How to Start an LLC in Alabama

Any business owner knows the challenge of choosing the right entity structure—from sole proprietorship to limited liability company (LLC) to corporation and beyond. But LLCs are often the ideal choice for small business owners because they offer personal liability protection while providing flexible tax options and lower operating costs.

Whether you’re looking to start a business in Birmingham, Gulf Shores, or beyond, use this guide as your reference for every step in the LLC formation process.

How to get an Alabama LLC in 7 steps

Starting an LLC in Alabama might seem daunting to a new business owner, but the process can be completed in these simple steps: 

1. Name your Alabama LLC
2. Choose a registered agent
3. File a certificate of formation
4. Create an operating agreement
5. Get an EIN and open a business bank account
6. Keep records on-site
7. File a Business Privilege Tax return

We’ll dive into the details of each LLC formation step below.

1. Name your Alabama LLC

When you file your certificate of formation to register your LLC (more on that in Step 3), you’ll need to include your business name. Names must comply with Alabama's naming requirements: 

• Your business name must include the words “Limited Liability Company,” “LLC,” or “L.L.C.”
• Your name must be distinguishable from an existing business name in the state. Conduct an Alabama business search to determine if a particular business name is in use. For name availability in Alabama, check the Secretary of State’s website.
• There may be restrictions on using words associated with a government agency (like “State Department,” “CIA,” “FBI,” “Treasury,” etc.)
• Certain words (“bank,” “lawyer,” “engineer,” “credit union,” “insurance,” etc.) may require additional documentation, like a formal approval from the entity’s applicable commissioner’s office or evidence of an industry license.

Alabama requires businesses to provide their Name Reservation Certificate along with their certificate of formation. Once you have conducted an Alabama LLC search and ensured that your LLC name isn’t taken, submit a Name Reservation Request Form to the Secretary of State and pay the $25 fee. Then, you’re ready to start filling out your formation paperwork.

If you’ve received your Name Reservation Certificate but you’re not quite ready to start your business, no problem. A Name Reservation Certificate is good for up to one year.

2. Choose your registered agent

LLCs in Alabama are required to appoint a registered agent, which is the person or entity authorized to receive service of process and other official legal documents and notices on behalf of your LLC.

An LLC member or employee can act as the LLC’s registered agent, but a good practice is to hire someone to do the job for you. According to Alabama law, they must meet the following criteria:

• Be a domestic or foreign entity that is registered to do business in the state, or be an individual who is a resident of Alabama
• Have an office with a street address in Alabama (not a P.O. box)
• Be able to be personally served documents (meaning that they are on-site and available to accept documents during regular business hours)

3. Prepare and file a certificate 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 the certificate of formation form and file it—either online or by mail—with the Secretary of State to register your Alabama LLC properly. To prepare your certificate, you'll need the following information:

• Your LLC name
• A copy of your Name Reservation Certificate
• The name and address of the LLC's Alabama registered agent
• The type of LLC whether it’s a series LLC, professional LLC, or nonprofit LLC—if you're starting a specialized LLC
• The effective date of LLC if different from the certificate of formation filing date (can’t be more than 90 days from the 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. The Secretary of State’s office will issue you a certificate that confirms that the LLC formally exists. This certificate will allow the LLC to obtain an Employer Identification Number (EIN), business licenses, and a business bank account.

4. Create an operating agreement

Alabama does not require an operating agreement, but it is an essential component of your business—because it’s the document that outlines the way your LLC will conduct business. Having a readily accessible, written operating agreement is helpful for various reasons, including settling internal disputes among LLC members that may arise over profits, finances, and other aspects of the business arrangement; protecting your personal assets from potential business-related litigation; and following your own rules of operation instead of those set by state law. 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 following is the basic information that your operating agreement should include:

