LLC in Alabama: Everything You Need to Know
Starting an LLC in Alabama is like starting an LLC in any other state with a few exceptions. 8 min read
LLC in Alabama
Starting an LLC in Alabama is like starting an LLC in any other state with a few exceptions. You need to come up with a name for your LLC, register with the state, obtain proper permits and licenses, designate a Registered Agent, setup your tax filing system, and get an EID for tax purposes.
Steps to Start an LLC in Alabama
In order to start a Limited Liability Company in the state of Alabama, you will need to name your new company, appoint an agent to deal with the legal matters surrounding your company, file for a certificate of formation, create an operating agreement, and sign up for an EIN, otherwise known as an Employee ID Number or a tax ID number. It’s important to note that an LLC is only one type of business structure. You might decide that another business structure is right for you and your new company such as a sole proprietorship, a corporation, or a partnership. Take some time to learn about the benefits and disadvantages of these different business structures. An LLC is one of the most popular options as it comes with numerous tax breaks and requires less paperwork.
If you decide to go with an LLC, you will need to incorporate some version of the language into the name of your business such as “XYX LLC” or something of that nature. You might want to consult the expertise of an attorney, a legal adviser of a business consulting firm as you make some of these important decisions right out of the gate. Sit down with your team and talk about what kind of tax filing system and structure will best help you achieve your goals.
Preparing to Create Your Alabama LLC
Before you execute on your new business structure, you need to make sure that you understand exactly what you’re getting into, including the legal framework for establishing an LLC. The words limited liability means that you, the owner or owners, will be held liable for your company’s finances only to a certain extent. You will not be held personally responsible for any lawsuits that might occur in the future or any debts that you might take on. If your business were to fail, you would have to dissolve the LLC without it negatively affecting your personal finances.
Filing for taxes as an LLC is another complicated issue. If you don’t have a lot of expertise in this area, you might want to consult with a tax lawyer. As a general rule of thumb, the owners will report their personal earnings from the company on their individual tax forms. This will be taxed as personal income. If there are multiple owners running the business, they will have to divide up the earnings and report them individually on their tax returns.
You will also need to consider incorporating self-employment taxes into your tax structure. As the owners of the company, you will not see any automatic deductions from your paycheck for things like social security, Medicare or any other social services. You will have to calculate these costs on your own and pay the federal, state, and local government accordingly after the end of the year. Budget for at least 15 percent of your earnings going towards self-employment taxes. If you neglect to pay some of these taxes, you will not be eligible for certain benefits such as disability, social security, or workers compensation.
First Step: Name Your LLC
The first thing you have to do before you start an LLC in Alabaman is to come up with a business name and register with the state. If you already have a name in mind, you will need to do some research to make sure that this name is still available. Head over to the Alabama Business Services page to register your name with the state. You will get an error message if the name you have chosen is currently in use. You might have to make a few changes to the name to accomplish this step. Lastly, don’t forget to add the term “LLC” at the end of whatever name you choose.
You also want to come up with a name that does your business justice. What is the main idea behind your business? The name should instantly convey the message behind your business to consumers and investors. It should be catchy, simple and meaningful. Take a few moments to test out your new name on Google. Do a quick search of the name and see what comes up. You should have a unique name that’s easily searchable online, so that your customers can find you online.
If you want to complete the name registration process online, you will need to pay $28 fee on the state’s website. You can also register your name by mail. In order to do this, you will need to download the application in PDF form off the state’s website, print it out at home or work, and fill everything out. Mailing the document should only cost you about $10. You can also pay an extra fee if you want the application processed in the next 24 hours.
Now that you’ve come up with a name, you might want to consider establishing a domain for your company’s future website. Even if you’re months away from building a website, you should check to see what kinds of domains are still available. You can always reserve the domain now and build the website later. Go online and see if the domain you have your eye on is still available.
You might also want to consider setting up a professional business email. This might be [email protected] or some variation of this. Having a professional email going forward will help you make the right impression as you start setting up your new business. Setting up a free email account with Gmail also gives you access to free cloud storage space and Google Docs, which will come in handy if you need to collaborate on documents with the rest of your team.
