a name's availability can be performed at the Alabama Secretary of State website. Go to the Online Services page and click on the Business Entity Search link. Then search the database under Entity Name by typing in the name you would like to use for your entity. Do not complete any of the other boxes on the search page and the system will show all entities using the name or, in many cases, similar names.
2. Prepare a Certificate of Formation
Your corporation is legally created by filing a Domestic Business Corporation Certificate of Formation. The Certificate must include the corporate name; its purpose; the name and address of an agent for service of process; the number of shares the corporation is authorized to issue; the names and addresses of the incorporators; and the names and addresses of the directors. A copy of the Name Reservation Certificate from the Secretary of State must be attached to your Certificate of Formation application.
Unlike most states, the Certificate of Formation 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 corporation'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 of Formation to the Secretary of State along with your fee. The names and addresses of the probate judges for every Alabama county can be found at the Secretary of State's Probate Judges webpage.
The filing fee for the Certificate of Formation is $100 plus a separate Probate Court filing fee.
3. Appoint a Registered Agent
Every Alabama corporation must have an agent for service of process in the state. This is an individual or corporation that agrees to accept legal papers on the corporation's behalf if it is sued. A corporation may not serve as its own agent for service of process. The agent should agree to accept service of process on your corporation's behalf prior to designation.
The agent may be an individual residing in Alabama, an Alabama business entity, or an out-of-state business entity with an office in Alabama. The agent must have a physical street address in Alabama, not a post office box. Small corporations typically name a director or officer to serve as the initial agent. A different agent can always be named later.
The Secretary of State maintains a List of Registered Agents; however, not all such agents are on the list.
4. Set Up a Corporate Records Book
Set up a corporate records book in which you keep all of your corporation's important papers, including minutes of director and shareholder meetings, stock certificates, and stock certificate stubs. Keep your corporate records book at the principal office of your corporation. You can use a three-ring binder as the corporate records book or you can order a special corporate records kit through a corporate kit supplier.
5. Prepare Corporate Bylaws
Bylaws are an internal corporate document that set out the basic ground rules for operating your corporation. They are not filed with the state. Your corporation is not legally required to have corporate bylaws, but you should adopt them because they (1) establish your corporation's operating rules, and (2) help show banks, creditors, the IRS, and others that your corporation is legitimate. For corporate bylaw forms, see Nolo's website or Incorporate Your Business, by Anthony Mancuso (Nolo). Corporate kits also typically contain sample bylaws.
6. Initial Corporate Directors
The Certificate of Formation names the initial corporate directors who will serve on the board until the first annual meeting of shareholders (when the board members who will serve for the next term are elected by the shareholders).
7. Hold Your First Board of Directors Meeting
At the first meeting of the corporation's board of directors, the directors should appoint corporate officers, adopt bylaws, select a corporate bank, authorize issuance of shares of stock, set the corporation's fiscal year, and adopt an official stock certificate form and corporate seal. This meeting should be held shortly after the corporation is formed. The directors' actions must be recorded in corporate minutes prepared by the incorporator or any of the directors. Additionally, if the corporation will be an S corporation, the directors should approve the election of S corporation status. It is usually necessary to prepare the minutes over one or two weeks, and then send them to all the directors for their signature. For corporate meeting minute forms, see Nolo's website or refer to Incorporate Your Business, by Anthony Mancuso (Nolo).
8. Issue Stock
Issue stock to each shareholder. Although not legally required in most states, small corporations usually issue paper stock certificates. Enter each shareholder's name and contact information in the corporation's stock transfer ledger.
A share of stock in your corporation is classified as a security under state and federal securities laws that regulate the offer and sale of corporate stock. However, the federal government and all states exempt most small corporations from these laws. For example, federal law exempts "private offerings:" a non-advertised sale to a limited number of people (generally 35 or fewer). Most states have enacted their own versions of this SEC exemption.
Visit your state securities office website for information about your state's securities laws. Links to all such offices can be found at the Contact Your Regulator web page of the North American Securities Administrators Association.
9. Comply with Alabama Tax Requirements
Alabama requires corporations to file a Business Privilege Tax Return each year with the Department of Revenue. The initial business privilege tax return is due 2 1/2 months after the corporation comes into existence or qualifies with the Alabama Secretary of State to do business in Alabama. A minimum $100 tax must be paid each year. For details and tax forms, see the Alabama Department of Revenue website.
10. Comply With Other Tax and Regulatory Requirements
Additional tax and regulatory requirements apply to your corporation. These include:
EIN: Your corporation must obtain a federal employer identification number (EIN). You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.
S Corporation Filing: If the corporation wants to elect S corporation status for tax purposes, it must submit Form 2553 Election by a Small Business Corporation (signed by all the shareholders). The election should be filed within two months and 15 days after the beginning of the corporation's first tax year. See the IRS S Corporation webpage for details.
Business Licenses: Depending on its type of business and where it is located, your corporation may need to obtain other local and state business licenses.
11. Foreign Corporations Doing Business in Alabama
To do business in Alabama, all corporations organized outside of the state must register with the Secretary of State. Foreign corporations must appoint a registered agent for service of process physically located in Alabama.
To register, file two original copies of the Foreign Corporation Application for Registration with the Business Services Division of the Secretary of State. The form must be filed by postal mail. The foreign corporation must reserve its name with the Secretary of State before filing the Application for Registration (see Section 1 for details). A copy of the corporation's articles of incorporation certified by the Secretary of State of the corporation's home state must be submitted with the application.
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