How to Start an LLC in Alabama

A limited liability company (LLC) 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 wants to limit their personal liability for business debts and lawsuits should consider forming an LLC.

Here are the steps you need to take to start an LLC in Alabama.

1. Choose a Name for Your Alabama LLC

You must reserve your LLC's name with the Alabama Secretary of State (SOS) before filing your LLC formation documents. You can mail in a completed Name Reservation Request Form for Domestic Entities to the SOS or complete the filing online using the SOS Online Services.

As of 2024, the fee to reserve a name is $25. You'll incur additional processing fees if you file online or with a credit card.

Keep a copy of the Name Reservation Certificate. You'll need to attach a copy to your certificate of formation if you file the document by mail.

LLC name must be distinguishable. Your LLC's name must be distinguishable (different) from the names of other business entities already on file with the SOS. Before submitting the form, you should search the SOS's business entity records to be sure your proposed name is available. (Ala. Code § 10A-1-5.03 (2024).)

LLC name must include an entity designator. Under Alabama law, an LLC's name must contain the words "Limited Liability Company" or the abbreviations "LLC" or "L.L.C." (Ala. Code § 10A-1-5.06 (2024).)

Using a trade name. Out in the real world, you don't have to use your LLC's official legal name registered in your certificate of formation. Instead, you can use a trade name, sometimes called an "assumed name," "fictitious business name," or "DBA" (short for doing business as). Registering a trade name in Alabama isn't mandatory. However, you can choose to file an Application to Register Trade Name In Alabama with the SOS by mail and pay a $30 fee (as of 2024). Registration doesn't provide any legal rights in the name but does alert others the name is in use in Alabama. You can renew the trade name registration every five years. (Ala. Code §§ 8-12-6 and following (2024).)

2. Appoint an Alabama Registered Agent

Every Alabama LLC must have an agent for service of process in the state (called a "registered agent"). A "registered agent" agrees to accept legal papers on the LLC's behalf—for example, if the LLC is sued. The agent should agree to accept service of process on behalf of the LLC before designation. The registered agent can be:

• an individual residing in Alabama
• an Alabama business, or
• an out-of-state business that's registered to do business in Alabama.

(Ala. Code § 10A-1-5.31 (2024).)

The SOS provides a list of Alabama registered agents on its website.

3. File Certificate of Formation With the SOS

You create an Alabama LLC by filing a Certificate of Formation with the SOS. You can file the certificate online through the SOS's Online Services or by mail. The certificate of formation must include the following information:

• the name of your LLC
• the name and address of the LLC's registered agent
• an indication of whether the LLC is a series LLC, professional LLC, or non-profit LLC
• the effective date the LLC will begin, and
• the signature of the organizer or attorney-in-fact.

If you file your certificate online, you can complete the name reservation as part of the online filing process or enter your name reservation ID if you've already obtained a name reservation. If you file the certificate by mail, you must attach a copy of the name reservation certificate from the SOS.

As of 2024, the filing fee for a certificate of formation is $200.

4. Prepare an Operating Agreement

An operating agreement is an internal agreement between the LLC members that lays out the rules and procedures for how the members (or managers) will run the LLC. Alabama doesn't require LLCs to have an operating agreement but it's still a good idea to create one. The agreement can help preserve your limited liability by showing that your LLC is truly a separate business entity from the owners.

Once an LLC creates an operating agreement, the LLC itself and its members are bound to the terms of the agreement. Without an operating agreement, Alabama's default LLC laws will govern how your LLC operates.

The operating agreement should cover:

• the management structure of the LLC (member-managed vs. manager-managed)
• the members' percentage interests in the LLC
• the members' rights and responsibilities
• the members' voting powers
• how profits and losses will be distributed
• rules for holding meetings and taking votes, and
• buyout (also called "buy-sell") provisions, which determine what happens when a member wants to sell their interest, dies, or becomes disabled.

For help creating an LLC operating agreement, check out Form Your Own Limited Liability Company, by Anthony Mancuso (Nolo), or use our online LLC formation service.

5. File Business Privilege Tax Return and Annual Report

Alabama requires LLCs to file a combined Business Privilege Tax Return and Annual Report with the Alabama Department of Revenue (DOR) each year. Unless exempt, your LLC must pay a business privilege tax (BPT) to the DOR. The BPT is calculated based on the LLC's taxable net worth.

Before 2024, LLCs (and other businesses) were required to pay a $100 minimum BPT each year. However, starting in 2024, LLCs (and other businesses) are no longer required to pay the minimum tax. If your LLC owes $100 or less for the BPT, then you don't have to file a BPT return.

You can file your return and pay the BPT online through My Alabama Taxes (MAT). For more information about the BPT, see the DOR's frequently asked questions webpage.

6. Get an EIN and Comply With Other Tax and Regulatory Requirements

Your LLC will likely need to comply with other tax and regulatory requirements, including applying for business licenses and permits and registering for other business taxes.

For more information on Alabama LLC taxes, check out our article on Alabama LLC annual report and tax filing requirements.

EIN. You might need to get a federal employer identification number (EIN) for your LLC if your LLC has more than one member or plans to have employees. Even if your LLC isn't required to have an EIN, it's still a good idea to get one. Having an EIN can make it easier to open a bank account, apply for business loans, and do business with other companies. The process to apply for an EIN is quick, easy, and free. You can get an EIN by completing an online EIN application on the IRS website.

Business licenses: In general, you'll need to obtain a business privilege license for every county in Alabama you do business in. You should check with your county about this requirement. In addition, depending on your business activities and location, your LLC could need to obtain other local and state business licenses. Make sure that you and your business have all necessary operational, tax, and professional licenses and all required zoning and building permits. See our article on Alabama business licenses for more details.

Tax registration and filings. In addition to the BPT, your LLC might need to register and pay other taxes. For example, if you sell taxable goods or services, your LLC must register with the DOR and collect and pay sales tax. If you have employees, your LLC will probably need to withhold and pay employee income taxes along with unemployment insurance tax.

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 address of each member and manager
• a copy of the filed certificate of formation and all amendments
• executed copies of any powers of attorney
• copies of the LLC's federal, state, and local income tax returns for the three most recent years
• copies of any operating agreements including any amendments, and
• copies of financial statements of the LLC for the three most recent years.

(Ala. Code § 10A-5A-4.09 (2024).)

Getting Help With Forming Your Alabama LLC

If you need help forming your Alabama business, you should check out the Alabama Small Business Development Center (SBDC) Network. The SBDC website helps new business owners start and grow their businesses through resources, workshops, webinars, and programs.

If you need personalized legal help, talk to an Alabama business lawyer. An attorney can help you with your business registrations, tax and regulatory obligations, and operating documents.