When you are starting a business in Alabama, it can be challenging to decide if forming an LLC or a corporation is best for your business. This incorporation guide for Alabama will help you make that decision! Within this customized Alabama LLC and corporation formation guide, you’ll find the information you need on how to start both an LLC or a corporation in the state of Alabama, and the pros and cons of both business structures.

After determining which business structure is best for you, you can hire Active Filings to take care of the incorporation process for your Alabama business. Our starter package begins at the low price of $25 (plus state fees), and we know you’ll understand quickly why Active Filings is America’s most reliable business incorporation service.

Alabama LLCs vs. Alabama Corporations

In matters of choosing between forming an LLC or incorporating your business, despite which state you choose, there are several overarching factors on which to base your decision:

  • Ease of maintenance
    LLCs require lower maintenance, and this is the leading reason why many new business owners choose LLCs over corporations. Corporations involve holding annual meetings, directors meetings, resolutions, meeting minutes, and maintaining a significant amount of paperwork. LLCs require little to no maintenance by comparison. Unlike corporations, LLC members and owners can make executive decisions whenever necessary and seldom need resolutions.
  • Desired tax structure
    LLCs default to a “pass-through” entity tax structure, where profits are passed directly onto the owners and members and taxed as personal income. By default, corporations are taxed as C corps. When the net income is taxed and profits are distributed to the shareholders (owners), the distributions are taxed again as personal income, resulting in double taxation. This aspect of corporations may seem negative, but this structure can provide positive advantages, as well, such as reinvesting profits into the company.
  • Investors
    Investors and venture capitalists are familiar with and understand the corporate structure, which is why they may feel more comfortable investing their time and money in corporations than in LLCs. If investors are something you want for your company, consider starting a corporation. 

The oldest and most prestigious entity form is the corporation. Being able to attach the “Inc” or “Corp” ending to your business name conveys permanence and soundness. LLCs are still following close behind and are able to provide some level of prestige and flexibility as they continue to gain popularity in the future.

Advantages and Disadvantages of Alabama LLCs and Corporations
Now that we’ve covered the basic advantages and disadvantages of LLCs and corporations, we need to cover more specifically why an Alabama LLC or an Alabama corporation may be better for you. Each state will be unique in the way it operates based on its governing state statutes; understanding this fact demonstrates the importance of knowing the different advantages of these entities on a state level. Keep reading to see the unique differences between an Alabama LLC and an Alabama corporation.

  • All Alabama Entities Must Pay an Annual Franchise Tax Along With Their Annual Report
    In most states, businesses don’t have to file any reports other than an annual or biennial report. In Alabama, however, corporations and LLCs must file a combined form known as the Alabama Business Privilege Tax Return and Annual Report. Alabama imposes a franchise tax called the Business Privilege Tax (BPT). The BPT is a tax based on a business’s net worth. Most businesses pay a minimum BPT of $100, and a $10 annual report filing fee (one of the lowest in the US) will also be required. The BPT allows you to calculate your tax and complete your annual reporting requirement simultaneously.
  • Alabama Corporate Income Tax
    C corps in Alabama are required to pay a state corporate income tax. This tax is a flat rate of 6.5%.
  • Alabama Business Privilege Tax (BPT)A Franchise Tax on All Entities
    While franchise taxes aren’t uncommon in many states, the Alabama BPT is on a graduated scale, and the state taxes a business based on its net worth—the higher your worth, the higher this tax will be for your business each year. The rates range from $.25 to $1.75 for each $1,000 of your net worth, with a minimum tax of $100.
  • Alabama Personal Income Tax
    For individuals, the personal income tax rate differs for single and joint filers. Your personal income from your LLC will be taxed as follows:
Single Filer  
2% $0 – $500
4% $500 – $3,000
5% $3,000 +
   
Joint Filer  
2% $0 – $1,000
4% $1,000 – $6,000
5% $6,000 +

 

Alabama LLC or Alabama Corporation? Final Answer.
Compared to corporations, the low-maintenance and straightforward LLC business structure offers less paperwork and fewer annual requirements. In Alabama, LLCs are more complex than a typical LLC, partly because you are subject to an extra four pages of paperwork to file the Alabama Business Privilege Tax. The other part of the added complexity is the need to file state income tax returns versus just reporting the LLC profits and losses on your personal income tax return. The state statutes within Alabama do not contain any special advantages for either LLCs or corporations in terms of liability protection.

