Do you have a great business idea, but you’re not quite sure how to get from the idea phase into owning and operating your own business in Alabama? You’ve come to the right place! There are many important aspects to running a company, and like any other state, Alabama has its own rules and regulations to consider.
In this guide to starting a business in Alabama, we’ll discuss all the relevant details to business ownership in this state. By the time you’re done reading, we think you’ll have a strong grasp on the necessary steps involved.
1) Create a Business Plan
The first step to creating any business in any state is to plan what products and services you’ll sell, set your operational budget, and figure out how you want to market your company.
When you are creating your business plan you will need to do market research. The market research that you do will help you determine your marketing and sales strategies. It will help you define who is the target audience, the current demand for your product or service, the market size, location, and pricing. It is important to do this before or in conjunction with your business plan, because you need to make sure you have direction and a foundation for your business. You often will use your business plan to try and get investors or loans, so you want to make sure your market research and business plan are thorough.
Your business plan doesn’t have to be fancy at all, you just need to make sure you spend enough time considering these important aspects before you actually launch your business. To get started, SBA.gov has a great free tool that can walk you through writing a business plan.
2) Choose a Name
The name of your business is an extremely important attribute because it’s often how you make your first impression to potential customers. It also will determine the direction of your branding
Before you decide on a name you must make sure it is still available. In Alabama, you can run a business name search to confirm that your desired business name is still available via the Secretary of State’s website. If your desired name is available, but you are not ready to file the formation paperwork yet, you can reserve the business name using this form. Name reservations cost $25 and last for a period of one year.
If you plan on creating a website for your business (we discuss this in Step 6) you may also want to make sure that the domain name you want is available. Even if you don’t plan on creating your website right away, it may be a good idea to go ahead and purchase it so no one else can take it.
Depending on whether you choose to form a corporation or a limited liability company, there are some legal aspects as well (for example, an LLC must include “LLC” or “limited liability company” in the business name, and a corporation must include “incorporated,” “corporation,” “Inc.,” or “Corp.”).
Beyond the basic legalities, you should focus on clearly identifying what your company does in your business name. You can also consider incorporating your values into your business name, like using the word “green” to denote environmental friendliness.
Finally, choose a name that you personally like and take pride in, and one that both sounds good when spoken aloud and looks good on paper.
One big piece of advice we have for naming a business is that you shouldn’t get too focused on one idea until you either form your company or reserve the name.
3) Decide on a Registered Agent
An Alabama registered agent is the person or service in charge of receiving your important government documents, and forwarding them to you. If you plan on operating your business as a sole proprietorship or general partnership you can skip this step and step #4.
According to the Alabama Secretary of State,
“each filing entity, each foreign filing entity, each foreign registered limited liability partnership registered pursuant to Article 7, and any registered limited liability partnership that does not maintain a place of business in this state shall designate and continuously maintain in this state: (1) a registered agent; and (2) a registered office.”
This position is vital to any Alabama business because without a registered agent, you could lose your good standing with the state, see your business dissolved by the state, or even remain unaware of a lawsuit proceeding against your company.
To find a registered agent, you can use the Secretary of State’s registered agent search tool.
4) Choose a Structure and Form Your Business
It is important to choose a proper business structure that works best for you and your business goals. Most entrepreneurs choose to form either a Limited Liability Company (LLC) or Corporation. Setting up either an LLC or Corporation creates a completely separate entity from yourself and provides liability protection.
If you’re just operating a sole proprietorship or general partnership, you don’t need this step (or several of the others in this guide, including selecting a registered agent), because those business structures don’t require any sort of formal formation process.
This leaves two main options: the corporation and the limited liability company.
Limited Liability Company (LLC)
The LLC is the more common option, partially because it’s much simpler. There’s not much paperwork involved, and the maintenance requirements basically amount to an annual report.
An LLC is a combination of the flexibility that comes with managing a general partnership and the protections afforded to corporations. An LLC is easy to start, you will need to register your company with the Alabama Secretary of State. You will fill out the certificate of operation which requires you to provide general information, such as your business name, your registered agent, and your management style. You will need to pay some fees and create an operating agreement.
If you are considering forming an Alabama LLC we have a comprehensive guide to walk you through the process of forming your LLC and what needs to be done after your LLC’s formation. Furthermore, LLC owners still receive the personal asset protection that makes a corporation so attractive as a business type in the first place.
For some entrepreneurs, the corporation is the better choice. There’s far more effort involved both in forming one and in maintaining it with the state of Alabama. To form an Alabama Corporation you will have to file your Articles of Incorporation with the Alabama Secretary of State, it requires similar general business information but you also have to give information concerning authorized shares.
