If you’ve decided to form a limited liability company (LLC) in the state of Alabama, this is an exciting time for your business.
You’re probably ready to build up your LLC and operate the business you’ve always dreamed of!
However, before you get started, it’s important to understand all of the various fees and other expenses that come with forming an Alabama LLC.
Most entrepreneurs understand that they’ll have to pay the state a fee in order to get their LLCs formed. However, we find that some people are often unaware of all the potential additional expenses, like LLC formation service fees, registered agent service fees, Annual Report fees, taxes, and more. Let’s take an in-depth look at all the possible expenses you’ll encounter when forming an Alabama LLC.
The Required Upfront Costs of Forming an Alabama LLC
Let’s start by discussing the absolute essentials. You cannot form an LLC in Alabama without filing the Articles filing the Certificate of Formation. The Certificate is the document that officially forms your business with the state. This filing will cost $200 total, payable by credit card, check, or money order. The Secretary of State will, on your behalf, pay $100 of that $200 to the treasurer of the county where your registered agent is located.
The Certificate of Formation requires some important information about your LLC, including your Name Reservation filings, your registered agent’s name, the address of your registered office, the type of LLC you are creating, the effective date of your filing, and more.
But what if you’re not forming a brand-new business in Alabama, and instead you’re expanding into Alabama from another state? If that’s the case, you would file the Foreign LLC Application for Registration. This filing costs a little less: $150, also payable by check, money order, and credit card. This form is pretty similar to a Certificate of Formation, but it also requests information about where and how your original LLC was formed.
For many LLCs, these are the only upfront expenses that are required. That said, your Alabama LLC will certainly have other costs down the line, and there are some optional expenses as well. Understanding how many of these fees will apply to your business is the key to figuring out exactly how much it will cost to form your Alabama LLC.
The Optional Upfront Costs of Forming an Alabama LLC
The first optional expense for an Alabama LLC is name reservation. The only time you need to reserve a business name for an Alabama LLC is if you’re not yet ready to form the business but you want the name to be available when you are ready. It costs $30 to reserve a business name in this state, which gives you exclusive rights to the name for up to a year.
However, considering that you can simply form your business instead, the $30 name reservation fee is usually unnecessary.
Another expense that may or may not apply to your business is an LLC formation service fee. While some entrepreneurs choose to fill out and file their own Certificate of Formation, and others opt for the much more expensive route of hiring an attorney to handle it, our preferred option is hiring a business formation service.
These companies can provide the professionalism and peace of mind you receive from having a true expert forming your LLC while charging significantly lower prices than any lawyer you’ll ever find. We’ll discuss LLC formation services again in a bit to help you figure out which of the many companies you should hire.
Many LLCs also hire registered agent services, and these companies also charge their own fees. Every LLC needs a registered agent, as this is the LLC’s point of contact for the state. If the state needs to send you any important documents (like service of process), they will deliver them to your registered agent, who will inform you and forward the documents to you.
We like to bundle registered agent and LLC formation services, as there are some formation services that will throw in a full year of registered agent service at no extra charge. For the most part, these companies charge an average of roughly $150 per year for this service, although rates can vary widely based on which company you choose.
You may also want to secure your business domain name and website, which will add another expense to your list. We always advise our readers to claim their domain names as soon as possible after filing the Certificate of Formation because it’s important to get the URL you want for your website. Especially considering how much the business world operates online these days, getting the domain name you want is almost as important as securing your desired LLC name. The cost of a domain name can vary a bit, but for the most part, this should cost you $20 per year or less.
The Required Ongoing Maintenance Costs of an Alabama LLC
No matter if you’re forming an LLC that is unique to Alabama or if you are setting up a foreign LLC from another state, your LLC will need to file Annual Reports every year. But “Annual Report” is the national terminology for this filing; in Alabama, it’s actually referred to as the Business Privilege Tax. Technically speaking, it is a tax that you pay in order to have the privilege of doing business in the state. The tax is graduated based on your business income for the year, but there is a minimum tax of $100.
Depending on your LLC’s business pursuits, you will almost certainly need to pay some other form of ongoing business taxes as well. For instance, if your business sells any products or services, you’ll probably need to register for sales and use taxes in order to properly start a business.
If your LLC has employees, it will also need to pay unemployment insurance tax. Based on the nature of your business, there could be additional taxes on top of these, so make sure you check with the Alabama Department of Revenue to make sure you’re paying all of the taxes you should be.
The Optional Ongoing Maintenance Costs of an Alabama LLC
Much like you can hire an LLC formation service and a registered agent service, many of these same companies offer annual report services. If you’d like a reputable company to draft and file these reports on your behalf, you’ll need to pay their yearly service fees, on top of Alabama’s state fees.
Business insurance is another ongoing expense that many, but not all, LLCs will require. It’s very difficult for us to get into much detail on this topic because there’s so much variance from business to business regarding insurance coverage needs.
Still, for example, any business that serves customers from a physical retail location should have business liability insurance to protect against common risks like slip-and-fall accidents. Depending on the nature of your business, this may be just the tip of the iceberg when it comes to your insurance responsibilities.
