Are you considering setting up an LLC in Alabama? BetterLegal has developed a complete yet concise guide to help you through the process through our years of experience. The five critical steps to properly set up an LLC in Alabama in order are:
Prepare by choosing a Name and Registered Agent
File Certificate of Formation with the State of Alabama
Apply for an EIN with the IRS
Obtain an Operating Agreement
Handle Ongoing Alabama Compliance and Maintenance
An LLC (Limited Liability Company) is a fairly new business structure which combines the best aspects of two older structures.Corporationshave existed since before the US existed, but require heavy maintenance such as quarterly meetings with officially recorded minutes, board approval and distribution of ownership, and more. On the other side of the spectrum is a sole proprietorship (or partnership if more than one person) that possesses tax benefits, but doesn't provide the owners with liability protection.
Combining the liability protection of a corporation and the tax benefits of a partnership, LLCs were created and slowly adopted by all 50 states between 1977-1998. This means that, as the owner of an LLC, you are not personally liable for any debts or obligations of the business. This can be a crucial safeguard for a sole proprietor, as transitioning to an LLC protects your personal assets, such as your home or savings, in the event that the business is sued or faces financial difficulties.
In addition to liability protection, an LLC helps establish credibility for your business. When you officially register your business as an LLC, you are signaling to the public that you are a professional and legitimate operation. This is especially important for a sole owner of a business as customers have more options than ever and are more likely to choose a company that feels more trustworthy. Any credibility you can build with your future customers is extremely important.
The first step in setting up an LLC in Alabama is choosing a name for your business. The name you choose will represent your company and be used on all official documents, so it's essential to take the time to carefully consider your options.
It may seem tempting to have a very specialized name like "Irene's Alabama Ice Cream." However, if you're still iterating on your business offering or may expand, a somewhat generalized name may work in your favor. Don't fret too much as you can always change a Alabama LLC's name or use a nickname by filing a Alabama DBA. More on those post-formation options can be found underStep 5: Changes and Maintenance.
It's important to choose a name that is unique and not already in use by another business. You can use theAlabama Secretary of State's name check serviceto verify the availability of your desired LLC name. If you are having trouble accessing the name check service, you can also call the Alabama Secretary of State.Call (334)242-5324 for assistance.
When choosing a name for your LLC, it's important to keep the following guidelines in mind:
LLC name must contain the words "Limited Liability Company" or the abbreviation "L.L.C." or "LLC". [10A-1-5.06]
Names containing the words: "bank," "banking," "banker," "trust," "insurance," "insurer," "engineer," "architect" or any abbreviation of such words cannot be used. Go tohttps://www.sos.alabama.gov/business-entities/business-downloadsto complete a request and follow the instructions on the form. This cannot be processed online.
Requests with the words, "Bank" or "Trust" in any form may not be used.
Only engineers licensed by the Alabama Board of Engineers & Land Surveyors are allowed to use the word "Engineer" or its derivative.
When choosing a name, it's also important to consider available domain names and social handles. One of our early customers ownedaustineventcollective.comas well asaustineventcollectiveacross every social platform. Unfortunately, someone in Texas already had a registered "Austin Event Collective LLC" and rejected her filing.
If you’re not ready to file, it is possible toreserve your Alabama LLC's namebefore officially registering your LLC with the Alabama Secretary of State. Please note that this is an additional and separate cost from officially filing your LLC and only holds the name, so you have to decide whether reserving a name for a few months is a better option than simply setting your Effective Start Date for the future (more on this in Step 2).
The next step in setting up an LLC in Alabama is choosing aregistered agent. This person or entity will be responsible for receiving official mail from the State of Alabama and legal documents on behalf of your business.
Must be located in Alabama Note: PRINCIPAL OFFICE AND REGISTERED AGENT ADDRESS MUST BE IN THE SAME COUNTY
It's worth noting that thisinformation is considered a public recordand may be accessed by anyone. This means that anyone can view the names and addresses of themanagers or membersof your LLC by requesting a copy of your Certificate of Formation from the Alabama Secretary of State. If you are concerned about privacy, you may want to consider using a third party to act as a registered agent for your LLC rather than using your own personal information. This step helps protect youroperator's and owner'sprivacy and shield your personal information from public view.
There are countless options for Registered Agent Service, but we believe BetterLegal provides the best value.Click here to sign up.
Some additional guidelines in Alabama for Registered Agents: The Registered Agent may be an individual or a registered entity in Alabama.
While you (or a friend or family member) can be your LLC’s Registered Agent, you may not want to have a home address listed on public record.
The information you enter in your Certificate of Formation (including the Registered Agent’s address) becomes public record with the Alabama Secretary of State.
