Start a Business in Alabama
At the most basic level, starting a business in Alabama is as simple as selling a product or service. Building a strong business identity, protecting your personal assets, and staying in compliance is a bit more involved. Find out how to form a business, pay your taxes, apply for a business license, and more in our guide on how to start a business in Alabama.
1. Create a Business Plan
A quality business plan takes you from thinking to doing by transforming your brilliant idea into a winning strategy. Use your business plan to:
- Figure out if you can actually make money off your idea before you start spending money on it.
- Stay organized so you can avoid missteps and keep moving toward your goals.
- Get key investors and lenders on board so you can get essential funding for your business.
A good business plan includes:
- The problem your business will solve
- The consumers your business will serve
- Your competitive advantages
- The structure of your company
- An analysis of your market
- A description of your marketing strategy
- Financial projections
Business plan resources:
Learn more about writing a business plan and get prepared to launch your business.
- Ready to start your business plan?
Use our free, customizable business plan template. - Don’t have a business idea yet?
Check out our library of small business ideas. - Need to cover startup costs?
Explore funding options for your business.
2. Name Your Business
Choosing a name makes it real. With a name, you can print off business cards, launch your website, get on social media, and register as an official business entity with the state.
Important: Alabama requires entities like LLCs and corporations to reserve a business name before filing registration documents.
1. Follow Name Rules
- Include identifiers like “LLC” or “limited liability company” for LLCs, or “Inc.” and “Corp.” for corporations.
- Don’t use words that are reserved for government agencies, such as Police or Fire Department.
- Don’t use words that suggest the business offers a professional service, such as medical or legal services, without the appropriate professional license.
2. Check Availability
- Search the Alabama Business Entity Records database.
Also consider availability for:
- Domain names: Help customers find your website.
- Trademarks: Protect your brand and prevent others from using your name.
- Social media handles: Make it easy for customers to discover your company.
3. Reserve Name
- Submit a Name Reservation Request Form for Domestic Entities with the Alabama SOS before filing your formation documents.
- Filing can be completed online or by mail, but online filing is faster.
- Name reservations last for one year. Extend your reservation by filing a renewal request during the 90-day period before it expires.
3. Start Building Your Business Identity
As a new business owner, failing to keep your business and personal identities separate is an early mistake that can have lasting effects for the life of your business—or even longer.
For example, the names and addresses you provide on business formation filings go on the public record and stay on the record, even if you amend your filing or dissolve your business. If you list a home address, anyone who searches for your business online using Alabama’s Business Entity Records database will be able to find out where you live, indefinitely.
What is a business identity?
A business identity is all the information you use to craft a professional image in the public eye, such as:
- Information on state records
- Business address & public contact information
- EIN & business bank account
- Website & social media
- Other branding & marketing materials
Why is it important?
A strong business identity:
- Helps customers, vendors, banks, and other institutions see your company as professional and trustworthy.
- Allows you to protect your privacy by keeping your personal information away from prying eyes.
- Enforces the separation between personal and business, supporting limited liability protection (for owners of business entities).
How do you create one?
Prevent your personal information from being used to identify your business by:
- Getting a dedicated business phone line to keep your cell and home lines private.
- Setting up an online presence specific to your business, including a website and domain name with WHOIS domain privacy.
- Using a business address and hiring a registered agent to keep your home address off company formation documents.
When should you start?
Keeping your personal information out of state filings and business communications from the very beginning is the best way to start building a strong business identity.
However, you don’t put the pieces of your business identity in a specific order.
Some people form an LLC or corporation and then launch a website. Others launch a website first thing and then form a business entity down the line—it’s up to you.
Learn more about building a complete business identity.
4. Form a Business Entity
Not every business structure is a business entity. Common business structures include sole proprietorships, general partnerships, LLCs, and corporations. However, only LLCs and corporations are business entities, which are formed by filing paperwork with the state.
Forming a business entity like an LLC or corporation helps protect your personal assets by providing you with liability protection.
Many businesses begin as sole proprietorships or general partnerships, but sticking with one of these structures can be risky because there’s no legal separation between you and your business. This puts your personal assets in danger if your business gets into legal or financial trouble.
Choose an entity type
The most common entity types formed by new business owners are limited liability companies (LLCs) and corporations, but if you’re not in it for the money, you can also start an Alabama nonprofit.
Alabama LLC
- Provides limited liability protection
- Flexible management structure
- “Pass-through” taxation
- Popular with startups and small business
Learn more about forming an Alabama LLC.
Alabama Corporation
- Provides limited liability protection
- Rigid management structure
- “Double” taxation
- Popular with investors
Learn more about forming an Alabama corporation.
File formation paperwork
Forming a business entity by filing paperwork with the state is an important forward in your business journey and creating a solid business identity.
1. Reserve your business name
Required filing: All entities must submit a Name Reservation Request Form for Domestic Entities Form.
When to file: Reserve your name before your file formation paperwork.
Business identity tip: Use a business address instead of your home address.
2. File your formation paperwork
Required filing: LLCs must file an Alabama Certificate of Formation and corporations must file an Alabama Certificate of Incorporation.
Business identity tip: Use a business address instead of your home address & registered agent service instead of being your own agent.
Learn more about getting an Alabama registered agent.
3. File your Initial Business Privilege Tax Return
Required filing: All entities except nonprofits (exempt) must submit a Initial Business Privilege Tax Return.
