Last Updated on June 13, 2022 by Fair Punishment Team
Starting up an LLC can be quite an exciting process, but it can also be highly difficult. The process needed to establish an LLC can differ quite greatly from state to state and isn’t always very simple to undergo.
Starting up your own LLC will depend on where in the United States you are located.
If you’re in the state of Alabama, and you’re wondering how you can start up your own LLC, then you should make sure to read on down below, because we are going to take an in-depth look at how you can do it safely!
What Is An LLC?
An LLC refers directly to a Limited Liability Company, which is a form of business that allows the owners of the business to protect themselves from being responsible for their debts.
An LLC is actually another form of a private limited company, which is a type of company that is not publicly listed and is owned entirely by one person or a group of people.
Why Start An LLC?
Starting up an LLC can be highly beneficial, especially because they help to protect the owners of the company from being liable for debts. As well as this, LLCs prove to be incredibly attractive to solo business owners, because they prove to be so incredibly flexible.
LLCs are very different from corporations and do not depend on shareholders to keep the company afloat. This means that, for companies that are owned by just one owner, the owner can expect to see more of the profits, without having to dole them out.
How Do You Start An LLC In Alabama?
If you’re planning to start up your own LLC in Alabama, then you are going to need to make sure that you conform to local corporate laws to ensure that your new company is compliant and legal. Read on below to find out the steps you need to take.
Step 1 – Choose A Name
Your LLC is not going to get very far without a name, so you are going to want to start by securing one. In order to secure a name for your LLC, you will need to contact the Secretary of State and reserve your name.
This will start a process by which the name you have chosen will be checked for availability. It generally takes around a few days, costs $28, and you will receive a response immediately upon the process concluding.
If that option does not work for you, then you can also instead choose to mail a “Name Reservation Request Form for Domestic Entities”, with a $25 fee to the secretary of state.
When you are choosing a name, it is important that you conform to the standards set out for LLCs under Alabama law.
Generally, if you are choosing a name for your LLC, you will need to ensure that it has the words “Limited Liability Company”, “LLC”, or “L.L.C.” contained within it.
This is because Alabama law states that LLCs need to make their intentions clear and declare that they are LLCs within their names.
Step 2 – Get A Registered Agent
The next key stage in starting up your LLC in Alabama is to acquire a Registered Agent. A registered agent refers to a person who is designated with the responsibility of receiving official papers and keeping all important documents in order.
A registered agent is especially key in case the LLC is sued by someone. In such a case, the registered agent will have command of the company’s legal papers.
The registered agent can be any agent the LLC chooses, provided the agent has some ties to Alabama in some way. For instance, businesses or individuals that reside in Alabama are preferred, but businesses that operate out of state but have an office in Alabama can also qualify.
Step 3 – File The Articles Of Incorporation
The next step will involve you filing official documents to have your business be officially recognized under Alabama law. In order to do this, you will need to file a “Certificate of Formation”. This is a document that is sent to the Office of the Judge of Probate.
The judge of probate is responsible for making the final decision on whether the company should be processed by the secretary of state.
In order to file the document, the Probate Court will first look over its contents, and after you have paid an appropriate fee, and the probate court has accepted the document, it will finally be sent onward to the secretary of state.
There are certain things that need to be included within the document. These are as follows:
- The name of the LLC.
- The LLC’s registered agent’s name and address.
- The type of LLC that the company is (Series LLC, Professional LLC, Non-Profit LLC).
- The commencement date of the LLC.
- The signature of the LLC’s attorney or organizer.
When sending the documents over, you must also make sure that you have attached your Name Reservation document too.
When you do send off your documentation, you can expect to pay a filing fee of $200 for the secretary of state, and around $50 for a filing fee for the probate court.
Step 4 – Create Your Operating Agreement
Luckily, this is one step that is actually not required in the state of Alabama, unlike in some other states but is one we highly recommend undergoing, as it will ensure that your new LLC runs smoothly from the very start.
An operating agreement is an internal document that makes clear how exactly you will be running your LLC. This ensures that the company goes off without a hitch and can get right to work.
It also ensures that every person involved with the LLC is treated fairly and that every person’s role is clearly outlined so that there is no confusion and thus less chance of error.
Choosing not to outline an operating agreement is a valid choice, as it is not required by Alabama law, but it will mean that how the LLC is run will be governed entirely by LLC law in the state.
Step 5 – State Tax Returns
Under Alabama law, LLCs are required to file a “Business Privilege Tax Return” and an “Annual Report” every year with the Department of Revenue.
It is crucial that you sort out the documentation for this before starting out with your LLC so that you do not stumble at the first hurdle and find your company incurring a hefty fine! LLCs are also required to pay around $100 of tax every year.