• Name of the LLC and its principal business address
• Duration of the LLC (in Alabama, the duration of LLCs is perpetual until terminated, dissolved, canceled, or revoked)
• Name and address of the registered agent
• Information about the certificate of formation
• Purpose of the business
• Members, including their names, addresses, titles, and contributions
• The way profits and losses will be divided
• How the LLC will be taxed
• Procedure for admitting new members, as well as outgoing members
• Management of the LLC
• Indemnification and liability clauses
• Procedures for dissolving the LLC

5. Get an Employer Identification Number and open a business bank account

Not all LLCs need a federal Employer Identification Number (EIN), but those that do are multi-member LLCs, single-member LLCs taxed as a corporation, or those that have or plan on hiring employees. But even if you’re a single-member LLC taxed as a sole proprietorship, you may choose to get an EIN instead of using your Social Security Number on business documentation, helping to protect your sensitive information. 

Regardless of how your LLC is structured, the purpose of an EIN is to help you do the following:

• File and manage taxes at the state and federal levels
• Open a business bank account
• Hire employees
• Apply for business licenses

The nine-digit EIN is assigned by the Internal Revenue Service (IRS). You can apply for your EIN by mail, fax, or online. You can also get an EIN easily with LegalZoom.

Once you have your EIN, you’ll use it to open a business bank account. Doing so helps to keep your business and personal finances separate and allows for simpler tracking of your LLC’s income and expenses. To open a business account, most financial institutions require the following: 

• EIN
• Formation documents, like a copy of your certificate of formation or a business license
• Proof of identification for account holders, like a driver’s license or passport
• Information about your LLC, including its members 

6. Keep certain LLC records on-site

Alabama LLCs must keep certain records at the principal 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, along with any amendments and executed powers of attorney for action(s) already taken
• A copy of the effective operating agreement and any amendments
• Copies of financial statements from the past three years
• Copies of federal, state, and local tax returns and reports from the past three years

7. File a Business Privilege Tax return

LLCs must file an annual Alabama Business Privilege Tax return with the Alabama Department of Revenue. Within 2.5 months of registering your LLC, you’ll need to file an Initial Privilege Tax Return (Form BPT-IN). Then, every year thereafter for the duration of the LLC, you will file the annual Privilege Tax Return (Form PPT).

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

• One copy of pages 1 to 5 of the federal tax return (if no federal tax return is included, a copy of the balance sheet and income statement are required)
• 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 after forming your Alabama LLC

Once you’ve completed the steps for how to get an LLC in Alabama, you may need to register a domain name, obtain business licenses, apply for a certificate of good standing, or set up a foreign LLC.

Register a domain name

Even if you don't think you'll need a webpage for your business right now, at the very least, you should reserve the option of having one in the future. Check if your desired domain name is available, then purchase it, through a site like Wix or GoDaddy. For an optimal customer experience, try to use a domain name that mirrors the name of your business or gets as close to it as possible.

Get necessary business licenses

All businesses in Alabama are required to obtain a Business Privilege License in every county in which they operate. The license you need depends on your industry and the type of business your LLC conducts.

Additionally, you may need to obtain city or state permits or professional licenses to operate your LLC in Alabama. Professional licenses are typically issued by the relevant agency; the Alabama Department of Revenue has a helpful chart for checking which industries require them.

Use this general permit and license checklist to learn more about the types you may need for your business. For example, if you plan to sell tangible personal property, you’ll probably need to get a sale’s tax license (also known as a seller's permit in other states).

Obtain a certificate of compliance

Although not required in Alabama, getting a certificate of compliance (also known as a certificate of good standing in other states) can help with obtaining business funding, registering as a foreign LLC, and providing proof to vendors and clients that your LLC is legally registered and up to date with state requirements and filing fees. You can apply for a certificate of compliance on the Alabama Department of Revenue’s website.

Consider a foreign LLC

If you plan on doing business in other states, you’ll need to register as a foreign LLC in the states in which you conduct business. Filing processes, paperwork, and fees vary by state, so it may be helpful to file your foreign qualification with LegalZoom’s comprehensive services.