In addition to registering your business you must also create bylaws, create a board of directors, and hold annual meetings. Corporations are normally the better option for larger businesses as they allow for more growth and investment than LLCs generally do. If you are considering forming an Alabama Corporation we have a comprehensive guide to walk you through the process of forming your Corporation.
If you would like to know more, check out our “LLC vs Corporation: What Is the Difference?” article. No matter which business structure you choose to form, you can find all the relevant forms on the Alabama Secretary of State’s website or have a professional business formation website do it for you.
5) Get an EIN
The vast majority of businesses operating in Alabama will need an employer identification number (EIN). It is free to get and is required for many different aspects of your business.
Whoever will be the responsible party for the company should register for the EIN. A responsible party is “the person who ultimately owns or controls or who exercises ultimate effective control over the entity.” It must be an individual and may not be another entity.
The EIN is required if your business is required to pay federal taxes. The EIN number is also required for your business licenses and permits which are filed through the Alabama’s Department of Revenue and will determine if you pay certain Alabama state or city taxes.
You will also need an EIN if you plan to hire employees, open a business bank account, or take advantage of a self-employed retirement 401(k). It is also a good idea to get an EIN for privacy purposes, so you are not constantly filling out paperwork using your social security number.
Getting an EIN takes about 5 minutes. You just have to visit the IRS website and can get your EIN almost instantly.
6) Develop a Business Website
In this day and age, even strictly local businesses should have a website, because the internet is your first point of contact for many of your customers. Your site doesn’t need to be fancy, but you should put some thought into your domain name, and make sure it’s something memorable and easy to type without misspellings.
If you’re not comfortable designing a site yourself ― and if you also don’t have the budget to hire a professional designer ― there are plenty of website builder tools that can help you put together a solid website. GoDaddy is very easy to use. All you have to do is get the domain (below) and then you’ll have the option to build the business website whenever you’re ready.
7) Take Care of Tax Obligations
You will need to use your EIN to take care of your tax obligations in Alabama. On the state level, there are a variety of tax registration requirements that may or may not apply to your company, depending on the nature of your business. These include taxes like lodgings tax, rental tax, pharmaceutical provider tax, nursing home privilege tax, mobile communication services tax, etc.
Thankfully, Alabama makes this part relatively easy, as they require all business entities to register through the “My Alabama Tax” system, or MAT. This keeps all of your tax information in one place and provides a direct line with the Department of Revenue. However, all corporations, partnerships, and single member LLC’s must first register with the Secretary of State to receive a charter number. You can register with MAT at this link.
Keep in mind that your city and/or county may have taxation requirements as well, so make sure to check with them to make sure you aren’t missing anything.
Here are some business resources for each of the largest cities in Alabama:
8) Acquire Business Licenses and Permits
Some states do not require statewide business licenses, but Alabama does; however the type of license that you need will depend on the nature and scope of your business.
Still, there are hundreds of state-level, industry-specific licenses and permits ― from auctioneering to motorcycle sales ― that may apply to your company depending on the nature of your business. To search through the full database of business licenses and permits, you should reference the state’s license and permits information page.
Much like with taxation issues, there’s also the matter of local licenses to consider. You can learn more about county-level occupational licenses right here.
9) Obtain Required Insurance Policies
While Alabama does not require insurance for all businesses, any business that employs five or more workers (full or part-time) must acquire workers compensation insurance. Additionally, if your business uses a vehicle, you are subject to the same laws that apply to all Alabama drivers. You will need an automobile insurance policy for any commercial vehicles.
It is the employer’s responsibility to get these policies to protect your employees, regardless of what line of business you’re in. Of course, it’s probably a good idea to acquire industry-specific policies to protect your company in other ways, but unemployment and workers’ comp are the ones strictly required by law.
10) Open a Business Bank Account
Whether you start a limited liability company or a corporation, you’ll need to keep your business and personal assets separated.
This is where opening a business bank account comes in. While having a separate checking account for your company isn’t a legal requirement, it makes separating your assets considerably easier, and we always advise that any business owner does so.
To open a business bank account you will need to provide the bank certain documentation in order to qualify. Some documentation varies depending on the type of entity that you create. This information includes, but is not limited to:
- Your EIN
- Your articles of organization/incorporation
- Bylaws and meeting minutes if you form a corporation or nonprofit
- A partnership agreement
- Alabama Business license
11) Don’t Be Afraid to Ask for Help
If you run into problems with any of the steps outlined in this guide, remember that you can always find help.
