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How to Start an LLC in Alabama

Written by:

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by:

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

How to Start an LLC in Alabama

How to Start an LLC in Alabama

Welcome to the world of entrepreneurship! If you’re considering starting a business in the Heart of Dixie, forming a Limited Liability Company (LLC) can be an excellent choice. An LLC offers numerous benefits, including legal protection, tax advantages, and flexibility, making it a popular choice among entrepreneurs across the nation.

In this comprehensive guide, we’ll walk you through the process of setting up an LLC in Alabama, from understanding the state’s specific regulations to filing the necessary paperwork. You can form an LLC by yourself or you can use professional online Alabama LLC formation service.

By the time you’ve finished reading, you’ll be well-equipped to launch your dream venture and take advantage of the exciting opportunities that await in Alabama’s thriving business landscape. So, let’s dive in and explore the steps to starting a successful LLC in the Yellowhammer State.

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Steps to Start an LLC in Alabama

Should you find video content more appealing, we’ve provided a comprehensive visual tutorial on setting up an LLC in Alabama.

Step 1: Choose a Name for Your Alabama LLC

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords related to your business, such as “meats” for a butcher, boosts SEO
  • Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you have a few potential names, check the Alabama secretary of state website to confirm they are available to register. Here’s how to do an Alabama business entity search. You should also confirm that the name you want to register conforms to Alabama regulations on business names.

Your name must include the phrase “limited liability company,” or one of its abbreviations (LLC or L.L.C.).

Your name cannot include words that could confuse your Alabama LLC with any government agency. Your name also cannot include words like bank, insurance, university, (or any similar names) without approval from certain state authorities. 

Additionally, your name must be distinguishable from all other business names in the state and cannot imply that your business does anything else than what is stated in your Certificate of Formation. 

It’s also a good idea to check for nationally trademarked names, to ward off any potential problems later if your business expands, and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Consider these additional suggestions when choosing a name for your Alabama LLC.

Once you’ve found a name that clears these hurdles, go ahead and reserve the name with this Name Reservation Request form on the Alabama Secretary of State website. 

Step 2: Choose an Alabama Registered Agent

In Alabama, your LLC needs to have a registered agent, or agent for service of process. A registered agent is a person or business authorized to accept legal, tax, and financial documents on behalf of your business, and communicate with the state on relevant matters. 

The purpose of a registered agent is to ensure compliance with state laws and make sure official documents are handled in a timely manner. Having one person or entity to handle important documents helps to ensure nothing is missed, helping avoid potential potholes.

In Alabama, you can be your own registered agent for your LLC, or it can be another member of the LLC. An individual who is not a member or a professional agency can also serve as the registered agent for your LLC. Another business entity can also be a registered agent. 

In Alabama, the requirements to be a registered agent are:

  • Must be 18 years or older
  • Have a physical address in the state of Alabama
  • Be personally available during normal business hours 
  • If the agent is a business entity, it’s registered to operate in Alabama

Here’s how to appoint an Alabama registered agent for your Alabama LLC.

Advantages of a Registered Agent Service

Benefits of the registered agent service

A registered agent service is a professional service that will handle official correspondence and documents for your business. Registered agents ensure that all official correspondence is handled on time and keep copies of documents for you. They also keep track of deadlines and send reminders of things you need to file, such as tax forms and annual reports.

A registered agent service for your Alabama LLC will help keep you in compliance with the law and save you time by keeping track of key documents and filing deadlines. This also frees you up to focus on growing your business. The agency will also offer support if problems or questions come up.

Using an agency enables you to have flexible hours. If you’re your own registered agent, you must be personally available from 8 AM to 5 PM at your registered agent address. If you use an agency, they are available during those hours so that you don’t have to be.

Step 3: Determine Your Management Structure

An LLC offers its owner or owners considerable flexibility in terms of management. You can choose your management and operational structure. 

LLC owners are known as members. In a member-managed LLC, the members run the business. In a manager-managed LLC, non-members are hired to oversee and run the business. 

In a member-managed LLC, members are involved in day-to-day operations. Most LLCs are member-managed because the majority are small businesses that cannot afford to hire a management team. 

