How to Start a Business in Alabama

Everything you need to know to start a business in Alabama. Includes costs, license fee information, and a downloadable checklist.

Updated on August 15th, 2019

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The State of Alabama has the third lowest tax burden and sixth lowest cost of labor in the US. In 2016, Alabama lending institutions issued 57,298 loans under $100,000.00. There are 392,939 small businesses in Alabama, which is 99.4% of the businesses in the state.

How to Start a Business in Alabama Checklist - Free Download

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How to Start a Business in Alabama:

1. Form a business entity.

You need to determine the legal structure of your business, whether you want it to be a sole proprietorship, partnership, LLC, or corporation.

Forming an LLC in Alabama
Forming an LLC in Alabama:
  • Choose a name.
  • File Certificate of Formation.
  • Appoint a registered agent.
  • Put together an operating agreement.
  • Pay state tax obligations.
  • Get an Employer Identification Number.
  • Get professional licenses.

If you're not certain about which of the structures to opt for, seek the advice of a small business attorney. They will help you arrange the legal aspects of your new business and create a proper legal entity.

Different legal structures for a business

Limited Liability Company

Combine the taxation of partnership and sole proprietorship with the limited liability of a corporation.

Sole Proprietorship

Owned and run by one person. No legal distinction between the owner and the business entity.

Partnership

Partners work together to advance their mutual interests.

Corporation

Separate and distinct from its owners, and enjoys most of the rights and responsibilities individuals possess.

2. Register with the Secretary of State.

Before filing the Certificate of Formation, you must first get a Certificate of Name Reservation. If your business in Alabama is an LLC, it must contain the words "Limited Liability Company", or the abbreviation "L.L.C.", or letters "LLC".

Your name must be unique. Once you've checked that your company's name does not exist on the Alabama Secretary of State’s business name database, you can go on to file the original and two copies of the Certificate of Formation. The certificate is not filed with the Secretary of State, but with the Judge of Probate through the mail.

There are registration fees. Your business registration will cost you $250.00. You'll pay $100.00 to the Secretary of State, $100.00 to expedite the process, and $50.00 to the Probate Judge.

3. Get an Employer Identification Number (EIN).

Every business needs to have an Employer Identification Number (EIN). An EIN is the number that the IRS uses to identify your business when it comes to the taxes that you deduct from your employee's wages.

The IRS issues EINs. Go here to complete an application online, and save your EIN confirmation notice once you receive it.

4. Open a bank account.

To maintain accurate records and protect yourself, you must open a small business bank account. Keep your business finances separate from your personal ones. With a business bank account, you can obtain statements and access products that would not be available to you as an individual.

Seek the advice of a business representative at your local bank. They can take you through the process and help you to set up an account in the name of your business. You can also authorize other employees or company representatives to have access to the account.

Best banks for small businesses in Alabama
Best banks for small businesses in Alabama:

5. Register with the Alabama Department of Revenue.

To stay tax compliant you must register your company with the Alabama Department of Revenue through its My Alabama Tax (MAT) portal. This will allow you to conduct tax-related transactions online.

Information needed to register with the Alabama Department of Revenue
Information needed to register with the Alabama Department of Revenue:
  • Company's Legal Name.
  • Address of the Location.
  • Contact Information.
  • Officer/Owner Information.
  • Federal Employer Identification Number.
  • Date of Organization or Qualification.
  • NAICS Code.
  • Entity Subtype.
  • Commence Date.

6. Hire employees and report them to the state.

All employees must be registered with the Alabama Department of Labor New-Hire Unit within seven days of employment. If you have more than five employees you must register online, here. If you have less than five employees, you can register them online or by sending a completed W-4 form to the New Hire unit through the mail.

Compliance with labor laws in Alabama will protect the rights of your employees. Labor laws ensure that your employees are treated appropriately at your business. Failure to register a new hire may lead to a $25.00 fine per violation.

New hire information required by the state of Alabama
New hire information required by the state of Alabama:
  • Employee's name.
  • Address.
  • Social security number.
  • Date of employment.
  • Employer's Federal Employer Identification Number.
  • Employer's name.
  • Employer's address.

7. Obtain applicable state licenses and permits.

To operate in Alabama, you will need a privilege license from the state, issued by the Probate Judge or License Commissioner in the county where your business is located. One business may need different types of business privilege licenses depending on its services and products.

You might need an occupation license. Alabama licenses 151 occupations. You will need to apply to the regulatory boards of these professions to receive a license.