The question whether you should choose an LLC or a corporation for your business can be answered by considering your business’s future growth. The limited liability aspects are structured the same for both corporations and LLCs in Alabama. An LLC will suit your needs if you are maintaining a small or medium-sized business. If you predict your business will grow substantially and investors are a factor in your future, a corporation will be in your favor (if you can take on the extra annual paperwork).

 

How to Incorporate in Alabama

To incorporate a business is to form a corporation. To learn how to form a corporation in Alabama, follow our Alabama incorporation guide below:

 

Alabama Certificate of Formation Requirements

To become incorporated in Alabama, you must file the Domestic Business Corporation Certificate of Formation document. This document must be filed alongside a Name Reservation Certificate, which can be processed online immediately or through postal mail after submitting a Name Reservation Request Form.

 

Filing the Alabama Domestic Business Corporation Certificate of Formation
Alabama is the only state that requires you to reserve your name before you can file your Certificate of Formation. To reserve your name, obtain the Name Reservation Certificate by submitting a Name Reservation Request Form immediately online for $28 or through postal mail with the Secretary of State for a $10 fee. Once you’ve obtained a Name Reservation Certificate and completed the Certificate of Formation, you must also include a Secretary of State fee of $100 and a separate Probate Judge fee in your filings to the Office of the Judge of Probate. Probate Judge fees range between $35 and $75 depending on your county.

Unlike most states, you do not file these certificates and fees with the Secretary of State. Instead, you must file them with the Office of the Judge of Probate in the same county as the corporation’s initial registered office. The Probate Court transmits the documents and fees to the Secretary of State on your behalf, and provides you with a stamped copy.

A list of Probate Judge offices in all the counties in Alabama can be found on the Alabama Secretary of State website.

To complete the Alabama Certificate of Formation, you must include the following information:

Name of Corporation This is where you put your corporation’s name. The name must contain the word “corporation” or “incorporated,” or their corresponding abbreviations. Your corporation's name must not be the same or similar to an existing name of an Alabama corporation. The availability of the name can be determined by visiting the Business Entity Records section of the Alabama Secretary of State website.
Principal Office Street and Mailing Address The principal place of business is the location where the official business documents of the corporation reside. This address must be a physical street address. When you hire Active Filings to incorporate your company, you can use our office address for this article.
Registered Agent and Registered Office Include the name and address of your corporation’s Alabama registered agent. A registered agent is an individual or business that serves as your company’s official point of contact for lawsuits and legal notices. If you hire Active Filings to form your Alabama corporation, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your corporation active, as well as provide a bevy of free online tools in your online Active Filings account.
Purpose In this section, describe the purpose for which your corporation has been organized.
Authorized Shares List the number of shares of stock currently authorized by your corporation. Declaring the number of shares in this section is technically the process of creating stock for your corporation. You can always add more as needed at a later date. You have the option to list the par value here, but it does not need to be completed.
Incorporator(s) The incorporator is the person authorized to create your corporation. They do not need to be affiliated with the business in any other capacity. If you form the corporation, your name and address goes here. If you hire us to do so, we’ll sign here.
Director(s) Include the name and address of your business’s director. The directors are the people chosen to jointly oversee the activities of a company, and act on behalf of the shareholders. Directors in Alabama are required to be natural persons at least 19 years of age, with no shareholder or residency requirement.
Incorporator Signature The incorporator must sign and date. This document can also be signed by the chair of the board of directors, the president, an officer, or a fiduciary.

