Forming a limited liability company (LLC) in Alabama is a popular choice for entrepreneurs seeking liability protection and operational flexibility. Because many of our clients are local small businesses seeking these benefits, we assist with forming Alabama LLCs more than any other entity. While the process is straightforward, it does require attention to detail and strict compliance with state requirements. In this post, we’ll walk you through the key steps to successfully form an LLC in Alabama.
Step 1: Reserve Your Business Name
In general, an LLC is formed when the Certificate of Formation is received by the Alabama Secretary of State.[1] However, in order to submit the Certificate of Formation for filing, you must include a copy of the LLC’s “Name Reservation Certificate”. To obtain a Name Reservation Certificate, you must apply for a Name Reservation with the Alabama Secretary of State and pay the $25.00 filing fee. You can either submit a Name Reservation Application via Secretary of State Online Services or submit a Name Reservation Request Form via mail. The Name Reservation Certificate reserves the name for the requestor for a period of one year.[2] In addition to certain statutory name restrictions,[3] the name of the limited liability company must contain the words “Limited Liability Company” or the abbreviation “L.L.C.” or “LLC.”[4] Because you cannot select a name that is already in use or otherwise on record, best practice is to search for your desired name with the Secretary of State Business Entity Records Search before you submit the Name Reservation Application or Request Form.
Step 2: Prepare and File the Certificate of Formation
The Certificate of Formation is the official document that creates your LLC. The Certificate of Formation can either be completed and filed online via Secretary of State Online Services or be typed on the Domestic LLC Certificate of Formation Form and mailed to the Alabama Secretary of State. The filing fee is $200.00. The Certificate of Formation must include: (1) the name of the LLC and a copy of the Name Reservation Certificate; (2) the registered agent; (3) the registered office; and (4) a statement that there is at least one member of the LLC.[5] The filing requirements are designed only to notify the State and third parties that the LLC exists and how to contact it.[6] Members are not prohibited from including additional matters in the Certificate of Formation, but additional information is not required (i.e., the identity of the LLC’s members).[7]
There are a few important requirements to keep in mind when you designate the LLC’s registered office and registered agent. The registered office must be an Alabama street address (i.e., no PO Boxes) and must be located where process can be personally served on the LLC’s registered agent.[8] The registered agent must be physically present in Alabama and maintain a business office at the same address as the LLC’s registered office.[9] The registered agent may be an individual resident of Alabama, a domestic entity, or a foreign entity that is registered to do business in Alabama.[10] Because important process, notice or demand can be successfully served on the registered agent at the registered office, you should ensure that you can rely on the designated agent and office to effectively transmit important and time-sensitive information to the LLC. Otherwise, there could be detrimental consequences, such as an entry of default.
Step 3: Create an Operating Agreement
An LLC’s governing documents include its Certificate of Formation and the “Limited Liability Company Agreement” or “Operating Agreement.” The operating agreement may be entered into before, after or at the same time as the filing of the Certificate of Formation. It is common to first file a Certificate of Formation and then execute an operating agreement with an effective date as of the filing of the Certificate of Formation.[11] Although not required by Alabama law, it would be a mistake to overlook the importance of the limited liability company agreement—regardless of whether you are forming a single-member LLC or a multi-member LLC. Except for a few mandatory provisions provided by the Alabama Limited Liability Company Law, Ala. Code § 10A-5A-1.01, et seq., an operating agreement allows parties to modify the management, structure, and operation of the LLC to suit your needs. In future posts, we’ll dive deeper into best practices for limited liability company agreements.
Step 4: Obtain an EIN from the IRS
An Employer Identification Number (EIN) is required for tax purposes, hiring employees, and opening a business bank account. You can apply online at IRS.gov and will receive an EIN immediately upon verification.
Step 5: Register for State Taxes and Licenses
Depending on your business type and location, you may need to register for state sales tax or employment taxes with the Alabama Department of Revenue and obtain various state and local business licenses or permits.
Final Thoughts
Forming an LLC in Alabama involves several steps, but with proper planning and guidance, it can be a smooth process. Whether you’re launching a new venture or converting an existing business, our legal team can help ensure your LLC is formed correctly and positioned for success.
In our next post, we’ll explore Operating Agreements for Alabama LLCs—what they are, why they matter, and how to draft one that protects your business.
[1] Ala. Code §§ 10A-5A-2.01(b), 10A-1-4.11.
[2] Ala. Code § 10A-1-5.14(1).
[3] Ala. Code §§ 10A-1-5.01 et seq.
[4] Ala. Code § 10A-1-5.06.
[5] Ala. Code § 10A-5A-2.01(a).
[6] Ala. Code § 10A-5A-1.01 cmt.
[7] Ala. Code § 10A-5A-2.01(a)(6).
[8] Ala. Code §§ 10A-5A-2.01(a)(2), 10A-1-5.31(c).
[9] Ala. Code § 10A-1-5.31(b).
[10] Id.
[11] Ala. Code § 10A-5A-2.01(d).