Second Step: Choose a Registered Agent
Now it’s time to choose what’s known as a Registered Agent for your company. This person is responsible for receiving and sending important legal information to the state, local or federal government on behalf of your business. You can choose yourself or someone that you trust such as your partner or one of your first employees. According to Alabama state law, this person must be a resident in the state or associated with a business that’s licensed to do business in Alabama.
Third Step: File the Certificate of Formation
The state also requires that new LLC’s file the official Certificate of Formation. This is a legal document that recognizes your business as an official LLC of the state of Alabama. You can download the form on the state’s website and fill it out at home. You will need to turn in one copy signed in ink and two extra copies, as well as any other additional attachments that might be required. You will also need to correspond with the Probate Judge to make sure that you have paid all the fees associated with forming an LLC. Again, you can pay extra to have your application expedited. Otherwise you might have to wait up to 6 months before you will get approved.
The Probate Judge will evaluate your application accordingly. If everything is filled out correctly, the judge will pass along your application to the state’s Secretary of State. You can find your local Probate Judge by county on the state’s website.
Overall, your Certificate of Formation should include basic information about your LLC including its name, the owners, its address, purpose and intent, information regarding the Registered Agent, additional members of the LLC if any, confirmation that all parties understand and agree to comply with the state’s terms and conditions, as well as the process in which the LLC may be dissolved in the future.
Fourth Step: Create an Operating Agreement
Most new businesses will want to create what’s known as an Operating Agreement. This is a legal document that outlines the basic ownership structure and operating procedures of your company. While the state does not require an Operation Agreement, it’s always a good idea to take this extra step. You can submit this document along with your Certificate of Formation. This is also a good opportunity for you and your partners to sit down and decide how the company will be operated, who owns what, and how the company will be managed going forward. Hopefully, you and your partners are on the same page when it comes to ownership and management. If you are the sole owner of your company, you will own 100 percent of the business.
Fifth Step: Obtain an EIN
It’s also important to sign up for an EIN or Employee ID Number or Tax ID Number. This is how the state will recognize your company for tax purposes. You will have to register for an EIN with the Internal Revenue Service. You might also need an EIN if and when you open a bank account for your business.
Identify the LLC Members
As you fill out all these necessary forms with the state, you will need to identify all the members and owners of your LLC. This might just be yourself if you are the only member of the LLC. If you have multiple partners, you will need to agree on how to best break up the profits as you begin bringing in some revenue. You also need to decide how to pay for your startup costs. Every needs to agree on these terms before you can proceed with your LLC in Alabama.
Familiarization of Legal Obligation
Starting an LLC in the state of Alabama takes a bit of legal knowhow. If you’re not an expert on some of these matters, you might want to consult an attorney. Before you open your doors, you need to make sure that you have complied with all the state’s legal obligations including state and local taxes, income reports, LLC registration forms and other legal documents.
Spend some time reading up on the state’s legal obligations for LLC’s. This will give you a better idea of what to expect going forward. Pay attention to the Alabama Business Privilege Tax return. You will have to submit this document during tax season along with your annual renewals.
You need to file with the state’s Department of Revenue at the beginning of the first tax year or within the next 3.5 months. Make sure that you submit all the necessary forms during tax season. This will include any deductions that you want to claim, the Alabama appointment schedule Form 65, the balance sheet that lists the company’s finances and the owner’s net worth, the Alabama Form BPT-IN, which needs to be filed within the next 2.5 months after starting the LLC.
Special Alabama Rules on Professional Services
If your LLC is going to provide certain services to the public, you can only choose one service to provide. This must be the organizing principle around your LLC. All the owners must have an appropriate license to perform these services in the state of Alabama.
Foreign LLCs Doing Business in Alabama
If your business originated outside the state of Alabama, you will need to register as a Foreign LLC in order to business in the state. You must have a registered agent or business location in the state. There are different forms for Foreign LLC’s. You will have to fill out these forms and register with the state’s Secretary of State.
There is a lot of legal documentation that goes along with starting an LLC in Alabama. Make sure that you are doing your homework and filling out each of these forms correctly. It pays to do things right the first time instead of getting rejected by the Alabama Secretary of State.
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