In this state, the Alabama Small Business Development Center exists solely to (in their own words) “[help] entrepreneurs start and grow their businesses at every stage in the company’s life-cycle.” With 10 locations across Alabama, the ASBDC is ready and willing to help if you need assistance.
Another excellent resource is the Alabama chapter of the U.S. Small Business Administration. Their website has information regarding small business events, business resources, press releases, SBA programs, and more.
In addition, here are more resources that are incredibly helpful to new entrepreneurs:
- Alabama’s Secretary of State: Doing business in Alabama will require you to continually interact with the Secretary of State. The Secretary of State’s website is where you can find almost all forms you may need when creating your business and while managing your business on an annual basis. They also provide some general information about doing business in Alabama.
- Alabama Department of Revenue: If you need information on taxes, tax payments, or business licenses the Alabama Department of Revenue is the best place for information. This department is in charge of all these aspects of business in Alabama.
- 5 Top Rated & Best Online Incorporation Services: If you are considering forming a corporation you may want to consider using an incorporation service. Incorporation services will handle all the paperwork for incorporating your business. We have put together a list of the 5 top rated and best online incorporation services of 2021.
- SCORE: Score is a nationwide nonprofit that partners with the SBA. They have the largest network of volunteers and business mentors. If you want more personal one-on-one guidance with any aspect of your business you may want to consider reaching out to your local branch of SCORE they can provide you with a personal business mentor. They also have training available online and in person. SCORE has 6 locations within the state of Alabama.
- SBDC: America’s Small Business Development Centers is the “most comprehensive small business assistance network in the United States and its territories.” They provide a large amount of resources such as cyber and data protection awareness training, and how to protect your business. They have also partnered with Google to teach business owners how to grow their business with Google. They provide a large amount of resources for anyone starting a business. Alabama has 14 locations in the state that you can reach out to.
- Atlas Alabama: The biggest state level resource available in Alabama. Atlas Alabama helps you identify the licenses and permits you need to start your specific business in Alabama. They have resources to help you write a business plan, determine start up costs, and have educational events available. If you need help getting your business up and running in Alabama, Atlas Alabama is there to help.
- Alabama Women in Business: If you are a woman and want to connect with other women in business the Alabama Women in Business is a nonprofit that holds many different events each year. You can choose to become a member which will allow you to attend additional events, be part of a peer group, and much more. They also provide resources for women looking to build and grow their business.
- National Minority Supplier Development Council: If you are a certified minority business, you can utilize the National Minority Supplier Development Council. They provide programs and events for entrepreneurs. They will help you connect to their corporate members so you have access to unique opportunities for growth.
While there are several vital steps in the process of starting a business in Alabama, taken individually these steps aren’t terribly complex.
It can seem overwhelming if you consider the entire process all at once, but if you break down these steps and take care of them one at a time, they’re all quite manageable. Keep in mind that you don’t need to go it alone with the DIY option ― if this process becomes overwhelming, or if you simply don’t have the time and energy to devote to these steps ― assistance is available.
Frequently Asked Questions
If I have a business completely online do I need to follow these steps?
Yes! Even if you do not have a physical store or office Alabama still requires you to have a business license and pay taxes. If you sell things online you may be subject to sales or use taxes. It may also be a good idea to consider forming an LLC or Corporation to provide you some protection.
What’s the best business structure if I want to operate in other states in addition to Alabama?
This depends on the size of your business and the goals you have set for yourself and your business. An LLC is overall the easiest business structure to form and maintain. If you plan on expanding you will be required to file your company as a foreign entity within the new state.
Do I need another registered agent if I expand my business outside of Alabama?
You need a registered agent in each state you do business in. So if you expand your business into another state, you will need a registered agent who has a permanent address in your new state. It is usually not the best idea to be your own registered agent long term, there is a lot of paperwork involved and you may not want to use your home address to be the place for you to be served government documents.
This is why we recommend using a registered agent service over hiring individuals to be your registered agent. Registered agent services already have offices setup in order to serve all 50 states. You won’t have to go searching around for a new registered agent.
How do I choose between an LLC and Corporation?
Choosing between an LLC and a Corporation is difficult. There is not a one size fits all solution to this issue. Some things you may want to take into consideration include, how much up front capital you need, how large you want to grow your business, and what kind of ownership structure you want. Luckily, you will not be stuck with one business entity. You can change the structure of your business if you find that it is not the right fit for you.