If your LLC is registered in another state and you’d like to do business in Alabama, fill out the foreign LLC registration form and submit it to the Alabama Secretary of State. 

Annual filing requirements for Alabama LLCs

As of January 1, 2024, Alabama LLCs are no longer required to file an annual report. However, they are required to file an annual Business Privilege Tax return, which is due at the time of the business’s federal return. The amount you’ll pay is based on your LLC’s net worth apportioned to the state, with rates ranging from $0.25 to $1.75 for each $1,000. The minimum tax is $50.

Another annual filing requirement for LLCs in Alabama is the Business Privilege License, which needs to be renewed every year in the county in which your business operates. These licenses expire on September 30 each year, and renewals are due by October 31. Check with your local jurisdiction to understand what the renewal fees are for your specific Business Privilege License(s). There are typically late fees for overdue renewals.

The cost of forming an LLC in Alabama

When learning how to start an LLC in Alabama, it’s important to factor in all of the associated costs, from business registration to obtaining business licenses. Here is a breakdown of the costs to form an Alabama LLC:

• Name Reservation Certificate: $25 by mail, $28 online (one-time fee)
• Certificate of formation: $200 by mail, $208 online (one-time fee)
• Operating agreement: $0 to $199, depending on if you create one yourself or use legal services (one-time fee)
• Registered agent service: $100 to $300 (annual fee)
• EIN: $0 to $79, depending on if you use a service (one-time fee)
• Business bank account: $0 to $100 deposit is typically required to open an account 
• Business privilege tax: $50+; total rate depends on LLC’s net worth (annual fee)
• Domain name: $10 to $50 (annual fee)
• Certificate of compliance: $14 (annual fee)
• Business licenses: Varies depending on type of business, industry, and county (annual fee)
• BIOR: $0
• Foreign LLC registration: $150 in Alabama (one-time fee); fees vary in other states
• Total minimum cost: $549

How to start your Alabama LLC with LegalZoom

Now that you know how to get an LLC in Alabama, you might be wondering why some business owners wouldn’t navigate the formation process on their own. While starting an LLC without assistance is possible, getting professional and legal guidance can make each step stress free and give you peace of mind about your compliance. 

LegalZoom simplifies your LLC formation process by conducting an Alabama LLC search to ensure that your desired name is available, compiling all of the necessary state documentation, and registering your LLC so you can start growing your business instead of getting bogged down in paperwork. Whatever your budget, there is a LegalZoom business formation package that’s right for you. 

FAQs

What are the benefits of registering an LLC? 

There are many benefits of registering an LLC, including protection from personal liability, flexible tax structures and profit distributions, and management flexibility. They also involve less paperwork and fewer ownership restrictions than corporations.

Do I need a business license for my AL LLC?

Yes, all businesses in Alabama, including LLCs, need to obtain a Business Privilege License from each county in which they conduct business. The type of license will vary depending on the industry, county, and type of business conducted. Some LLCs will also need to get permits, or professional licenses, or city-specific licenses.

How long does it take to form an LLC in Alabama?

Forming an LLC in Alabama should only take up to a few days, depending on if you file your certificate of formation online or by mail. Other aspects of getting an LLC may add to the total amount of time, from conducting an Alabama LLC search to creating an operating agreement.

How do I correct filing errors in AL?

If there is an error on your certificate of formation filing, you can correct it by filing an amendment with the Alabama Secretary of State, which costs $100.

How do I dissolve an LLC in Alabama?

If your LLC can no longer operate for any reason, you may need to learn how to dissolve an LLC in Alabama. To dissolve the LLC, first, ensure that you follow the procedures outlined in your operating agreement. Then, you’ll need to file articles of dissolution with the Secretary of State, which costs $100. Also, make sure that you pay any outstanding business taxes and cancel business licenses.

Rudri Bhatt Patel contributed to this article.