Many LLC owners prefer to have a member-managed structure because they want to be in control of decision-making and directly involved in operations. Unlike corporations, most LLCs do not have boards of directors to oversee the management. This means that whoever manages the company is in control of all decisions. 

In Alabama, LLCs are considered member-managed by default unless they have specified that they are manager-managed in the formation documents or operating agreement.

In a manager-managed LLC, non-members are hired as managers. Some members still may be managers alongside the non-member managers, or none of the members can be managers. In this structure, any members who are not managers are passive investors and have no role in the operations of the company. 

This structure works best when some or all of the owners want that passive ownership, or if there are a large number of members – too many to all effectively manage the LLC. Another reason to choose a manager-managed structure is when members simply don’t have management skills. Having a great business idea and the capital to start a company does not necessarily mean that someone can run a company. In such cases, hiring professional managers can give the company a better chance of success.

Step 4: File Certificate of Formation with the Alabama Secretary of State

To make your LLC official, you’ll need to file a certificate of formation with the state. This is the legal document that officially creates your LLC as a legal entity in Alabama. The Certificate of Formation include information about your LLC, such as its address, owners, and registered agent information. 

To file this document, go to the website of the secretary of state and fill out the form. Here are the steps that you need to take to file your Alabama Certificate of Formation.

The fee is $200 and you should receive confirmation within 7 to 10 business days.


Step 5: Create an Alabama Operating Agreement

An operating agreement is not required in Alabama but is highly recommended. It is not filed with the state, but instead kept in your LLC’s records and used to resolve disputes, even in court.

An LLC operating agreement is an important legal document that details who owns the business and provides essential information pertaining to member duties. An LLC operating agreement establishes the financial relationship between members and the basics of the working relationships between those members and the managers who oversee daily operations. 

It’s advisable to hire an attorney to ensure your operating agreement is thorough and legally binding. 

The operating agreement should clearly define:

  • The percentage of each member’s interests in the LLC
  • How profits and losses will be allocated to each member
  • Each member’s rights and responsibilities
  • The management structure and management roles of members
  • The voting rights of each member
  • Rules for meetings and voting
  • What happens when a member sells their interest, becomes disabled, or dies

If the LLC has a board of directors, the operating agreement will also include the role and responsibilities of the board members and how they are compensated. 

An LLC operating agreement provides legal and financial recourse for a number of situations. If conflicts arise between LLC owners pertaining to any of the above issues, the operating agreement will provide clarity and guidance. 

Though Alabama has default rules on the books that address some of the potential challenges that might arise between LLC members, the LLC operating agreement has the potential to override such presumptions. 

For additional details regarding operating agreement, read our guide on Alabama LLC operating agreement and obtain a free template.

Step 6: Apply for Business Licenses in Alabama

Business Licenses and Permits

To set up a business in Alabama, you must acquire the necessary business licenses. This process can be executed either in person or online by lodging your application with the appropriate regulatory body. The type of license required for your Limited Liability Company (LLC) in Alabama depends on the type of business activities your LLC is engaged in, as well as its geographical location. The three main levels of licensing jurisdictions in Alabama include state, county, and local jurisdictions, and these often overlap.

At the state level, if your LLC plans to sell products or services, you are required to procure a business privilege and store license. While these are mandated by the state, you must get these licenses from your respective Alabama county probate office. To determine the relevant office for your LLC, you can refer to the state’s online directory. Additionally, if your LLC is involved in selling products or services which are typically subject to sales tax if sold at retail, you will also need to register for a seller’s permit. This can be done through the ‘My Alabama Tax’ website.

At the county and local level, your LLC might need additional licenses and permits, based on the nature of its business operations. For more information regarding this, the Alabama Department of Revenue provides a directory containing all local regulatory agencies that require licensing.

It’s important to note that Alabama business licenses and tax licenses must be renewed on a yearly basis. The associated fees for this renewal can vary, as they are dependent on the specific county or city where your LLC is located and operating. Therefore, make sure to remain informed about your local and county licensing costs.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

Here are the steps to follow when applying for business licenses in Alabama.

Step 7: Obtain an EIN in Alabama

Your Alabama Employer Identification Number, or EIN, is like a social security number for your company, allowing the IRS to easily identify your business. It is also known as a Federal Tax Identification Number (FTIN), or sometimes for corporations it’s called a Tax Identification Number (TIN). 

