A limited liability company (LLC for short) is a way to legally structure a business. It combines the limited liability of a corporation with the flexibility and lack of formalities provided by a partnership or sole proprietorship. Any business owner who seeks to limit his or her personal liability for business debts and lawsuits should consider forming an LLC.

Here are the steps you need to take to form an LLC in Alabama. For more information on how to form an LLC in any state, see Nolo's article How to Form an LLC.

1. Choose a Name for Your 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.

2. Appoint a Registered Agent

Every Alabama LLC 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 LLC's behalf if it is sued. The agent should agree to accept service of process on behalf of the limited liability company prior to designation. The registered agent may be (1) an individual residing in Alabama, (2) an Alabama business entity, or (3) an out-of-state business entity with an office in Alabama. The Secretary of State has a link to a list of Alabama registered agents here.

3. 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.

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.

For help creating an LLC operating agreement, see Form Your Own Limited Liability Company, by Anthony Mancuso (Nolo) or use Nolo's Online LLC.

5. 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).

For more information on Alabama LLC tax registration and annual reports, see Nolo's article LLC Annual Filing Requirements in Alabama.

6. Comply With Other Tax and Regulatory Requirements

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.