BetterLegal has helped tens of thousands of business owners across the US set up their LLC. Sign up today to start yours!
Once you have chosen a name and registered agent for your LLC, you'll need to file the Certificate of Formation with the Alabama Secretary of State for a fee of $225 which is non-refundable and provide a digital, scanned, or wet signature of the organizer.
- Online - Go tohttps://www.alabamainteractive.org/sos/and fill out the online form to form LLC.
- Mail a) You must obtain a Certificate of Name Reservation prior to filing your formation documents —https://www.sos.alabama.gov/sites/default/files/2022-09/domesticEntityNameReservation.pdf*Include a check, money order, or credit card payment for the $25.00 processing fee. b) Use this form -https://www.sos.alabama.gov/sites/default/files/2022-09/DomesticLLCFormation.pdf*Include a check, money order, or credit card payment for the $200.00 processing fee. (3) Mail to 2 copies to: Alabama Secretary of State P.O. Box 5616, Montgomery, Alabama 36103
If filing online: You may use credit or debit card
If filing by mail: You may use check, prepaid account, or credit card
The turnaround time for LLC formation in Alabama is advertised by the Secretary of State as one (1) minute after payment if it was submitted online. A copy of the filed document becomes available for download after the payment page. Take note that you must download it immediately since filed documents are not easily accessible online. Meanwhile, if you submit the LLC application by mail, it can take up to four (4) to seven (7) business days. Keep in mind that this can take longer based on state examiner’s workload at the time of filing. BetterLegal's internal experience with Alabama is twenty-four (24) hours from the time of payment receipt, as long as the filing request was received during BetterLegal's operating hours (Monday to Friday from 9 a.m. to 7 p.m. EST). Expedited services are not available for Alabama LLC formation.
Please note that the Secretary of State's office in Alabama is closed on weekends and state holidays. The office is open from 8:00am to 5:00pm, Monday through Friday.
Also note, that you should not apply for an EIN (Step 3) until Alabama has approved and delivered your Certificate of Formation in case your LLC's name is rejected.
If you want to set a future "start date" for your LLC, this the date when you submitted your LLC application or a future effective date that may not be more than ninety (90) days from the date of filing. in the State of Alabama.
In Alabama, you're required to provide Manager/Organizer addresses, Initial registered agent office, Principal office information
Note: PRINCIPAL OFFICE AND REGISTERED AGENT ADDRESS MUST BE IN THE SAME COUNTY If you want your address information to be private rather than public record, make sure your Registered Agent allows for all addresses. BetterLegal's $90/year service provides full privacy.
State's Mailing Address:May be different from the listed initial registered agent address/principal office
The Manager's Information section of your LLC's Certificate of Formation may include the names and addresses of the managers or members of your LLC. Here is extra information Alabama will want to know about your Managers:
Manager's Name - It may be an individual or non-individual manager. Members and managers may be individuals, partnerships, corporations, and any other type of legal entity. However, for non-individual managers, there must be an authorized representative to sign the LLC's articles of organization.
Manager's Address - This may be a business or post office box address, especially if privacy concerns are an issue. Note that a document on file with the secretary of state is a public record that is subject to public access and disclosure.
After the Certificate of Formation has been filed and accepted by the Alabama Secretary of State, the LLC is officially formed. Here's what Alabama will provide back to you based on your method of submission: If filed online, documents may be downloaded right after the payment page.
If filed by mail, documents will be returned by email.
The official deliverables will include: the following document:
- Four-page document, consisting of a plain copy of the approved Articles of Organization (approximately three pages) and Certificate of Organization.
You should keep a copy of the Certificate of Formation for your records and use it to open a bank account, apply for business licenses, and conduct other business.
If your filing is rejected, you'll receive information from the Alabama Secretary of State explaining the reason for the rejection. You can then make the necessary corrections and resubmit your documents.Regardless whether filed online or by mail, the document must be refiled since fees are non-refundable
Non-refundable fees (rejected filings can be refiled anytime)
Obtaining an Employer Identification Number (EIN) is a crucial step in starting an LLC in Alabama because banks require it to open a business bank account and the IRS requires it to pay taxes. So if you plan on making money, you'll need one. You don't need to employ anyone to need an EIN, it's simply a poor name choice by the IRS for what is essentially your LLC's Social Security Number or Tax ID.
An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS)to identify a business for tax purposes and formatted as 12-3456789. EINs are free to get from the Internal Revenue Service's website, but can be tricky if you're not careful when answering their questions.
An EIN is a Tax ID for the federal government, it is not your Tax ID for the State of Alabama.
Here are some key points to keep in mind when obtaining an EIN for your LLC:
- A Sole Proprietorship'sEIN cannot be transferredto your Alabama LLC.