Next, you’ll need to obtain (and maintain) a Business Privilege License through your county probate office. But that’s not the only license in Alabama, though. Depending on the nature of your business, you may still need to obtain professional or industry-specific licenses. There are many different licenses and permits that might apply to your Alabama LLC, and some of them might cost you money when you apply for or renew them, so this is another potential expense you’ll need to keep an eye out for.
The Potential Penalties for Avoiding These Costs
At this point, the costs are really adding up for some Alabama LLCs. You might be wondering what the consequences would be for avoiding some or all of these expenses. In short, it’s certainly not in your LLC’s best interests to skip out on any necessary fees.
If you don’t pay your Certificate of Formation filing fee, your LLC will never exist to begin with. If you fail to pay your annual Business Privilege Taxes, the state can administratively dissolve your business. Meanwhile, failing to pay your other business taxes in full can lead to some severe penalties for you and your business.
While it might seem that these expenses add up quickly, paying these fees is still a far better option than the alternative. If there is simply no way to cover these LLC formation costs, a secondary option is to operate as a sole proprietor.
The Best Alabama LLC Formation Services
Does the LLC formation process sound like a hassle? Would you rather pay someone else to form your LLC while you focus on actually growing your business? Fortunately, there are plenty of reputable LLC formation services out there that can provide professional assistance for a mere fraction of a lawyer’s fees.
There are dozens of different companies that offer LLC formation services these days, and it can be difficult to discern which of them is your best option. That’s why we put together our comprehensive guide to the top-rated business formation services available online. We encourage all of our readers to check out that guide and choose the right company for your specific situation. In addition, we’ll briefly run down a couple of our favorite options here.
We always appreciate what ZenBusiness has to offer, and they’re our top pick for LLC formation services for a reason. First off, ZenBusiness has some of the lowest price points in the industry. In addition, this company includes some valuable features like a full year of registered agent service at no additional cost.
ZenBusiness receives spectacular feedback from its clients, with 6,200+ reviews available online and nearly all of them being positive. Finally, the company also displays tremendous corporate responsibility, as it loans money to women- and minority-owned businesses and partners with Kiva.org to help lift people out of poverty.
Northwest Registered Agent: #2
You don’t need us to tell you that Northwest’s $39 entry-level price point is a good deal. What does Northwest Registered Agent do that makes them stand out? In short, Northwest has the best customer support we’ve ever experienced in this industry.
While most of its competitors have rather mediocre customer service departments, staffed by outsourced call centers, Northwest has highly trained professionals answering its phones at all times. These experts can help answer many tough questions that competing companies’ support teams won’t have a clue how to answer.
In addition, Northwest also offers its customers a year of registered agent service, just like Incfile and ZenBusiness. However, only Northwest locally scans every document it receives as your agent, while Incfile and ZenBusiness only scan the government forms they’re legally required to scan.
Another of our favorite options is Incfile. It’s impossible to top what Incfile has to offer for pricing, as they will form your business free of charge, as long as you pay your own state fee. Like ZenBusiness, Incfile also includes a year of registered agent service with your LLC formation service for no extra charge.
Additionally, Incfile has nearly 27,000 reviews online, with positive feedback far outweighing negative feedback. We don’t think they’re quite as well-rounded as ZenBusiness, but it sure is hard to argue with Incfile’s pricing model!
Frequently Asked Questions
What is the absolute minimum cost to form an Alabama LLC?
The cheapest possible price tag for LLC formation in Alabama is $200, plus local fees for your Business Privilege License from your county probate’s office. All other upfront expenses for an Alabama LLC formation are optional.
How much does it cost to form a corporation in Alabama?
In many states, it’s more expensive to incorporate a business into a corporation than it is to form an LLC. However, in Alabama, corporations also file a form entitled the Certificate of Formation, and they have the same filing fee of $200.
How long does it take to form my Alabama LLC?
On average, the Secretary of State’s office processes LLC filings within 3-5 business days. Expedited services are available for an additional $100. The extra fee ensures your documents are processed within 24 hours of receipt.
How much does ongoing LLC maintenance cost per year in Alabama?
It largely depends on how much income your business takes in during a given fiscal year. The Annual Business Privilege Tax is graduated based on your income; ideally, this annual expense will increase every year as your income increases. That said, the minimum tax is $100, so you should budget a minimum of $100 for maintenance each year.
Where can I find more information about expenses for Alabama LLCs?
The Alabama Secretary of State provides a comprehensive list of all business forms (and in turn, their accompanying fees) on this page.
How many small businesses are there in Alabama today?
Currently, there are more than 323,000 small businesses currently operating in Alabama. Intriguingly, many of those small businesses do not have employees; nearly 240,000 of those businesses operate without employees.
What are the top official state resources for entrepreneurs?
Whether you’re just starting out or you’ve been in business for a few years, Atlas Alabama is a fantastic resource. This government-run website offers pre-launch checklists, advice on writing a business plan, how to incorporate, and more. While it’s not a comprehensive resource, it comes close.
We’ve discussed many Alabama LLC costs in this article, some of which will apply to all LLCs in the state. As you can see, there are also plenty of expenses that will only affect certain LLCs. The most important takeaway is that you shouldn’t try to find loopholes to get out of paying these fees, as the consequences are potentially severe and easily avoidable.
That said, there are still some ways you can make financially smart decisions on your LLC formation and maintenance costs, like choosing an affordable business formation company to oversee your Certificate of Formation filing and provide registered agent service.