Starting a Business in Alabama: Everything You Need to Know
Starting a business in Alabama involves working with the Alabama Office of Small Business Advocacy, which guides entrepreneurs in creating their business.3 min read
Starting a business in Alabama involves working with the Alabama Office of Small Business Advocacy, which guides budding entrepreneurs to get their business off the ground.
Before starting, aspiring business owners should consider Alabama's requirements for setting up a business in the state. Alabama's Secretary of State and Department of Revenue can guide individuals through the business licensing process.
The first step to turn a business idea into a reality is writing a business plan. Defining your business idea and its requirements on paper will help you determine if your business idea will thrive.
If you do not know your target market, selling products or services will be a challenge. If you do not write a convincing business pitch, you may not get the funding you need. Not creating a sales forecast hurts your success, since you don't know if you're on the right track. A business planning software is a great tool and resource for getting organized, distilling your business ideas, and sorting out the details.
Getting your business registered is required to protect your business legally. This means figuring out the type of business structure you need, which could be
- A sole proprietorship,
- A C corp,
- An S corp, or
- An LLC (limited liability company).
This is one of the simplest forms of business structures in the state, and it's meant for sole owners of Alabama-based businesses. Registering with the Secretary of State is not required; however, registering a DBA (trade name) is advised. If owners plan on hiring employees, they must obtain an EIN from the IRS.
A sole proprietorship is not a recommended business structure because the business owner is responsible for the business' liability. Your business is automatically classified as a sole proprietorship if you are the owner and sole employee, and you do not register with the Secretary of State.
Similar to a sole proprietorship, this type of business structure does not require registration with the Alabama Secretary of State. It doesn't offer any form of liability protection, meaning that owners are personally responsible for the business' debts. For general partnerships, owners must get an EIN and register a DBA (trade name.)
The Benefits of an LLC
LLCs are the most popular type of business structure because they allow business owners to enjoy the benefits of a corporation without the double taxation. LLCs are taxed as a disregarded entity, meaning that owners are allowed to file their business tax returns on their personal tax return. You should also note that LLCs are flexible entities. Individuals can elect to be taxed either as a C-Corp or an S-Corp.
Creating an LLC in Alabama requires the filing of a Certificate of Formation through the Office of the Judge of Probate in the county where your LLC's initial registered office is located. You must also appoint a registered agent to handle official business documents and proceedings on your company's behalf.
Although this is not a requirement, it is best to prepare a provision/operating agreement that establishes how the LLC will operate.
An S-Corp is much more formal in structure, allowing for corporate officers, a board of directors, and up to 100 shareholders. For tax purposes, an S-Corp is regarded as a pass-through entity. This means that the business itself is not taxed - only the shareholders are. The S-Corp is the preferred option for outside investors and IPO.
Similarly structured as S-Corps, C-Corps have the added benefits of having an unlimited number of shareholders; however, both the shareholders and the company are taxed.
C-Corporations are more formal than LLCs, but they provide a similar level of limited liability protection to their owners. In the state of Alabama, C-Corps must have by-laws and maintain the minutes of their meetings in their corporate records. A C-Corp is the preferred business structure when setting up large companies or seeking major funding from investors.
Requirements for setting up a Corporation in Alabama
Creating a corporation in the state of Alabama requires the filing of Articles of Incorporation with Alabama's SCC. Appointing a registered agent is also required for service of process. Establishing internal operating rules and bylaws for your corporation is advised, but not required by the state.
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