An EIN is used to identify US businesses and contains information about the state the company is registered in. It also identifies the taxpayers who are required to file tax returns for the business. 

It is used by employers for filing taxes and is generally required for businesses when they open a business bank account. 

Here are the IRS requirements for obtaining an EIN:

All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party,’ controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.

The application is free and can be found on the IRS website. The application is form SS-4, and it can be mailed to the IRS or submitted electronically. Once your information on the application has been validated, your EIN is assigned immediately. The EIN will never expire, and is never duplicated, even if you go out of business.

Next Steps

Opening a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

In Alabama, banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN, Certificate of Formation, and other legal documents and open your new account. 

Getting Small Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
types of business insurance

Decision on LLC Tax Status

LLCs are unique in terms of taxation as their owners have a choice about how the company will be taxed. By default, an LLC is taxed like a sole proprietorship if it has one member and a partnership if it has more than one member.

In both cases, business income “passes through” to the members, while profits and losses are reported on their individual tax returns. The LLC itself is not taxed, which simplifies the process for members. Also, losses and operating costs of the business can be deducted personally by the members. Taxes are paid at the personal tax rate of the members, although the owners may also have to pay self-employment taxes. 

Note that a multi-member LLC must also file form 1065 with the IRS, which is the U.S. Return of Partnership Income. Attached to this will be form K-1s for each member showing their share of the business income.

But LLCs owners can instead choose to be taxed as a corporation. To do so, the LLC must file a document, referred to as an election, with the IRS. The LLC must then decide if it wishes to be taxed as an S corporation or a C corporation.

C-Corp status means profits are taxed at the current rate for corporations (21% as of early 2022), which is significantly lower than the typical individual taxpayer rate. But keep in mind, C-Corp shareholders, which includes members, must also pay taxes on their distributions (but not self-employment taxes). Thus, the C-Corp is subject to what is sometimes referred to as double taxation. 

As with sole proprietorship and partnership status, S-Corp taxation considers the LLC a pass-through entity, which means income passes through the company and into the hands of the owners. At this point, taxes are applied at the same rate as those of individual taxpayers.

S-Corps use Form 1120S to file their taxes, which is used to report the income, losses, and dividends of shareholders. S-Corp shareholders do not pay self-employment taxes, which is the primary advantage of S-Corp status compared to sole proprietorship or partnership. 

Generally, S-Corp tax status is beneficial if the company is profitable enough to pay the owners a salary and at least $10,000 in annual distributions so the owners can be taxed as employees and not pay self-employment taxes. It costs more to run an S-Corp than an LLC due to additional bookkeeping and payroll expenses. Thus, the tax benefits should be more than the additional costs for an S-Corp status to make financial sense. 

File Annual Reports 

In Alabama, LLCs need to file an Alabama annual report to remain in good standing. The fee is $100. Alabama LLCs also must file a Business Privilege Tax. The tax is based on the amount of income the LLC received. Both the report and the return are due no later than two and a half months after the beginning of the taxpayer’s taxable year.


Starting an LLC in Alabama is a straightforward process, but it does take time and involves several filing fees. Here are the costs associated with starting an LLC in Alabama. To make sure you’re in full compliance with the law, you might want to consult an attorney or hire an online LLC formation service. The last thing you want is for your newly created LLC to run afoul of the law and face fines or other restrictions.

Alabama LLC FAQs

How much does it cost to start an LLC in Alabama?

It costs $200 to form an LLC in Alabama. If business licenses and permits are required for your business, you’ll pay additional fees when you apply for them.

How long does it take for an LLC to be approved in Alabama?

Times vary based on the volume the office receives, but it usually takes 7 to 10 business days.

Is there an annual fee for an LLC in Alabama?

Yes, LLCs need to file an annual report in Alabama. The fee is $100. Alabama LLCs also must file a Business Privilege Tax Return. The tax is based on the amount of income the LLC received. Both the report and the return are due no later than two and a half months after the beginning of the taxpayer’s taxable year.

How to look up an LLC in Alabama?

The best way is to go online to the Alabama Secretary of State’s website and search for the business name. Enter the desired business name, select Domestic LLC from the drop-down menu, and click on the “Search” button to start your search. You should now see a list of matching results that fit your search criteria.