- A Manager or Member must provide their personal information to link the EIN to your Alabama LLC.
- You cannot use an existing business' information for an EIN since a business doesn't have a Social Security Number.
- If you're not a US citizen that is in possession of an SSN, you will need to first obtain an ITIN before applying for an EIN through a paper filing.
- Once the EIN is obtained, it must be included on all federal tax returns and other documents that require the business's tax identification number.
- Keep a copy of the EIN confirmation letter for your records.
It's important to note that the EIN is for tax purposes only and does not give any rights or privileges to the holder.
The turnaround time for an EIN is instant and the fee is $0. However, the IRS’ website that generates EINs only works normal business hours EST, so it’s a good idea to plan ahead if getting this item is time sensitive. Also note,that you should not apply for an EIN until Alabama has approved and delivered your Certificate of Formation in case your desired business name is rejected.
An operating agreement is an important document for any LLC, as it lays out the rights and responsibilities of the members (owners), as well as the management structure of the LLC. It's not a mandatory document filed with the State of Alabama, but it's highly recommended to have notarized as it can help prevent disputes and misunderstandings among members later on.
While it's your preference to decide whether the Alabama LLC is manager-managed or member-managed, BetterLegal prefers to set up LLCs as manager-managed since an individual can be both a manager and a member. If a manager/member wants to become passive at a later stage of the company and the Operating Agreement is set up as member-managed, then it opens up a can of worms that could have been avoided by retaining the separation of duties from the beginning.
Here are some key points to keep in mind when creating an Operating Agreement for your LLC:
- Identify the members of the LLC and their respective ownership percentages.
- Outline the decision-making procedures, such as how many members must be present for a meeting to be considered quorate and how many votes are required to pass a resolution.
- Specify the process for admitting new members or removing existing members.
- Include information about how profits and losses will be distributed among members.
- Set out the procedures for amending the Operating Agreement and dissolving the Alabama LLC.
This is an important document for a Alabama Limited Liability Company and is too often overlooked or skimped on. If setting up a single-member LLC, be wary of professionals that charge hundreds or thousands of dollars for a single-page document. We have seen attorneys charge $3500 for a simple document providing zero ability for supporting multiple owners in the future. While you may start as a sole owner, that may not always be the case. It's best to plan ahead during these early phases before the grind of entrepreneurship sets in.
We've also seen instances where an individual helping with the business early on later claims ownership upon the business' later success.Never refer to someone paid or unpaid as a "partner" in public, especially if you don't have a signed and notarized Operating Agreement in place.
If you're setting up your Alabama LLC on your own and need an Operating Agreement, BetterLegal can provide one for a reasonable fee.
The Operating Agreement should be reviewed periodically and updated to ensure that it accurately reflects the current state of the Alabama LLC.
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As an LLC in Alabama, you'll need to comply with certain Alabama regulations.
This includes, but not limited to:
Can I file an LLC in Alabama myself?
You can file an LLC in Alabama yourself by visiting the Alabama Secretary of State's website and submitting the necessary paperwork and fees. The process involves filling out the Certificate of Formation and paying a filing fee. Additionally, you will need to choose a unique name for your LLC and appoint a registered agent for your business. Once you have completed the necessary steps and paid the filing fee, you can submit your application to the state for review and approval.
How much does it cost to file an LLC in Alabama?
The cost to file an LLC in Alabama is $225. This fee is for filing the Certificate of Formation with the state and is non-refundable. You may also need to pay additional fees for obtaining a registered agent or for expediting the processing of your application.
Can you file an LLC in Alabama for free?
No, there is a fee to file an LLC in Alabama. The fee for filing an LLC is $225 and is non-refundable. You may also need to pay additional fees for obtaining a registered agent or for expediting the processing of your application.
How fast can you get an LLC in Alabama?
The turnaround time for LLC formation in Alabama is advertised by the Secretary of State as one (1) minute after payment if it was submitted online. A copy of the filed document becomes available for download after the payment page. Take note that you must download it immediately since filed documents are not easily accessible online. Meanwhile, if you submit the LLC application by mail, it can take up to four (4) to seven (7) business days. . This turnaround can take longer based on state examiner’s workload at the time of filing.
Can I file for an LLC in Alabama Online?
Yes, you can file for an LLC in Alabama online through the Alabama Secretary of State's website. The process involves filling out the Certificate of Formation, choosing a unique name for your LLC, and appointing a registered agent. Once you have completed the necessary steps and paid the filing fee, you can submit your application to the state for review and approval.
What is the minimum number of members in a Alabama LLC?
The minimum number of members in an LLC is one. An LLC can have any number of members, and the members can be individuals or other entities such as corporations or other LLCs.
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