Last year, the state of Alabama approved 3,123 new LLCs. That’s the second-highest number of any newly registered business entity!
A limited liability company (LLC) is a business structure that legally protects the owners. It merges the economic safety of a corporation with the freedom of a sole proprietorship. LLCs also offer tax benefits and are simple to register!
Let’s take an in-depth look at forming a limited liability company and whether you need an Alabama LLC operating agreement.
Is an LLC Operating Agreement Required in Alabama?
The state of Alabama doesn’t require an operating agreement to form an LLC, but it’s still a good idea to have one. Your operating agreement will describe the ownership arrangement of the company. It’s an essential personal security component for multi-member LLCs!
It also outlines management methods, company goals, and profit distribution. An operating agreement can protect the owners in the event of disputes or legal proceedings.
Alabama Operating Agreement Laws
General laws are outlined in Section 10A-5A-1.08 of the Alabama Business and Non-Profit Entities Code. But there is some legislation that is unique to the state of Alabama.
The name of your limited liability company must contain any version of these phrases or abbreviations:
- Limited Liability Company
You must reserve your LLC’s name before filing your certificate of formation through the Secretary of State. Also, the name cannot imply that it’s been created for any intent other than what is stated in your documents.
Part of the articles of the incorporation includes nominating a registered agent. This is a person or company that agrees to accept legal documents on your behalf. These include tax and business notices, as well as court papers if you are sued.
The registered agent can be any of the following:
- Any individual over 18 residing in Alabama
- A business registered in Alabama
- A business registered out-of-state with an office in the state
The Secretary of State provides a helpful list of registered agents. You can also select a lawyer, friend, spouse, or any trusted individual.
Types of LLCs
In Alabama, you’re able to form three different types of limited liability companies. A single-member LLC has one sole owner. You also have the option of building a series LLC, which creates a parent company with different divisions beneath it.
Multi-member LLCs split ownership between several owners.
How Much Does It Cost to Form an LLC in Alabama?
Forming an LLC in Alabama is actually quite inexpensive! You’ll only need to pay two main fees:
- Domestic Certificate of Formation Filing Fee – $200
- Name Reservation Fee – $25
If you’re filing the certificate of formation as a foreign entity, your filing fee will be $150. The only other expense is an annual Business Privilege Tax Return and Report. It’s a once-a-year payment, and the minimum amount is $100.
How to Form an LLC in Alabama?
Forming a limited liability company in Alabama is as simple as completing these five steps. And if you choose to use online services, you can have your LLC registered in less than a week!
Step 1 – Reserve Your Name
The first step to collecting your articles of organization is choosing the name. As mentioned above, there are a few rules about what to include when naming your company. A good example would be XYZ Company LLC.
You must also select a name that is unique from other business entities that operate in Alabama. You can use the Secretary of State’s Business Entity records to check availability.
Once you’ve selected a distinctive name and ensured it meets the law, you can apply for a name reservation. Download a Certificate of Name Reservation [10A-1-4.02(f)] from the government website. Then send the completed form to P.O Box 5616, Montgomery, AL 36103.
Alternatively, you can file for a name reservation online. The fee is the same, and approval is immediate. We recommend the online option to save time!
Step 2 – Nominate a Registered Agent
The next step is nominating your registered agent. We’ve already covered your three options for choosing an agent. But ensure that this person or company has an Alabama address and is available within standard work hours (9 a.m to 5 p.m).
One additional option you have is nominating yourself as your agent! As long as you have an Alabama-based street address, you can take out the middle man. Keep in mind the address cannot be a P.O Box or mailbox.
We mentioned using a company as your registered agent. It’s a good option for those that want to keep their own address off the record. The cost of this service can range from $100 to $300 per year.
Step 3 – File the Certificate of Formation
Now you need to file your certificate of formation. These documents can also be filed online or by mail.
If you apply through the postal service, send your packet to P.O Box 5616, Montgomery, AL 36103. But first, make sure you go through these steps!
- Download the certificate of formation
- Complete it on your computer (no handwriting)
- Include the $200 (check, credit card, or money order)
- Send two copies of the certificate plus a self-addressed, stamped return envelope
- Include your name reservation certificate
The online method is a streamlined service to help you file faster. Your application will be instantly submitted and approved. Visit the Secretary of State Online Services and choose whether you want the domestic or foreign option. Then follow the directions and submit!
Step 4 – Create Your Operating Agreement
Since the operating agreement isn’t required by law in Alabama, you don’t need a lawyer to draw it up. You can actually create your own template! Simply use the Alabama LLC operating agreement template. You’ll only need to fill in the blank spaces with the corresponding information.
Step 5 – Apply for an Employer Identification Number (EIN)
The final step is your EIN application. You’ll need to register this number with the IRS as it will identify your LLC as a business for tax purposes. Even if you don’t have any employees, you’ll need to obtain an EIN.
You can apply online or by mail. If you choose the mail option, you’ll need to download Form SS-4 and send the completed packet to Internal Revenue Service Attn: EIN Operation, Cincinnati, OH 45999.
And once you’ve completed that step, you’re officially the owner of a limited liability company!
Alabama LLC Operating Agreement Template
Are you ready to create your Alabama LLC Operating Agreement? Take a look at our template below:
LLC Operating Agreeement