How To Start an LLC in Alabama in 11 Steps — Starting a Business (2022)

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Alabama is the heart of the South, with plenty to offer small business owners. The state has the third lowest property tax in the United States and offers tax breaks on income, sales and consumption. Areas like the Gulf Coast, Greater Auburn and Chambers County are among the fastest growing local economies in the country, thanks to an influx of shipping, manufacturing and research opportunities. Alabama is an excellent launching point for your limited liability company (LLC). This guide walks you through the steps.

What is an LLC?

A limited liability company (LLC) is a type of business entity that offers liability protection to its owners, while allowing more flexibility than a corporation. An LLC can be founded by one person or several people, and the owners are called “members.”

Unlike a sole proprietorship or partnership—which does not make a legal distinction between the business and its owners—LLC members will not be financially responsible for the company’s debts or lawsuits.

And unlike corporations, LLCs are pass-through entities by default. This means you do not need to file federal taxes for the LLC itself. Instead, any profits are passed on to the LLC members who record them on their personal tax returns.

Is an LLC right for you?

Whether you choose to form an LLC or another type of business structure in Alabama depends on your needs as an entrepreneur. An LLC may be correct if:

• You want to limit your personal liability. LLC owners are not personally liable for legal damages and debts incurred by the company, meaning, as an owner, your personal assets cannot be used to pay creditors or legal damages.
• You want to limit your tax liability. LLCs are taxed at the members’ personal income level, unlike corporations, which pay taxes on income generated at the business level.
• You do not need to raise funds through stock issuance. LLCs do not issue shares or have shareholders like a C corporation. While this limits your business’s ability to raise money from investors, it simplifies the ownership structure and executive decision-making process.

1. Name your Alabama LLC

One of the most fundamental decisions you will make as an Alabama LLC owner is choosing a name for your business. Aside from choosing something catchy and memorable, you need to follow three statewide business naming rules:

• Your name must be unique. The name of your LLC must be different from any existing business in the state. Run a search on the Alabama Secretary of State’s website to see if your preferred name is available.
• Your name must include an entity type. An Alabama LLC must include the words “Limited Liability Company,” “LLC,” or “LLC” in its name.
• Your name cannot contain certain words. Your Alabama LLC cannot have words that could confuse government agencies, such as the FBI or the Treasury. Other words are restricted based on licensing, such as “lawyer” or “credit union”.

2. Make a business plan

A viable business requires a thorough business plan, and an Alabama LLC is no exception. A good business plan includes the name of your LLC and a brief description of its function. It should also have a detailed market analysis, a flowchart of the organizational structure, a description of your products and services, target customer profiles and marketing, logistics and financial plans.

3. Get a federal employer identification number (EIN)

For tax purposes, you need a federal employer identification number (EIN), which is assigned to your LLC by the federal government. You can apply for this nine-digit number, which identifies your company to state and federal tax authorities, by applying (for free) through the US Internal Revenue Service (IRS).

4. Choose a registered agent in Alabama

Alabama LLCs must appoint a registered agent to receive legal documents and service of process (notice of legal action). Your business’s registered agent can be an individual, an employee or member of your LLC, or a registered agent service. In both cases, the Alabama registered agent must have an address in Alabama and be on site and available to receive correspondence and legal documents during normal business hours.

5. File your Alabama Certificate of Formation

Once you have appointed an agent for your Alabama LLC, you must register it with the Alabama Secretary of State’s office. In Alabama, this filing is called a Certificate of Formation—known as “Articles of Organization” in many other states. You can submit the filing online or by mail, along with a $200 filing fee. Article should contain:

• The name of your LLC
• Name and address of your registered agent
• Effective date of LLC (if different from filing date)
• Signature of promoter (ie, LLC member or hired manager)

6. Get business licenses and permits

You can obtain an Alabama business license in person or online by applying with the proper regulatory agency. Business licensing requirements generally depend on the activities and location of your Alabama LLC. There are three primary licensing jurisdictions—state, county, and local—with some overlap among them:

• state level. You will need a business privilege and shop license if your LLC intends to sell products or services. Although authorized by the state, you obtain it through your Alabama county probate office. Check the state’s online directory to see which office is used for your LLC. You will also need to register for a seller’s permit if you are selling products or services, which would normally be subject to sales tax if sold at retail. You can register for a seller’s permit through the My Alabama tax website.
• District and local level. You may need licenses and other permits from your local county or city government, depending on the type of business you run. The Alabama Department of Revenue provides a directory of all local regulatory agencies that require licensing.

