Here’s an overview of the key steps you’ll need to take to start your own business in Alabama.
The most common legal structures for a small business are:
There also are special versions of some of these structures, such as limited partnerships and S corporations. You’ll want to consider which business entity structure offers the type of liability protection you want and the best tax, financing, and financial benefits for you and your business. Check Choose Your Business Structure on Nolo’s website for more information on how to choose the best ownership structure for your business.
For LLCs and corporations, you will need to check that your name is distinguishable from the names of other business entities already on file with the Alabama Secretary of State (SOS). You can check for available names by doing a business entity search on the SOS website. You can reserve an available name by filing a NAME RESERVATION REQUEST FORM FOR DOMESTIC ENTITIES. There are certain name requirements for LLCs and corporations (like including a word such as “LLC” for LLCs or “Corporation” for corporations). See How to Form an LLC in Alabama and How to Form a Corporation in Alabama for more information.
Is your business a sole proprietorship or partnership that uses a business name that is different from the legal name of the business owner (for a sole proprietorship) or surnames of the individual partners (for a partnership)? If so, you have the option to file a trade name application with the SOS.
If you plan on doing business online, you may want to register your business name as a domain name. See Choose and Register a Domain Name for more information. In addition, to avoid trademark infringement issues, you should do a federal and state trademark check to make sure the name you want to use is not the same as or too similar to a name already in use. See How to Do a Trademark Search for more information.
Tax Registration. If you will be selling goods in Alabama, you must register with the Department of Revenue (DOR) to collect sales tax. If your businesses will have employees, you must register with the DOR for employer withholding taxes. You can register for both types of tax, as well as other business taxes, either online via the My Alabama Taxes website or on paper using Form COM 101, Combined Registration/Application.
EIN. If your business has employees or is taxed separately from you, you must obtain a federal Employer Identification Number (EIN) from the IRS. Even if you are not required to obtain an EIN, there are often business reasons for doing so. Banks often require an EIN to open an account in the business’s name and other companies you do business with may require an EIN to process payments. You can get an EIN by completing an online application on the IRS website. There is no filing fee.
Regulatory licenses and permits. These cover areas such as:
Most Alabama businesses are required to have one or more business privilege licenses. Each business privilege license covers the period October 1 through September 30 and must be renewed annually. You apply for licenses from the probate judge or license commissioner in the county where your business is located. In addition, you’ll generally also need a license from every other county where you conduct business. For your convenience, the ADOR has an online listing of county probate offices.
Professional and occupational licenses. These cover people who work in various fields. The official website for Alabama state government, alabama.gov, has a page simply headed “Professional” that lists the regulatory boards for many professions and occupations. You can click on any item on the page and be taken to the website for the relevant regulatory board.
You’ll need to pick a location for your business and check local zoning regulations. That includes if you work from home. You may be able to find zoning regulations for your town or city by checking municode.com.
Alabama taxes every kind of business. See Alabama State Business Income Tax for more information on state business taxes in Alabama.
Sole proprietorships. Pay state taxes on business income as part of their personal state income tax returns (Form 40).
Partnerships. Partners pay state taxes on partnership income on personal tax returns. In addition, most Alabama partnerships also must file Form 65, Partnership/Limited Liability Company Return of Income.
LLCs. Members pay state taxes on their share of LLC income on personal tax returns. In addition, LLCs themselves have to file an additional state tax form. The specific form used will depend on how the LLC is classified for federal tax purposes. Alabama LLCs also are required to file an annual report which is linked to payment of the state’sBusiness Privilege Tax. See Alabama LLC Annual Filing Requirements for more information.
Corporations. Shareholders must pay states taxes on their dividends from the corporation. A shareholder-employee with a salary also must pay state income tax on his or her personal state tax return. Moreover, the corporation itself is subject to Alabama corporation taxes. And, finally, corporations must file an annual report which is linked to payment of the state’s Business Privilege Tax.
If you have employees, you must also deal with state employer taxes.
And, apart from Alabama taxes, there are always federal income and employer taxes. Check IRS Publications 334,Tax Guide for Small Business, and 583, Taxpayers Starting a Business, available at irs.gov.
Insurance is a good idea for most kinds of business. While insurance often is regulated at the state level, the types of business insurance available are usually similar across the fifty states. Check Obtaining Business Insurance for more information.