Creating an LLC in Alabama can benefit your business with personal liability protection and tax advantages. Although it might seem costly and time-consuming to form a separate legal entity for your company, it’s actually easy and affordable to form an LLC in Alabama for your new or expanding business.
In this guide, I’ll break the process down into six simple steps so you can prepare to operate as a new LLC in Alabama.
6 Steps to Start an LLC in Alabama
Your business will be able to operate as an LLC in Alabama after following this straightforward process.
1. Name Your LLC
Before you can start filing documents to form your Alabama LLC, you need to choose and reserve a name for your new entity. Your business name should align with Alabama’s naming requirements for LLCs, which are fairly straightforward:
- Your business name must include the words “Limited Liability Corporation,” which you can abbreviate as “LLC” or “L.L.C.”
- Your business name must be unique. Search the Alabama Secretary of State’s database to make sure it's not too similar to the name of another business operating in the state.
- Certain words are restricted for use by registered institutions like banks or legal firms. This includes words that suggest your business is a government entity, such as “federal” or “United States.” Forbidden words specific to Alabama including “bank,” “banking,” “banc,” “engineer,” “engineering,” and “olympic.” Using them will require extra paperwork to meet regulatory requirements for these types of businesses.
Once you’ve reached a name that complies with Alabama requirements, you can reserve it at the Secretary of State website for a $28 fee.
In addition to your business’s official registered name, you can apply to use a trade name (or a DBA; short for “doing business as”). For example, you may plan to run more than one business under your LLC. Registering DBA names keeps multiple companies within a single business entity.
You must operate under a unique trade name to make it a DBA in Alabama. You can register your DBA online through the Secretary of State. The application requires proof such as business cards, labels, or brochures.
2. Appoint a Registered Agent
By Alabama law, every LLC is required to appoint a registered agent. This person or entity is authorized to receive legal documents and notices on behalf of the business.
In Alabama, a registered agent can either be an entity that offers a registered agent service, or a person (including you or an employee of your LLC). They must have an address within Alabama and be available to be on-site during office hours to accept documents.
3. File a Certificate of Formation
To officially register your LLC in Alabama, you need to file a Certificate of Formation. You can do this online on the Alabama Secretary of State website, in person, or by mail. This comes with a $200 to $208 filing fee.
The Certificate of Formation includes the following basic information about your LLC:
- Your LLC’s name
- Your registered agent’s name and address
- The effective start date of your LLC
- The signature of the organizer or attorney-in-fact (an agent authorized to act on your behalf by a power of attorney)
- An indication of whether you want to form a series LLC, professional LLC, or a non-profit LLC
- A copy of the Name Reservation certification from the Secretary of State
Once your filing is approved, your LLC officially becomes a legal business entity, beginning on the effective start date.
4. Obtain Alabama Licenses and Permits
Depending on the type of business you operate, you may need licenses and permits before you can legally start doing business in Alabama. Common examples include:
- Sales tax permit
- Zoning permit
- Food service permit
- Liquor license
- Health department permits
5. Write an Operating Agreement
An operating agreement establishes how you'll run your LLC. Typically, these documents detail basic information about your business, its management structure, and the rights and responsibilities of its members and managers.
In Alabama, having an operating agreement isn’t a legal requirement for LLCs. However,I highly recommend that you create this legal document. It can help settle potential disputes that arise in the future. In the absence of such an agreement, the courts decide how to proceed based solely on state law, rather than the best interest of your LLC and its members.
Additionally, an operating agreement can preserve your limited liability by proving that your LLC is its own business entity. Limited liability reduces your personal risk in the event of financial or legal problems within your company. If the business suffers from financial losses and debt liabilities, you will not be held responsible – only the LLC will. The same applies in the event of a lawsuit.
6. Obtain a Certificate of Existence
Once your LLC is officially formed, you can apply to the Alabama Secretary of State to receive a Certificate of Existence. This certificate proves your business complies with Alabama state requirements. It also allows your LLC access to obtain an Employer Identification Number (EIN), business licenses, and business loans.
Obtaining a Certificate of Existence is simple. Navigate to the Alabama Secretary of State website, submit some basic information about your business, and receive your certificate following a $25 fee.
The Next Steps After Forming an LLC in Alabama
Now that you've officially set up your LLC, take these steps to help protect your business and ensure it runs smoothly.
1. Apply for an Employer Identification Number (EIN)
If you plan on hiring employees for your LLC, or your LLC already has more than one member, you should get an Employer Identification Number (EIN). You can apply for one with the IRS, either online or by mail.
One-member LLCs don't legally need an EIN. However, obtaining this free number lets you hire employees, open a business bank account, and file and manage your LLC’s taxes – both at Alabama and federal levels. An EIN also helps separate personal and business finances, streamlining your finances while maintaining your limited liability.
2. Keep LLC Records on Site
Alabama law requires you to keep LLC records in its registered office so members can inspect them when needed. Required records include:
- An updated list of the full names and addresses of each member and manager
- A copy of the filed Certificate of Formation and any amendments, and executed powers of attorney for actions that have been taken
- An up-to-date copy of the effective operating agreement
- Copies of the LLC’s financial statements and tax returns for the three most recent years
3. Set Up Your Payment System
Your Alabama-based business can accept credit card payments through Pay.com. Signing up is easy, and once you’re all set, you can use our quick no-code solutions to create a checkout page for your website. Alternatively, you can use our developer-friendly API to embed our checkout components into your existing system.
If your business doesn’t have a website, you can send customized Pay Links by text or email to send clients directly to a checkout page.
The Pay Dashboard gives you complete oversight of all your payments and transactions in a single place, along with the ability to generate custom reports from real-time data.
The Bottom Line
The process of setting up an LLC in Alabama is fairly straightforward once you understand the requirements, and the benefits are well worth the effort. Running an LLC limits your personal liability for debts and lawsuits, without adding extensive operational requirements or corporate taxes.
Your business can sign up with Pay.com to start accepting credit cards, digital wallets, and many more payment methods. We provide industry-leading scalable solutions with a transparent rate structure. You benefit from our Level 1 PCI DSS compliance with no hassle on your part.