Forming an LLC in Alabama will help protect your personal assets from lawsuits and judgments against your business. An LLC is a legal structure that separates your business and personal assets. By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company. Forming an Alabama Limited Liability Company does not require an attorney and you can save a lot of money if you do it yourself with the six simple steps below.
Before getting into the six steps here are a few things to know about forming an Alabama LLC.
How Much Does It Cost to Get an LLC In Alabama?
Minimum of $150.
Alabama has a different filing fee structure from most other states. In most states, LLC formation is handled only at the state level by the Alabama Secretary of State or similar entity. In Alabama however, LLC formation is routed through the County Probate Judge for the county in which the LLC’s registered agent is located in addition to the Alabama Secretary of State. The minimum county probate judge fee is $50, but in some counties, it is higher. Here is the list of probate judges by county.
The county probate judge then forwards your Alabama Certificate of Formation to the Alabama Secretary of State.
The Secretary of State charges a $100 filing fee in addition to the probate judge fee. Expedited filing costs an additional $100.
Alabama Annual Report and Annual Fees
Annually, Alabama requires an LLC to file an annual report, Alabama Business Privilege tax return, and renewal fee. The minimum tax is $100.
- Minimum Number – one or more
- Members/Managers- at least one is required to be listed in the Certificate of Formation
- Residence Requirements – none specified
- Age Requirements – none specified
In addition to forming your Alabama LLC, you will need to check for licenses and permits.
Steps to Forming an Alabama LLC
Step 1. Name Requirements
Your corporate name must end with the words Limited Liability Company or an abbreviation of these words (L.L.C. or LLC). Check out our article on naming your LLC for all of the requirements that you must follow when naming an LLC.
Now that you have the perfect name, you want to be sure nobody else is using it as each state requires a unique name per LLC or Corporation. To check if your name is being used, visit our page to do a free LLC name search in Alabama.
Step 2. Choose a Registered Agent
The registered agent must have a physical presence in Alabama but may be an individual resident, domestic or foreign corporation authorized to transact business in Alabama. The registered agent must also have a physical address in Alabama and a Post Office Box or Drop Box is not acceptable. If the registered office includes a suite number, it must be included in the registered office address.
Check out our article on LLC Registered Agents for more details.
Step 3. File the Certificate of Formation
This is the most important step and many people believe that you need an attorney to file. While we don’t discourage having an attorney, filing for an LLC can be done by most people, but you can save considerable money over an attorney and make sure everything is filed correctly by using a formation service such as Swyft Filings.
Alabama does things a bit differently than many other states. Instead of registering your Certificate of Formation at the state level (with the Secretary of State), you need to register your LLC at the county level (with the Probate Judge).
You’ll need to send 2 separate checks (or money orders). One to the Secretary of State for $100. And one to the Probate Judge. The fees vary among the Probate Judges (there are 67 of them but the average is $50) – County Probate Contact Information
Click to download the Alabama Certificate of Formation
Step 4. Create an Operating Agreement
An operating agreement is not required in Alabama but is typically a good idea, especially for an LLC owned by multiple people. The primary function of the operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the LLC.
Step 5. Get an EIN
What is an EIN? The Employer Identification Number (EIN), or Federal Tax Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.
In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:
- Opening a business bank account
- Federal and State tax purposes
- The business account to pay payroll taxes for employees paid by the company
To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form. They show the steps on how to apply, but here is a video on how to apply for an EIN for more details. In about five minutes, you will have your number free of charge. Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.
Step 6. Select the Tax Status of the LLC
One of the advantages of an LLC is the flexibility in taxation as there are four ways an LLC can be taxed, compared with two ways for a corporation.
- Single Member LLC- An LLC with one member automatically becomes a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment tax on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
- Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form1065.
- C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. The major difference as an LLC that is taxed as a C corporation is that now the LLC pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation as more costly as now the LLC has double taxation where there is a tax on the profits and dividends.
- S Corporation LLC – To get S Corporation status, you will file Form 2553 with the IRS. What makes the S Corporation attractive unlike the sole proprietorship or partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t typically subject to self-employment taxes which is a large potential savings. There will be more work in accounting an LLC that elected S Corporation status.
Each of the four ways for an LLC to be taxed in Alabama can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one is most efficient for the business and members.
Don't want to go it alone but don't want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost. Take a look at our comparison page of popular LLC formation services.
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