Are you looking to start a professional corporation in Alabama, but you’re not sure where to start?
Professional corporations are those owned and operated by licensed professionals, like doctors, lawyers, and architects. There are quite a few important steps you’ll need to take to create your Alabama professional corporation and maintain it, so this guide will outline the rules and regulations involved with this process.
We’ll cover everything you need to know, from picking names, choosing a board, navigating taxes, and more. To get started, please reference our guide below or hire a professional online incorporation service.
What is an Alabama Professional Corporation?
On the surface, a professional corporation and a regular corporation look very similar. Both businesses can issue stock, both have bylaws, and both are governed by a board of directors and an executive team. Both pay corporate income taxes, too.
And more importantly, both corporation types offer personal asset protection. Simply put, a shareholder or member of the business isn’t liable for the business’s debts. So a member of the corporation can’t be sued; the corporation is sued. However, in a professional corporation, there’s one exception: individual members can be sued for malpractice.
That’s especially important because professional corporations usually offer professional services, such as lawyers, dentists, doctors, chiropractors, and more. All of those trades can be sued for malpractice. But in a PC, only the person responsible for the malpractice can be sued. That makes it a better option for most professionals.
In Alabama, a corporation is allowed to create a professional corporation that offers professional services. However, PCs can only offer one type of service; additional services must be offered by another PC. The only exception is PCs in health-related fields. These PCs can offer multiple medical services as long as at least one shareholder is licensed for each service offered by the business.
7 Steps to Start a Professional Corporation in Alabama
Now let’s jump into the specific steps you’ll need to take to form a professional corporation in Alabama. Later on in this guide, we’ll discuss the steps you need to take in order to maintain your corporation in Alabama. But let’s start at the beginning.
1. Select Your Board of Directors
A professional corporation is only as good as its board of directors, so you’ll want to appoint carefully. And while the bulk of people involved in the day-to-day operations of your business will be licensed in your profession, we recommend having your board be a bit more diverse.
For example, a dental PC might want a director with legal experience, one with business growth expertise, a financial expert, and so on. This gives you diverse input to help the business succeed.
Alabama makes it relatively simple to choose your board because the list of rules for your PC’s governing body is pretty short. First, you must have a minimum of three directors. Second, at least one director (and the PC’s president) must be “qualified person” for the corporation’s industry (i.e., licensed). As long as you meet those requirements, your bylaws can dictate all other terms for your board. For example, the bylaws can dictate how directors will resign and be replaced, their duties, and more. For a full look at Alabama’s rules for a board of directors, please consult the Directors and Officers sections of the professional corporations chapter and the business corporations chapter.
2. Designate a Registered Agent
Every Alabama professional corporation—and even other entity types—must appoint a registered agent. This individual accepts “service of process” from the state on your behalf. Basically, if the state ever needs to notify you regarding a lawsuit or an upcoming annual report due date, they’ll contact your registered agent. Your agent forwards that notice to you.
Alabama has a few legal requirements for your registered agent, though:
- Every entity that files with the Secretary of State (both domestic and foreign) must appoint a registered agent
- The registered agent must be a resident of Alabama OR a business registered to do business in Alabama
- An agent must be continuously maintained
You can find a full rundown of the state laws in the The Alabama Business and Nonprofit Entities Code.
Technically, you can serve as your own registered agent, but we don’t recommend that. First, you’ll be busy running the day-to-day affairs of your corporation. It’s also important to note that the registered agent’s address goes on the public record; some entrepreneurs are uncomfortable with that idea. Because of that, it’s a good idea to appoint a third-party, like an individual that you trust or one of our top registered agent services.
3. Choose a Name for Your Corporation
Technically, you can complete this step at any point during the process, but we’ve put it here—depending on how involved your board of directors or fellow incorporators are, they may want to be involved in the naming process.
Choosing a name can be one of the most fun—and challenging—parts of starting a PC. There are a few things to keep in mind when picking a name.
Meet Alabama’s Legal Requirements
The trickiest part of naming a business is adhering to the state’s legal requirements for naming a business. Thankfully, Alabama keeps its laws relatively simple:
- Your name must include the words “corporation” or “incorporated” or an abbreviation of those words
- Your name cannot include abbreviations that apply to other entity types, like “Inc.” or “Partnership”
- Your name must be “distinguishable on the record,” or distinct from the names of other state businesses
- Your name cannot include language that implies that your business is conducting activities prohibited by law
Pick a Descriptive Name That You Like
As long as you meet legal requirements, you have a lot of leeway to pick the perfect name for your professional corporation. In general, you should choose a name that’s memorable, describes what your business does, and is easy to say and remember. More importantly, you should pick a name that you and your team likes. You should feel good when you tell other people about your business, and your name is a big part of that.