How to Start an LLC in Alabama

Alabama Domestic Limited Liability Company Certificate of Formation Requirements
Alabama is the only state that requires you to reserve your name before you can file your Certificate of Formation. To reserve your name, obtain the Name Reservation Certificate by submitting a Name Reservation Request Form immediately online for $28 or through postal mail with the Secretary of State for a $10 fee. Once you’ve obtained a Name Reservation Certificate and completed the Certificate of Formation, you must also include a Secretary of State fee of $100 and a separate Probate Judge fee in your filings to the Office of the Judge of Probate. Probate Judge fees range between $35 and $75 depending on your county.

Unlike most states, you do not file these certificates and fees with the Secretary of State. Instead, you must file them with the Office of the Judge of Probate in the same county as the LLC’s initial registered office. The Probate Court transmits the documents and fees to the Secretary of State on your behalf, and provides you with a stamped copy.

A list of Probate Judge offices in all the counties in Alabama can be found on the Alabama Secretary of State website.

Filing the Alabama Domestic Limited Liability Company Certificate of Formation

To complete the Alabama Certificate of Formation, you must include the following information:

Company Name This is where you put your LLC’s name. The LLC name must contain the words “limited liability company” or the abbreviation “L.L.C.” or “LLC." The name must be distinguishable from names existing on record with the Alabama Secretary of State. The availability of the name can be determined by visiting the Business Entity Records section of the Alabama Secretary of State website.
Registered Office and Registered Agent Include the name and address of your LLC's Alabama registered agent. A registered agent is an individual or business that serves as your company’s official point of contact for lawsuits and legal notices. If you hire Active Filings to form your Alabama LLC, we’ll provide a year of registered agent service for no additional charge and track all required maintenance filings to keep your LLC active, as well as provide a bevy of free online tools in your online Active Filings account.
Type of LLC (if applicable) If you are forming a Series LLC or a Professional LLC, check the appropriate box here.
Delayed Date or Time The filing date is the default date the LLC will be effective. If you’d prefer a different date in the future (within 90 days after the filing date), specify it here.
Organizer Signature The incorporator must sign and date. This document can also be signed by the chair of the board of directors, the president, an officer, or a fiduciary.

Alabama Business Maintenance & Taxes

In order to keep your LLC or corporation in Alabama in good standing, you need to complete a couple tasks with the state to keep your business entity up and running.

  1. File Your Annual Report
  2. File Your Alabama Business Taxes

Below, you’ll find instructions and resources to help you accomplish all your maintenance and tax-related upkeep.

What is an Alabama Annual Report?
Every active LLC and corporation in the state of Alabama must file an annual report, which is actually a combination of a report and a tax return. There is no standalone annual report—only entity information to give as part of the Business Privilege Tax Return.

Specifically, the annual report is combined with the Alabama Business Privilege Tax (ABPT) that must be paid every year. When you file this tax, you are also completing your annual report requirement. This combination report is jointly referred to as the Alabama Business Privilege Tax Return and Annual Report.

What is the Alabama Initial Privilege Tax?
Initially, Alabama requires all entities to file the one-time filing of an Initial Business Privilege Tax Return (Form BPT-IN) with the Department of Revenue within two and one-half months of incorporation. The amount due for that filing will be a minimum of $100, but you may owe more depending on your federal taxable income and your net worth.

How do I file an annual report in Alabama?
LLCs and corporations can file the Alabama Business Privilege Tax Return and Annual Report through postal mail and use different forms depending on the entity. This must be filed through the Department of Revenue.

  • LLCs:

Mail Form PPT (and Form BPT-V if making a payment) to:

Alabama Department of Revenue

Business Privilege Tax Section

PO Box 327431 (327320 if making a payment)

Montgomery, AL 36132-7431

 

  • Corporations:

Mail Form CPT (and Form BPT-V if making a payment) to:

Alabama Department of Revenue

Business Privilege Tax Section

PO Box 327431 (327320 if making a payment)

Montgomery, AL 36132-7431

How much does it cost to file an annual report in Alabama?
The cost to file an annual report will be a minimum of $100, but you may owe more depending on your federal taxable income and your net worth. 

