How to start an LLC in Alabama

A limited liability company (LLC) offers liability protection and tax advantages, among other benefits for small businesses.

LLC formation in Alabama is easy. Just follow these eight steps, and you'll be on your way.

1. Name your Alabama LLC

You'll need to choose a name to include in your articles before you can register your LLC.

Names must comply with Alabama's naming requirements. The following are the most important requirements to keep in mind:

• Your business name must include the words Limited Liability Company, LLC, or L.L.C.
• Your name must be different from an existing business in the state. You can do a search on the Secretary of State's website to determine if a particular business name is in use. For name availability in Alabama, check this link.
• The business name cannot contain words used to name a government agency (i.e., State Department, CIA, FBI, Treasury, etc.)

• Certain restricted words (bank, lawyer, attorney, credit union, etc.) may require additional documentation and licensure paperwork.

See a complete listing of Alabama's naming rules.

Additional considerations:

• URL availability. Even if you don't think you'll need a webpage, you probably will. At the very least, you should reserve the option of having one in the future by buying your domain name now. Before finalizing your LLC name, it's a good idea to check if the URL is available.
• Reserve your name. If you aren't ready to register your LLC but are concerned your name might be taken by someone else, you can reserve it for a small fee. In Alabama, names may be reserved for up to one year by paying the fee and submitting the proper form to the state authority.

2. Choose your registered agent

Alabama requires you to appoint a registered agent for your LLC.

A registered agent is the person or entity authorized to receive service of process and other official legal documents and notices on behalf of your LLC.

A registered agent can be a person (including yourself or an employee of your LLC) or an entity that offers a registered agent service. They must meet the following criteria:

• Entities (or companies) must provide registered agent services.
• The agent must have an address in Alabama.
• The agent must be on-site and available to accept documents during regular business hours.

3. Prepare and file a certification of formation

The certificate of formation (commonly called articles of organization in other states) is a document that officially establishes your LLC by laying out basic information about it.

Prepare a certificate of formation and file it with the Secretary of State to properly register your Alabama LLC properly. Though it sounds like a big job, that simply means filling out a relatively simple online form and submitting it. You can also send it by mail.

To prepare your certificate, you'll usually need the following information:

• Your LLC name.
• The name and address of the LLC's registered agent.
• Indicate whether the series LLC, professional LLC, or nonprofit LLC by checking the appropriate box
• Effective date of LLC if different from the certificate of formation filing date
• The signature of the organizer.

Once you file your certificate of formation, the Alabama Secretary of State will review the filing. If the certificate is approved, the LLC becomes a legal business entity.

4. Receive a certificate from the state

The state will issue you a certificate that confirms the LLC formally exists after the LLC's formation documents are filed and approved.

This certificate will allow the LLC to obtain an Employer Identification Number (EIN), business licenses, and business bank account.

5. Create an operating agreement

An operating agreement is a document that outlines the way your LLC will conduct business.

Alabama does not require an operating agreement, but it is an essential component of your business. Having a readily accessible, written operating agreement is helpful for various reasons, including settling disputes that may arise over financial agreements and other potential litigation. Without an agreement in place, the courts make determinations based on state law, not necessarily what is in the best interest of the LLC and its members.

The operating agreement can include, but is not limited to, the following:

• LLC's name and principal address
• Duration of the LLC
• Name and address of the registered agent
• Information about the articles of organization
• Purpose of the business
• Members and their contribution
• The way profits and losses will be divided
• Procedure for admitting new members, as well as outgoing members
• Management of the LLC
• Indemnification and liability clauses

6. Get an Employer Identification Number

The nine-digit Employer Identification Number (EIN) is assigned by the Internal Revenue Service to identify your LLC for taxes. You can obtain your EIN by mail or online through the IRS.

The purpose of an EIN is to assist with the following:

• File and manage taxes at the state and federal level
• Open a business bank account.
• Hire employees.

7. Keep certain LLC records on-site

Alabama LLCs must have the following records at the registered office for its members. This list includes, but is not limited to:

• The most current list of names and recently updated addresses of all the LLC members.
• A copy of the filed certificate of formation with all its amendments and executed powers of attorney for action(s) already taken.
• A copy of the effective operating agreement and any or all of its amendments.
• Copies of the most recent financial statements filed with the Department of Revenue LLCs in Alabama may be formed to offer one specific kind of professional service. However, all members must be licensed and/or registered to perform the service the LLC was originally organized for.

8. Alabama LLCs must file a business privilege tax return

LLCs must file an Alabama Business Privilege with the Alabama Department of Revenue on or before 3.5 months after the commencement of the taxpayer's tax year.

All Business Privilege Tax returns must include the following documents (plus any additional LLC forms):

• One copy of pages 1 to 4 of the federal tax return
• A copy of Alabama apportionment schedule Form 65
• Documentation to support exclusions and/or deductions claimed
• A copy of the balance sheet used to compute the taxpayer's net worth.

Next steps

Registering your LLC gives you a legal foundation to conduct business. Plan to keep your LLC compliant and in active status on the state's website.

Alabama LLCs are required to file an annual report and it must be filed within 2.5 months of organization. You may need to pay additional taxes if you sell goods and have employees, quarterly tax payments, and may also need to maintain a registered agent for your business.

A registered LLC also makes it possible for you to do the following:

• Obtain permits or licenses necessary to operate your business, including health department permits, zoning permits, home occupation permits, professional licenses, and more. Some states require a seller's permit to conduct sales.
• Register your business with the state's tax agency.
• Open a business bank account.
• Apply for a business credit card.
• Purchase insurance for your business.
• Protect your name and logo with a trademark.