You can also reserve your name with the Name Reservation Request Form for Domestic Entities. In Alabama this is actually a required step, and it protects your name for 120 days, buying you time for other business start-up steps. After all the work to create a name, you don’t want to lose it to another business.
Get a Company URL
Even if you are not planning on building your website at the moment, it’s a good idea to go ahead and register your URL. If you wait for the formation to be complete someone else could take it in the meantime. GoDaddy can help you search for an available URL and build a website when you’re ready to launch online.
4. File your Articles of Incorporation
Now that you have your board, agent, and name all lined up, you’re all set to file your Articles of Incorporation. This three-page document (plus an attachment of your name reservation form) is what officially forms your business in Alabama, and it requires some foundational data about your business. This is the information you’ll need to provide:
- The name of your corporation
- An attached copy of your name reservation form
- Street address of the corporation
- Mailing address of the corporation
- Name, mailing address, street address, and county of the registered agent
- Name and full address of the person filing the form
- Purpose for the corporation
- Amount of stock you’ll issue (and if desired, the par value per share)
- Name and address of each incorporator
- Additional provisions you wish to include
- Signature of each incorporator
- Payment information
All told, this form is pretty simple; the trickiest part is remembering to get your registered agent’s signature and remembering to attach a copy of your name reservation. As long as you include those, you’ll be well on your way.
Also keep in mind that Alabama has a unique filing procedure, but they do most of the work for you. Basically, you’ll file two copies of this form with the Secretary of State, and the SOS will forward a copy to your County Probate. $100 of your $200 filing fee goes to each office.
Alabama also accepts online filing for this document. If you opt for that route, your filing fee will cost $208.
5. Establish Your Corporate Record & Hold Your First Board Meeting
Now that your professional corporation officially exists, it’s time to establish your corporate record. Your board of directors will help you do this during your first board meeting.
The very first step you’ll take is drafting your bylaws. Alabama doesn’t dictate a lot of legal requirements for the day-to-day operations of your business, so that’s where your bylaws will come in. Your bylaws are basically the operating manual for your business: how the board is appointed and maintained, shareholder policies and distributions, how officers are appointed, and much more. Every PC will have slightly different bylaws, but it’s essential to have them.
In addition to creating bylaws, at your first meeting, you’ll want to appoint someone to take minutes at each meeting. These minutes form another vital part of your corporate record, summarizing all important activities and decisions.
Other important tasks for your first meeting include appointing officers, drafting a conflict of interest policy, establishing committees (if applicable), and more. No two board meetings are exactly alike, but the first one is a crucial (and busy) one.
6. Obtain Business Licenses
As a professional corporation, you won’t be a stranger to the licenses required by your industry. But we’d be remiss not to remind you of them!
In Alabama, every individual involved in the service offered by the PC must have a license for that industry. On top of that, at least one member of the board and the PC’s president must have the correct license. If any of your employees or directors need to renew or obtain a license, then the database of Alabama professional licensure boards is a great place to get started.
Some states also require a general business license on top of professional licenses, but Alabama doesn’t. That said, we recommend double-checking with your city or county to see if there are any local licenses. A good starting point is to read our guide to AL business licenses.
7. Set up a Business Bank Account
If you don’t already have one, it’s time to get a business bank account. This enables you to ensure that your business funds and personal funds are always separate—an essential distinction to maintain your personal asset protection. Most banks will ask to see your bylaws (and maybe even your formation documents) as part of this process.
You can also look into getting a business credit card if you feel your company is ready for that step.
3 Steps to Maintain Your Alabama Professional Corporation
Now that your business is up and running, it’s time to maintain it compliantly. There are three major areas you’ll want to tackle (or plan ahead for): taxes, insurance, and annual reporting.
1. Prepare for Taxes
Taxes are a fact of life for a corporation. Before you do anything else, we recommend obtaining an EIN, or an Employer Identification Number—even if you don’t have employees. That’s because an EIN acts like a social security number for a business. What’s more, it’s free (and quick) to obtain through the IRS.
After that, if you have employees, you’ll want to anticipate your contributions to unemployment insurance and withholding taxes on both the state and federal levels.
And of course, there are corporate income taxes to account for (21% for federal and 6.5% for federal). These taxes are arguably the biggest expense a corporation will face in a given year. Income taxes are supplemented by Alabama’s miscellaneous industry taxes: cigarettes and alcohol are just a few of them. You can find more information on miscellaneous taxes with the Alabama Department of Revenue.
Not every tax will apply to your Alabama PC, and this is not an exhaustive list. Taxes are complicated and vary significantly depending on your business. We highly recommend consulting with a tax professional to ensure that you’ve covered all of your responsibilities.
To keep things organized and simple for all things tax, we recommend setting up an accounting software and working with a qualified professional.