It is also crucial that you register with the Alabama Department of Revenue if you plan to sell goods or hire employees at your LLC. Luckily, this can be done very easily via the forms that can be found on the My Alabama Taxes website!
Step 6 – EIN Number
Don’t worry, because we are making very steady progress towards finally opening your LLC. For now, at this step, you will need to ensure that your LLC has a valid EIN Number.
An EIN number, or an “Employer Identification Number” is a number that is used by the federal tax bureau to identify your company.
This is important as, without it, your company cannot comply with Alabama laws, especially laws regarding taxation. If your LLC is required to file separate tax returns, then it is also required that you register for an EIN number.
Luckily, filing for your EIN number is very easy, thanks to the fact that it can be done entirely via the IRS website, and that there is no filing fee whatsoever.
Step 7 – Acquire Other Documents
There are also a few extra things you should make a point of acquiring, in order to comply with Alabama law.
One of these is a business license. Business licenses can differ quite drastically from state to state, and even county to county. Take a look at where you will be setting up your LLC in Alabama, and see if you will need to set up an appropriate business license to coincide with it.
This can be done by contacting the county probate office or contacting the county licensing commission in your local county.
You will also want to keep an accurate track of a number of important documents pertaining to your LLC. These include things such as a full list of all employees, including their full names and addresses. An up-to-date copy of all articles of the organization.
Copies of the LLC’s latest tax returns from the last three years. Copies of all operating agreements, as well as copies of all financial statements for the company for the last three years.
Step 8 – Decide If Your Company Needs A BIN
Now for the final step. Before you kick your LLC into action, you will need to find out if you are going to need a BIN.
A BIN refers to a “Business Identification Number”, which is a number used for making all inquiries regarding the business. A BIN is not totally essential but is very much worthwhile in the long run.
It is worth having a BIN, because it helps to make it easier for others to recognize your company, and for the company to type up official documents as the one number can be used to represent the company in all documents that are filed.
To Conclude
As you can now see, applying for an LLC in the state of Alabama is not incredibly difficult, but it does require a fair amount of paperwork, and plenty of patience.
You will also need to ensure that you have plenty of money available to spend for the company, in order to pay all filing fees when sending your documents to, for example, the secretary of state.
Hopefully, our guide has proven quite useful for you, and you now feel a little more ready to start up your LLC within the state of Alabama, and ready to take on some of the legal challenges that such a process can incur.
Make sure to follow each step carefully, and that you comply with local laws at every step of the way. It can be very easy to accidentally neglect certain laws, so it is important that you exercise caution every step of the way.
Frequently Asked Questions
Do I Need A Business License?
Absolutely. It is very much recommended that you acquire a business license for any business you attempt to open. Though not every state mandates a business license, it is very much recommended to grab one anyway.
This is because business licenses help to keep everything in order, and allow the company to be more easily recognized as legally official, and thus able to operate effectively.
What Are The Tax Requirements Of An LLC?
There are multiple different types of tax that your LLC may need to apply for separately. Let’s look at them
Sales Tax
If you are planning to use your LLC to sell physical products, then you will need to ensure that you have all of the appropriate permits and licenses. You can easily do this via the website of Alabama’s local government.
Employer Taxes
You will also need to ensure that you have appropriate employment tax.
State Business Tax
You will need to make sure that your business qualifies for State business tax. Luckily, within the state of Alabama, LLCs can apply for Business Privilege Tax, which is calculated by taking into consideration the amount of profit that an LLC sees within the space of a year.
This is why it is important for LLCs in Alabama to file their annual reports to the IRS.
Alabama Corporation Tax
LLCs within the state of Alabama must also ensure that they apply for Alabama corporation tax. Within the state of Alabama, corporate tax is valued at around 6.5% of the LLCs table net income. This helps to ensure that LLCs do not have to pay taxes that they cannot afford.
What Are The Disadvantages Of An LLC?
One of the biggest disadvantages of running an LLC is the associated cost. LLCs cost much more to establish and maintain than a sole proprietorship or a standard partnership. This is because most states will charge an initial formation fee to help the LLC to establish itself.
LLCs are also beholden to very specific annual fees and taxes, such as annual reports, and franchise tax fees.
It is also much harder to transfer the ownership of an LLC than to transfer the ownership of a standard company. This means that selling an LLC can be increasingly difficult.
Changing the ownership of an LLC requires that every single member of the LLC agrees to the change of ownership. Gaining unanimous approval can be incredibly difficult, as well as incredibly time-consuming.
How Is A LLC taxed?
An LLC is taxed after the LLC has sent a report of its annual earnings to the IRS, at which point the IRS will decide on the appropriate taxation value to charge to the LLC.
This means that LLCs only have to pay taxes that are fair and representative of the amount being earned by the company overall.