When to file: Submit your return within two and half months of forming your company with the Alabama SOS.
A note on tax rates: Business Privilege Tax rates range from $0.25 to $1.75 for each $1,000 of net worth located in Alabama. The minimum tax is $100, and the maximum is $15,000.
Draft internal records
So far in this guide, we’ve dealt with public forms that you’ve had to file with the Alabama Secretary of State. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.
Though these documents are internal, you may need to show them to third parties like the bank or—if you start a nonprofit—the IRS.
LLC Operating Agreement
This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including adding or removing members and dissolution.
Use our attorney-drafted Alabama LLC Operating Agreement template.
Corporate Bylaws
Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Corporate bylaws are required by law in Alabama (see AL Code § 10A-2A-2.05).
Use our Alabama Corporate Bylaws template or our Alabama Nonprofit Bylaws template.
5. Prepare To Do Business
Before you can start doing business, you’ll need to make sure you get an EIN, open a business bank account, and apply any licenses or permits you need to legally operate in Alabama.
Obtain an EIN
Who needs an EIN?
- Corporations
- Nonprofits
- Partnerships, including multi-member LLCs
- Businesses with employees
- Businesses filing taxes as S Corps
What is an EIN?
An Employer Identification Number (EIN) is 9-digit number that functions like a Social Security Number for your company.
You’ll use your EIN to pay federal taxes, open a business bank account, set up withholding tax for any employees, and more.
Even if your business isn’t required to get an EIN, getting one prevents you from having to use your Social Security Number for business purposes. This increases your privacy and helps reduce the risk of identity theft.
Check out our guide to applying for an EIN.
Open a business bank account
The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. Opening a bank account to keep your personal and business finances separate can help uphold that separation.
Setting up your account:
Requirements vary from bank to bank, but generally, here’s what you’ll need to set up your account:
- Formation documents
- Corporate bylaws or operating agreements
- EIN
- LLCs: LLC Resolution to Open a Bank Account
- Corps: Corporate Resolution to Open a Bank Account
Why create a business account?
Without a business bank account, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status.
Having a business bank account also helps you keep your finances organized so filing your taxes is easier, and allows you to accept credit card payments from customers.
Apply for business licenses
All Alabama businesses, with the exception of some veteran-owned businesses, are required to annually register with the Alabama Department of Revenue for a Business Privilege License.
Note: Alabama Business Privilege License is separate from the Alabama Business Privilege Tax. Both are required.
Most Alabama businesses will also need both state and local licenses (and sometimes federal licenses as well) in order to legally operate. Licensing requirements for each business are determined by the industry and location of the business.
Learn more about getting a business license in Alabama.
Businesses must apply for a Business Privilege License from the probate judge in every municipality where they do business. The license is valid for one year, and privilege license fees vary by location. You’ll need to contact your local licensing office to apply for any necessary licensing. Here is a list of Alabama municipalities.
Alabama’s Privilege and Store Licenses Handbook is a good place to start if you want to know how much your business license will cost. Fees for obtaining a business license will vary depending on where the business is located, and what kind of business it engages in.
6. Maintain Your Business
Building up your business identity and making sure your business meets all the legal requirements do start doing business is just the beginning. Maintaining your business and staying in compliance with state and federal requirements is essential to your company’s continued success and growth.
File your Alabama annual report
As of 2024, Alabama doesn’t technically require businesses to file an annual report. However, you are required to file an Alabama Business Privilege Tax Return and Annual Report each year as a follow-up to your Initial Business Privilege Tax Return.
Alabama corporations, LLCs, limited liability partnerships, and limited partnerships are required to file each year with the Alabama Department of Revenue. Nonprofits are exempt.
Tax return rates
Annual report fees are based off a business’s federal taxable income from Alabama sources. If your LLC sells widgets in Alabama and Florida, your fee will be based off your widget sales in Alabama.
Fees range from $0.25 to $1.75 for each $1,000 of net worth located in Alabama, with a minimum tax of $100, and a maximum of $15,000.
Filing your return
LLCs and corporations must file an annual Alabama Business Privilege Tax Return each year with the Alabama Department of Revenue. Filing can be completed online or by mail.
C corps and S corps are also required to attach form AL-CAR to their annual report filing and include a $10 filing fee.
Late filing penalties
Late reports earn a penalty of $50 or 10% of your total fees due, whichever is greater.
If you don’t pay your fees on time, the state will charge you 1% of the total due each month until you are paid up.
Read more about How to File an Alabama Annual Report.
Pay taxes
Compared to other states, Alabama has fairly low personal income and corporate income tax rates. But taxes don’t end at the state level. You’ll also need to pay attention to federal and local taxes.
LLCs: Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. LLC members need to cover their own federal self-employment taxes (15.3%). Each LLC member will pay this tax on all business profits until the maximum annual contribution is met. Additionally, an LLC can file paperwork with the IRS to be taxed as an S Corp or C Corp.
Corporations: Corporations are taxed as C Corps by default. This means that corporations pay the 21% federal corporate tax rate and the applicable Alabama corporate tax rate.
Alabama Start a Business FAQs
Yes! A one-person LLC is called a single-member LLC. Single-member LLCs are one of the most common kinds of businesses in the country. For the most part, single-member LLCs are just like multi-member LLCs, but there are some slight differences in how they file taxes and protect personal assets.
Read all about Single-Member LLCs.
Form a New Business in Alabama
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