When are Alabama annual reports due?
Annual reports for LLCs are due by the 15th day of the 3rd month after the beginning of the taxable year, or March 15th for most LLCs.

Annual reports for corporations are due by the 15th day of the 4th month after the beginning of the taxable year, or April 15th for most corporations.

There is an exception for businesses with a fiscal year end of June 30. The Alabama Business Privilege Tax Return and Annual Report is then due on the 15th day of the 3rd month after the beginning of the taxable year.

Tax Section

Alabama Business Taxes
Alabama’s business taxes are involved. For corporations, the state imposes a corporate income tax. For all businesses, the state imposes a business privilege tax (BPT), which is an amount based on a business’s net worth.

The filings are complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Take a look at our Alabama Business Tax FAQ below:

What is the Alabama Business Privilege Tax?
The Business Privilege Tax (BPT) is an annual franchise tax imposed on all businesses for the privilege of conducting business in the state, as well as ensure that businesses are operating legally in Alabama.

This tax is filed in a combined report with the annual report each year as well.

How is the Alabama Business Privilege Tax calculated?
The BPT is a graduated scaled, and the amount owed is based on the business’s net worth, with a minimum tax of $100. The amount is calculated at the following rates:

0.025%: $0 – $1

0.100%: $1 – $200,000

0.125%: $200,000 – $500,000

0.150%: $500,000 – $2.5 million

0.175%: $2.5 million +

Who has to pay the Alabama Business Privilege Tax (BPT)?
All Alabama businesses must pay the Alabama Business Privilege Tax. This includes all forms of corporations and limited liability entities.

What tax forms do I need to file for the BPT?
Limited liability entities must file Form PPT and corporations must file Form CPT, which are combination forms that also satisfy the annual reporting requirements. These forms can be found and submitted at the Alabama Department of Revenue website.

Okay, so what tax forms do I need to file for an LLC in Alabama?
In addition to the BPT filing, your LLC may need to file a state income tax return under the following classifications:

If your LLC is taxed as a partnership, you will need to file Form 65, which is for informational purposes.

If you own a single member LLC, you will need to file Form 40, which is your personal income tax where you report all your LLC profits and losses.

If your LLC elected to be taxed as an S corporation, you will need to file Form 20S, which is a tax return that also serves informational purposes.

 

What information is required on these various LLC tax return forms?
Form 65 requires:

Federal Business Code Number

Federal Employer Identification Number

Federal income, deductions, losses, and expenses

Schedule K-1 (as attachment)

What tax form does an Alabama corporation need to file?
C corporations need to file Form 20C, which is a consolidated income tax return. This form can be found and submitted at the Alabama Department of Revenue website.

What’s the Alabama corporate tax income rate?
Alabama’s corporate income tax rate is a flat 6.5%.

How are Alabama corporate income taxes calculated?
Alabama corporate income taxes are calculated with a flat scale, and do not have a minimum tax amount.

What’s the personal income tax rate in Alabama?
There are different tax brackets for single and joint filers:

Single filers will follow these rates:

2%: $0 – $500

4%: $500 – $3,000

5%: $3,000 +

Joint filers will follow these rates:

2%: $0 – $1,000

4%: $1,000 – $6,000

5%: $6,000 +

When are my business tax returns due?
Business tax returns and the BPT filings are due:

by the 15th day of the 3rd month after the fiscal year ends, or March 15th for most LLCs.

by the 15th day of the 4th month after the fiscal year ends, or April 15th for most corporations.

An initial tax return filing is due 2.5 months after forming your business, called the Alabama Business Privilege Tax Initial Privilege Tax Return.

When you hire Active Filings to incorporate your business in Alabama, you’ll receive everything you need to track and maintain your company, this includes:

  • Free expedited service
  • One year of registered agent service
  • An online account where you can add additional services, track orders, maintenance requirements and digital notifications.

Get Started

Learn More About Incorporation Requirements In Your State