When running an LLC, Alabama has certain procedures that must be followed. Here are the steps to follow to successfully create and run an LLC.

Preparing to Create Your Alabama LLC

A limited liability company, also known as an LLC, is a type of business that reduces the owners' financial liability. The owners of the LLC, also known as members, won't be personally liable for any debts or lawsuits that the company incurs. If you want to form an LLC, it's smart to talk with a tax professional to make sure the proper steps are followed.

An LLC has certain tax considerations. The owners will report any income from the LLC on their own tax returns and will need to pay self-employment taxes. A tax professional can tell a company if an LLC is the best option for them.

Single-member LLCs will put any profits and losses on the Schedule C, and income will be reported on Form 1040. If there are multiple members in an LLC, income will be split between all members on IRS Form 1065. This will be reported on Form 1040 as individual income.

Taxes will not be automatically be deducted from a member's paycheck. Cash draws can be taken from the business or employees pay themselves wages, but self-employment taxes will need to be calculated and paid separately. Self-employment taxes will be reported on IRS Schedule SE. It's smart to budget approximately 15 percent of the wages employees pay to themselves as their self-employment tax.

It's required that every employee pays their self-employment taxes to contribute to disability and Social Security. If the employee has not paid enough in self-employment taxes and he or she gets injured, they might not be eligible for Social Security Disability insurance.

Name Your Company

LLC naming requirements can be confusing. The easiest way to make sure your LLC name will be approved is to make it stand out from other local businesses and have certain required words. In addition, certain words are restricted without extra paperwork, such as attorney, bank, and university. In order to use these words, a licensed professional, such as a lawyer or doctor, must be a member of the LLC. Some words are strictly prohibited, such as secret service, FBI, and treasury. This is because they would cause the public to confuse the LLC with a state or federal agency.

Once a name has been selected, it must be reserved by filling out the name reservation request through the mail or online with the Alabama Secretary of State.

The steps to complete the name reservation request are as follows:

  • Select "name reservation."
  • Choose "non-subscriber" in the middle of the page to finish the form.
  • Pay the fee of $28.

To mail the form, download the form in PDF version and follow the listed instructions. It costs $10 to mail in the name reservation form in Alabama. The company should verify that the name of the LLC that they want is available so they can reserve it. Even if they don't plan to make their website soon, they should buy a domain name now so no one else can get it.

Identify the LLC Members

One person can be a member of the limited liability company. It's not necessary to have a partner to set up an LLC in Alabama. However, if there are multiple partners, they need to agree on how the expenses and profits will be split, what the percentage of ownership will be, and other applicable duties.

Every member will need to be responsible for the income from the LLC on their taxes. No one should be made a "ceremonial" member. The only members are those who have a direct claim in the business.

Choose a Registered Agent

A registered agent is defined as a business or person who will send out and receive any legal papers on the LLC's behalf. These papers include state filings and service of process of legal action in the event that the LLC is sued. The registered agent needs to be a resident of a corporation who has been authorized to do business in Alabama or a resident of Alabama.

If you need help forming an LLC in Alabama, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.