You must renew your Alabama business license and taxes every year. Fees vary depending on the county or city in which your LLC operates.

7. Understand Alabama state tax requirements

Alabama requires LLCs to file Business Privilege Tax Returns and annual reports with the Alabama Department of Revenue. You can access tax forms online on the department’s website. All LLCs pay, at least, $100 in taxes each year, which covers the business privilege tax.

If your LLC sells goods and collects sales tax, you need to register with the Alabama Department of Revenue. Sales tax in Alabama is 6.5%. Alabama LLCs with employees are also subject to a 2% to 5% payroll tax.

8. Prepare the Alabama LLC operating agreement

An operating agreement is a legal document that outlines your LLC’s ownership, organizational chart, and operating procedures. Alabama LLCs are not required to prepare an operating agreement, but for administration and goal setting purposes, it is a good idea to have one. A strong operating agreement describes:

• How ownership rights are distributed between business owners (members)
• Roles and responsibilities of members
• Procedures when a member wants to leave the LLC or when the LLC is terminated
• Details on how you have elected to be taxed as an LLC

9. Check out business insurance options in Alabama

Purchasing insurance for your Alabama LLC is essential to managing risk and can free your mind to focus on growing your business. Standard insurance plans for Alabama businesses include:

• Workers compensation insurance. Businesses in Alabama are required to have workers’ compensation insurance if they employ five or more people.
• General liability insurance. General liability insurance provides broad protection against lawsuits, financial losses from property damage and on-the-job injuries, such as customers slipping and falling on your store floor. By state law, you are not required to purchase this policy, but many commercial leases require it.
• Professional liability insurance. Professional liability insurance covers financial loss due to errors such as bad advice for professional services such as consultants, accountants, medical professionals or real estate agents.

10. Understand financial considerations

Aside from insurance, you may need to make additional investments to set up your Alabama LLC. This may include rent for a lease on brick-and-mortar retail space, paying for a professionally designed website or social media management, or purchasing equipment and software. In addition to paying employees, you may want to hire contractors and other professionals to support your business, such as lawyers and accountants. Resources are available to help entrepreneurs raise start-up funds to help with these costs.

11. Market your Alabama LLC

Once you’ve worked through the initial administration, it’s time to get the word out about your Alabama LLC—and highlight it with a marketing campaign. A solid marketing plan for your small business includes:

• Market research. Before marketing your product or service, get an understanding of your target customers as well as a sense of what your competitors are doing.
• Advertise. Promote your LLC by paying for print, TV, radio or digital advertising, or by hiring an agency to do this for you.
• social media. Your small business has everything to gain from a strong social media presence. Make your Alabama LLC known on platforms like Facebook, Instagram and YouTube.
• Public relations. Paid media only goes so far. To increase the visibility of your business, try to get publicity by connecting with local and national media organizations.

Frequently Asked Questions Starting an LLC in Alabama

How much does it cost to form and maintain an LLC in Alabama?

It costs $200 to register your LLC in Alabama and at least $100 in taxes each year to operate.

Do you need a registered agent in Alabama?

Your LLC must appoint a registered agent in Alabama—either an individual or an agency with an address in that state.

How do state taxes work in Alabama?

Alabama LLCs are subject to a minimum tax of $100 annually. If your LLC sells goods and collects sales tax, you need to register with the Alabama Department of Revenue. Sales tax is 6.5%, and Alabama LLCs are subject to payroll taxes of 2% to 5%.

source: https://www.shopify.co.id/blog/how-to-start-an-llc-in-alabama