2. Obtain Business Insurance
In addition to the malpractice insurance that each practitioner maintains, we highly recommend maintaining a general liability insurance policy for the business as a whole.
Lots of things can go wrong: fallen trees at your physical location, a fall on your property, malfunctioning equipment…it’s a long list. This general policy isn’t required by Alabama law, but we recommend it so you’re protected no matter what. Accidents and natural disasters can be very expensive.
Alabama does require one insurance policy, though: workers’ compensation. Any Alabama business with one or more employees must maintain one of these policies. For more information on this requirement, please consult the Department of Labor.
3. Anticipate Your Annual Business Privilege Tax Report
All businesses in Alabama are required to submit an annual filing, which is technically a tax filing (other states have a separate report, not filed with the Department of Revenue). This report is filed with the Department of Revenue, and it comes with an “initial” version too, which you’ll need to file right away. After that, you’ll file annually by April 15th.
This return also collects information about your business to ensure that all of the data on record is accurate and up-to-date. For more information, check out the BPT FAQs.
This form doesn’t seem like much, but don’t overlook it; delinquent filings can cause a lot of hassle. If you’d prefer to have a service handle this obligation for you, there are a handful of reliable report filing services.
Getting Help With Your Alabama Professional Corporation
Feeling overwhelmed or just need an extra hand? Here are some of our favorite resources for Alabama professional corporations.
Online Incorporation Services
If you would like to hire an affordable business incorporation service to create your professional corporation for you, services like LegalZoom, Rocket Lawyer and Swyft Filings can help you out. These service providers can handle most of the formation process, while still charging much lower rates than a business attorney’s fees.
There isn’t the same level of personalization that a lawyer can provide, but online incorporation services can still be a tremendous help. The only major issue with these service providers is the fact that they can’t provide any actual legal advice, so you need to know what you want ahead of time.
Alabama Business Attorneys
There are some situations where hiring a business lawyer is a preferable route to using an online incorporation service. The professional corporation as a business structure can be highly complicated and specialized, and if you want to have the peace of mind that every single step was taken care of by a true expert, hiring a business attorney to form your Alabama professional corporation is the way to go.
If you would like to pursue this route, there are some convenient services that can help you choose the right lawyer for your business. We like to use Avvo, which has extensive reviews and ratings for hundreds of Alabama business lawyers, which can make it much easier to select an attorney who has your best interests in mind and also has the expertise to get the job done right.
Frequently Asked Questions
Can I speed up the process?
Processing speeds for Alabama are pretty average, with 10 business days as the typical processing time (although filing online does speed it up a bit). If you want to speed that up, Alabama does offer expedited processing for $100; that speeds up the turnaround to three business days.
Can an Alabama professional corporation elect S-corporation status?
In most states, there’s a big advantage to electing S-corporation status, which allows a corporation to be taxed more like a pass-through entity. Since individual income taxes are often lighter than corporate ones, this election can reduce your tax burden. To qualify for this status, a corporation must have 100 or fewer shareholders and only one class of stock.
Alabama PCs can apply for this status with the IRS using Form 2553. If you elect this status, you won’t pay the 6.5% state corporate income tax; instead, your PC’s members will pay personal income tax rates on their personal returns.
Do I have to file my corporate record with the state?
Alabama does not require you to file your corporate record with the Secretary of State; you’re simply required to keep one. Most professional corporations choose to keep a classic binder with these records, but you can pick the method that works for you. Just ensure that it’s accessible somewhere onsite, and you’ll be able to add to it or consult it as needed..
What’s the difference between a PLLC and a PC? Can I form one in Alabama?
A PLLC, or Professional Limited Liability, is an LLC formed by professionals in regulated industries. Alabama offers the PLLC as an alternative to the PC because LLCs are a little easier to run (and have tax advantages over corporations). Some states don’t offer them, but Alabama offers both options.
Are incorporation services like ZenBusiness and Northwest worth it?
That depends on what your needs are. If you want to keep your expenses as low as possible, then you might find yourself bewildered by the state fee and the service’s package fees put together. But if you don’t want to endure the hassle of dealing with paperwork, or you simply want a teammate to help you through the process, a service may be a big help to you.
Another important note is that neither ZenBusiness or Northwest file professional corporations. Yes, they are ideal if you’re looking to form a regular corporation or an LLC, but not professional corporations.
Should I hire a business attorney to help with my PC?
Ideally, yes (if you can afford it). But a business-lawyer relationship is a very important one, and you’ll want to find a lawyer that fits your budget, your personality, your industry, and so on. One of our favorite tools for Alabama businesses is Avvo.com, where you can find lawyers in your city, based on the best customer reviews, and several other helpful filters. It’s a helpful tool.