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This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013.
There are 13 references cited in this article, which can be found at the bottom of the page.
This article has been viewed 24,237 times.
Starting a business is exciting. Whether you are working alone or with partners, you need to decide what kind of legal and tax framework you are going to use to set up your business. A limited liability company is often a good choice that strikes a balance between a general partnership and a corporation. With some thought and research, you can set up an LLC without an attorney.
Steps
Part 1
Part 1 of 3:
Preparing to Create Your Alabama LLC
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Understand how an LLC works. A limited liability company, commonly called an LLC, is a legal business entity that allows the owners to limit their financial liability. The owners, called members, of the LLC will not be held personally liable for lawsuits or other debts incurred by the company.[1]
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Consult with a tax professional. An LLC carries some special tax considerations. In general, the members will report the income from the LLC on their personal tax returns and will be taxed as individual income, including self-employment taxes. You should consult with a tax professional to see if an LLC is the best way to organize your business.
- Single member LLCs reconcile the profits and losses for the business on IRS Schedule C[2] and report the income on your Form 1040 tax return.[3]
- If the LLC has multiple members, the income from the business will be divided between the members via IRS Form 1065[4] and reported as individual income on a Form 1040 tax return.
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Allow for self-employment taxes. In a business, you and the other members won't have taxes automatically deducted from your paycheck. Whether you pay yourself wages or take cash draws from the business, you will have to calculate and pay self-employment taxes.
- You will report your self-employment taxes on IRS Schedule SE.[5] For estimating purposes, budget 15 percent of the wages you pay yourself as your self-employment tax.
- It is critical that you pay your self-employment taxes. This is your contribution to the Social Security retirement and disability system. If you have not paid sufficient self-employment tax and are injured in an accident, you may not be eligible to apply for Social Security Disability Insurance benefits.[6]
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Part 2
Part 2 of 3:
Setting Up Your Alabama LLC
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Name your company. In Alabama, your company name must contain either the words "Limited Liability Company", L.L.C., or LLC. All three are equally acceptable under the law. You are free to choose which works best with your vision of branding your company.
- Before you file your LLC, search the Alabama Secretary of State database to see if your proposed name is already in use.[7]
- More than one business can have the same name. However, if there is another business in your area that would appeal to the same customers, you should consider tweaking the name to make it more distinctive.
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Identify the LLC members. You can be the only member of your limited liability company. It is not required that you have a partner. However, if you have one or more partners, you need to all agree on how to split profits and expenses, percentage of ownership, and other duties.
- Each member will need to account for the income from the LLC on his or her taxes. Don't make anyone a "ceremonial" member. Only those who have a direct stake in the business should be named members.
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Designate a legal agent and registered office. The legal agent is the person in your business who can receive legal correspondence and service of process. This can be a member of the LLC or an attorney.[8]
- The registered office must be located in the state of Alabama and not be a post office box.
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Create an LLC Operating Agreement. The Small Business Administration strongly recommends that every LLC have an operating agreement that defines and structures the business.
- LLC operating agreements in Alabama are governed by Section 10-12-10 of the Alabama State Code.[9] At a minimum, the articles of organization must include the name of the company, its duration (can be perpetual), the business purpose, the mailing address of the office, the names and addresses of each member, the ownership percentage of each member, the procedure to add new members, the procedure to remove members, and how the company would be dissolved.
- There is no set format and can be a simple document. However, you should strongly consider having an attorney review your draft agreement and make sure it protects all members and complies with state law.
- A single member LLC must have articles of organization. The ownership percentage would be 100 percent.
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Apply for an Employer Identification Number (EIN). This is a unique number assigned to your LLC by the Internal Revenue Service. Rather than using your Social Security number, the EIN is more private and secure. You will need an EIN whether your LLC has employees or not. You can apply online through the IRS website[10] or by mail through Form SS-4.[11] There is no charge to apply for an EIN.Advertisement
Part 3
Part 3 of 3:
Filing Your Alabama LLC
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Complete and file a Name Reservation. Your first step is to file a "Name Reservation Form for Domestic Entities" form with the Alabama Secretary of State. This form reserves your business name.[12]
- If you have no specific timeline for forming the business, you can file with the $10 fee. Your request will be processed in the order it was received with no guaranteed timeframe for receiving the certificate of name reservation.
- For three-business-day expedited processing, the fee is $25.
- You can also complete the business name reservation online for a fee of $28.
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Fill out the Certificate of Formation. This form is available to download in .pdf format at the Secretary of State website.[13] You will complete the name of the company, the address, the name and registered office address of the designated agent, and attach the certificate of name reservation.
- The effective date of the LLC must not be more than 90 days after the filing date.
- Only one member must sign the certificate. In a multi-member LLC, you should attach a list of members. You are not required to file your LLC operating agreement.
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File the Certificate of Formation. In Alabama, you will file your LLC documents with the Judge of Probate's office in the county where the registered office of the designated agent is located, even if the LLC does business in another county.
- You must include all documents and all filing fees with your submission or it will be returned to you. You can file the package in person with the court clerk or by mail.
- One original signed in blue ink and two copies of the Certificate of Formation and any attachments.
- The Name Reservation Certificate issued by the Alabama Secretary of State.
- A check or money order for the filing fee for the county. Contact the county court clerk for the exact fee. It is typically around $50.
- A check or money order for $100 made out to the Alabama Secretary of State. If you want three-day expedited processing of your application, the fee is $200.
- You must include all documents and all filing fees with your submission or it will be returned to you. You can file the package in person with the court clerk or by mail.
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Confirm your LLC registration. You will receive a file-stamped copy of your Certificate of Formation from the court. This is the "Proof of Existence" of your Limited Liability Company. The court will forward the information to the state for indexing.
- About two weeks after your court filing, check the business name entity search on the Secretary of State website to see if your LLC appears in the index.[14]
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Tips
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All the forms you need for creating, operating, amending, or dissolving your LLC are available to download from the Alabama Secretary of State website at http://www.sos.alabama.gov/Downloads/corpForms.aspxThanks
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References
- ↑ http://www.investopedia.com/terms/l/llc.asp
- ↑ https://www.irs.gov/pub/irs-pdf/f1040sce.pdf
- ↑ https://www.irs.gov/uac/About-Form-1040
- ↑ https://www.irs.gov/pub/irs-pdf/f1065.pdf
- ↑ https://www.irs.gov/uac/About-Schedule-SE-Form-1040
- ↑ https://www.ssa.gov/redbook/eng/overview-disability.htm
- ↑ http://arc-sos.state.al.us/CGI/CORPNAME.MBR/INPUT
- ↑ https://www.law.cornell.edu/wex/agent_for_service_of_process
- ↑ http://codes.lp.findlaw.com/alcode/10/12/2/10-12-10
- ↑ https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online
- ↑ https://www.irs.gov/pub/irs-pdf/fss4.pdf
- ↑ https://sos.alabama.gov/sites/default/files/2016-08/domesticEntityNameReservation.pdf
- ↑ https://sos.alabama.gov/sites/default/files/2017-03/sosdf-8.pdf
- ↑ http://arc-sos.state.al.us/CGI/CORPNAME.MBR/INPUT
About this article
Clinton M. Sandvick, JD, PhD
Doctor of Law, University of Wisconsin-Madison
This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013. This article has been viewed 24,237 times.
Co-authors: 12
Updated: January 31, 2023
Views: 24,237
Thanks to all authors for creating a page that has been read 24,237 times.
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