8. Purchase insurance.

Business insurance is important to protect yourself, your employees and your business assets. The most common types of business insurance you should consider are:

In Alabama, businesses with more than five employees are required by law to carry Workers' Compensation Insurance.

Different legal structures and costs of registration:

Type

Fee

Sole Proprietorship

$25.00 per county

Limited Liability Company

$150.00

Partnership

$200.00

Corporation

$250.00

Other How to Articles for the Region:

FAQs:

Do I need a business license in Alabama?

Yes. To operate a business in Alabama, you will need a privilege license from the state, issued by the Probate Judge or License Commissioner in the county where your business is located.

Learn more about how to start a business in Alabama.

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

It costs $150.00 to file Articles of Organization for an LLC in Alabama.

Read more about how to start a business in Alabama.

How much does it cost for a business license in Alabama?

Business license costs in Alabama include the Alabama Secretary of State Certificate of Formation filing fee of $100.00 plus at least $50.00 for the local probate judge and $28.00 for a name reservation.

See our full guide.

How do I register a business name in Alabama?

In order to register a business name, you must obtain a Certificate of Name Reservation from the Business Entities Division of the Secretary of State prior to filing the Application for Registration.

See more details.

Where can I apply for an Alabama business license?

You can get a business license at the Probate Judge or License Commissioner in the county where your business is located. Go here for the address of your county Probate Judge office.

Forming an LLC in Alabama

How do I Form an LLC in Alabama?

  • Choose a name.
  • File Certificate of Formation.
  • Appoint a registered agent.
  • Put together an operating agreement.
  • Pay state tax obligations.
  • Get an Employer Identification Number.
  • Get professional licenses.

Read more about how to start a business in Alabama.

Information needed to register with the Alabama Department of Revenue

What information is needed to register with the Alabama Department of Revenue?

  • Company's Legal Name.
  • Address of the Location.
  • Contact Information.
  • Officer/Owner Information.
  • Federal Employer Identification Number.
  • Date of Organization or Qualification.
  • NAICS Code.
  • Entity Subtype.
  • Commence Date.

Find more information on how to start a business in Alabama.

New hire information required by the state of Alabama

Which new hire information is required by the state of Alabama?

  • Employee's name.
  • Address.
  • Social security number.
  • Date of employment.
  • Employer's Federal Employer Identification Number.
  • Employer's name.
  • Employer's address.

How much does it cost to register a business in Alabama?

It costs between $150.00 and $250.00 to start a business in Alabama.

Are there any specific rules for an LLC in Alabama?

Any Limited Liability Company in Alabama must have the words "Limited Liability Company", or the abbreviation "L.L.C.", or letters "LLC" in its name.

Learn more about how to start a business in Alabama.

How do I start a sole proprietorship in Alabama?

How do I start a sole proprietorship in Alabama?

  1. Choose a business name.
  2. File a trade name.
  3. Apply for licenses, permits, and zoning clearance.
  4. Apply for an Employer Identification Number.

Find details on how to start a business in Alabama.

Can I use a personal bank account for my LLC in Alabama?

No, you can't use a personal bank account for an LLC because the LLC is a separate legal entity and requires a separate banking account.

Get more information on how to start a business in Alabama.

What documents do I need to open a business bank account in Alabama?

What documents do I need to open a business bank account in Alabama?

  • Employer Identification Number.
  • Certificate of Formation.
  • Ownership agreements.
  • Privilege license.

How do I choose a bank for my small business in Alabama?

Before you start looking for a bank you need to determine your business requirements. Is it a loan you're looking for, or is it a line of credit? What are your business's needs right now, and what will they be in the future? Then, once you know this, compare banks, large and small: focus on fee structures and reputation.

Get more details on how to start a business in Alabama.

What business taxes are there in Alabama?

Sales tax, unemployment tax, and income tax withholding are most common. Depending on the business, other common forms of tax include lodgings tax, rental tax, and mobile communication services tax.

How do I start a small business in Alabama?

How do I start a small business in Alabama?

  1. Decide what type of business you want to open.
  2. Write a business plan.
  3. Form your business entity.
  4. Register with the Secretary of State.
  5. Get an Employer Identification Number.
  6. Open a bank account.
  7. Source funding.
  8. Find a location.
  9. Hire employees.
  10. Market your business.
  11. Get state licenses and permits.
  12. Purchase insurance.

Read our complete guide.