Requirements to form an LLC in Alabama

Creating an Alabama LLC involves a series of legal steps outlined in Alabama's Business and Nonprofit Entities Code (Title 10A, Chapter 5A). Skip any of these requirements, and you're setting yourself up for rejected filings, compromised liability protection, and ongoing compliance problems.

These requirements cut across:

• Naming requirements
• Registered agent requirements
• Certificate of Formation filing
• Operating agreement considerations
• Ongoing compliance obligations, like Business Privilege Tax returns

1. Name requirements

Your LLC name must end with "Limited Liability Company," "L.L.C.," or "LLC." Alabama won't process your Certificate of Formation without this suffix.

Next comes uniqueness. Your name must be "distinguishable" from every other entity on file. Check the state's business entity database before filing, or you'll waste $200 on a rejected application. The Secretary of State rigorously enforces this, and switching "LLC" to "Inc.," adding "the," using ampersands, or changing singular/plural won't satisfy requirements.

Some names are off-limits regardless of uniqueness:

• Words suggesting government connections are banned outright (like "FBI," "Treasury," "Police")
• Terms like "bank," "trust," "insurance," "architect," "engineer," or "attorney" require extra paperwork or special licenses from relevant state agencies
• Protected terms like "Olympic" get automatic rejection
• Obscene or misleading terms are prohibited

Need time to get your paperwork together? Reserve your chosen name for one year. Submit a Name Reservation Request for $28 online or $25 by mail, and the name stays yours while you handle the rest.

2. Registered agent requirements

Alabama Code Section 10A-1-5.31 requires your entity to have a registered agent who meets the state's standards. This registered agent must be in place from day one and remain continuously available.

You have two choices:

• Any Alabama resident who is at least 18 and willing to be present at their physical street address during business hours can serve. You, a friend, or an employee works, but the LLC itself cannot serve as its own agent.
• Alternatively, hire a business entity that's authorized in Alabama and offers professional registered agent services. These commercial agents keep your personal address private and forward documents immediately.

Either way, your registered agent must provide written consent and maintain a physical Alabama street address (no P.O. boxes, mailbox services, or virtual offices). This person or entity serves as your legal first responder, accepting lawsuits, subpoenas, tax notices, and state correspondence.

3. Certificate of Formation requirements

Filing a Certificate of Formation brings your Alabama LLC into legal existence. Alabama uses Form SOSDF-8 from the Secretary of State website—follow the exact format, or your filing gets rejected.

Before submitting, gather these essential details. Everything you enter becomes public, so include only information you're comfortable sharing:

• Entity name: Must match your Name Reservation Certificate exactly
• Name Reservation Certificate: Mandatory attachment—skip it and your filing gets bounced
• Registered agent's name and Alabama street address: Physical location only; P.O. boxes get rejected
• Principal office street address: Can be in Alabama or elsewhere, but must be a physical location
• Organizer's name and mailing address: The organizer is just the filer and doesn't need to own the company
• Professional LLC or Series LLC designation: Leave blank if neither applies
• Organizer's signature: Typed signatures work for online filings, ink required for paper submissions

After acceptance, the Secretary of State assigns your entity ID and posts your filing online. If you later change any public details, file an amendment to keep your records current and avoid delinquency.

4. Operating Agreement requirements

Alabama doesn't force you to create an operating agreement, but relying on default state rules is risky. Without a written agreement, every internal dispute gets settled by generic state rules that rarely match how you actually run your business.

A good Operating Agreement covers several critical areas:

• Start with who owns what percentage and what everyone contributed.
• Specify whether members or managers run things and how voting works.
• Detail how profits and losses flow to members and when distributions happen.
• Include how meetings work, from giving notice to what counts as a quorum, plus clear rules for joining and leaving, with buy-sell terms and valuation methods.
• Lay out exactly how dissolution and winding up would work.

A well-crafted agreement provides crucial legal protections. It prevents state default rules from reallocating profits, clarifies who can sign contracts, and documents the purpose behind each capital contribution.

5. Initial and ongoing compliance requirements

Once Alabama stamps your paperwork, a series of federal and state requirements kicks in, each with different deadlines and consequences.

• You'll need an Employer Identification Number from the IRS right away to open a bank account and maintain liability protection.
• Get a Business Privilege License from your city/county, and check if you need professional licenses for your industry.
• Opening a business bank account requires perfect timing. You need your approved Certificate of Formation, EIN confirmation, and tax account registrations all ready at once.
• Your registered agent information must stay current.
• Alabama requires an initial Business Privilege Tax filing (Form PPT) within 2½ months based on your LLC's net worth, then annually thereafter.
• Local Business Privilege License renewal is required annually, with fees varying by municipality.
• Maintain corporate records, including minutes, tax correspondence, and renewal receipts, to preserve liability protection.

Consequences of non-compliance

If you skip one filing deadline or let your registered agent information expire, Alabama quickly escalates consequences. This includes:

• Loss of good standing status and inability to obtain Certificates of Compliance
• Administrative dissolution by the Secretary of State for non-compliant LLCs
• Personal liability exposure when the corporate veil is pierced due to mixed personal and business funds
• Default judgments from missed legal notices through substituted service
• Tax penalties starting at $50 plus interest on late Business Privilege Tax returns
• Operational lockout preventing contract bidding, insurance acquisition, or multi-state registration
• Loss of ability to sign contracts, open accounts, or expand business operations
• Blocked license renewals and funding difficulties during investor due diligence

Alabama compliance is an ongoing process. Keep filings current, pay Business Privilege Tax on time, and maintain proper registered agent information to avoid the cascade of penalties that can jeopardize both your business operations and personal finances.

Ensure Alabama LLC compliance with Discern

Discern tracks your LLC’s compliance obligations across all jurisdictions and handles most filings, including Periodic Reports and foreign registrations, in minutes. Registered agent service comes built-in, so you never worry about an Alabama street address or consent forms. 

Ready to ease your compliance burden? Book a Discern demo today.