13 Simple Steps for Forming a Corporation in Alabama

You'll need to do three things to start a corporation in Alabama:

• Select a registered agent.
• Choose a business name.
• File a Certificate of Incorporation with the Alabama Secretary of State.

This paper can be filed online or by mail. The filing fee is at least $200, plus there is a name reservation fee of $28 (if done online) and a convenience fee of 4% (if done online). Once the state processes the Certificate of Incorporation, your Alabama company is officially made.

Why should you set up a corporation in Alabama?

There are several advantages of setting up Alabama Corporation. Let us go through them quickly.

Tax credits and breaks

There are several good things about being a new business in Alabama. Small and medium-sized companies can choose from a wide range of tax credits and tax breaks from the state. These rewards are part of a more considerable benefit your business can get from them. They include:

Sales and Use Tax Abatement

Businesses must take the right steps to ensure they qualify for this Abatement. An Alabama Corporation can get a break on the non-educational part of state and local sales taxes and use them on the building.

A new corporation in Alabama will also get a break on the general state sales tax (4% of sales) and the state industrial machinery and equipment tax (1.5% of sales). This is called "Abatement." Local taxes that haven't been set aside for schooling can also be waived. Aside from this, if an Alabama Corporation qualified project includes both personal and real property, they may get a break on their property tax for up to 20 years.

An Alabama Corporation can also take advantage of Chapter 9B Abatements, Chapter 9G Abatements, and Chapter 9C Brownfield Development Abatements, among other things.

Tax deductions

If you start a new corporation in Alabama, you can enjoy the state's tax credits. Some of the most important tax breaks they give are:

• Alabama Small Business and Agribusiness Jobs Act Credit: An Alabama Corporation with 75 or fewer workers may get a $1,500 tax credit. Companies can get this tax credit under Section 40-18-390 through Section 40-18-394 of the Code of Alabama 1975.
• Dual Enrollment Credit: Any corporation in Alabama that helps pay for school costs for the Career-Technical Dual Enrollment Program may get a 50% tax credit on the total money they give.
• Investment Credit: Businesses can get credit for accepted projects and help the state create new jobs. This credit is worth 1.5% of qualifying investments in capital each year.

Eneterprise Zone Program

The Alabama Enterprise Zone Act of 1987 says that the Enterprise Zone Program gives tax breaks to companies that move into or grow in an Enterprise Zone. It just implies that if you want to start a new business in Alabama, it has to be in an "Enterprise Zone" like Greene, Lowndes, Monroe, Coosa, Bullock, or Winston.

In addition to corporate income tax advantages and breaks at the state level, your Alabama Corporation may also be eligible for tax breaks and a few other benefits from the local government if it grows in an Enterprise Zone.

13 Ways to Form an Alabama Corporation

To start a corporation in Alabama, follow the steps below.

1. Pick a name for your business

Your company's name can't be the same as, too close to, or confuse the public with a corporate name that already exists in the records of the Alabama Secretary of State. The company's name must include "corporation" or "incorporated" or an abbreviation of one of those words.

Before you file your Certificate of Formation, you must hold the name of your business. Send the Secretary of State a Name Reservation Request Form for Domestic Entities. You can fill out the form online or by mail.

On the Alabama Secretary of State website, you can do a quick, free check to see if a name is available. Click on the Business Entity Search link on the Online Services page. Then, type the name you want to use for your business entity under "Entity Name" and search the database. If you don't fill out any other boxes on the search page, the system will show all the business entities here that use the name or, in many cases, names that sound close.

2. Get a Certificate of Formation ready

Your company is officially made when you file a Domestic Business Corporation Certificate of Formation. The Certificate should consist of the corporate name, its purpose, the name and address of a person for service of process, the number of shares the corporation is allowed to issue, the names and addresses of the incorporators, and the names and addresses of the directors. Your application for a Certificate of Formation must include a copy of the Name Reservation Certificate from the Alabama Secretary of State.

The Certificate of Formation is not turned in to the Secretary of State, which differs from most states. You must instead send it by mail to the county probate office or the Office of the Judge of Probate in the county where the first registered office of the corporation is based. The Probate Court will file the form and give you a copy that has been marked.

The court will then send your fee and the Certificate of Formation to the Secretary of State. On the Secretary of State's Probate Judges page, you can check out the names and addresses of the probate judges for every county in Alabama.

The filing fee for the Certificate of Formation is $100, and there is a different filing fee to file with the Probate Court.

3. Choose a Registered Agent

In Alabama, the service process must be done through an agent for every business. This person or business offers to take legal papers on behalf of the company if it is sued. A company can't act as its agent to get papers served on it. Before being named, the person should agree to accept the process service on your company's behalf.

The agent can be a person who lives in Alabama, a business in Alabama, or a company from another state with an office in Alabama. The registered agent service only must have a physical street address in Alabama, not a post office box. Small businesses usually choose a director or officer to be their first employee. You can always name a new agent later.

The Secretary of State keeps a list of Registered Agents, but not every person on the list is a Registered person.

4. Start a business record book.

Maintain a corporate records book to keep your corporation's important papers, like minutes from director and shareholder and annual meetings, stock certificates, and stock certificate stubs. Keep your business records book at your company's main office. As for the corporate records book, you can use a three-ring binder or order a special corporate records kit from a seller of corporate kits.

5. Write up the company's rules

Bylaws are private documents of your business that spell out the basic rules for running your business. They are not turned in to the government. Corporate bylaws are not needed by law, but you should make them because they: 1) set the rules for how your corporation works; and 2) show banks, creditors, the IRS, and others that your Alabama corporation is real.

6. Get an Employer Identification Number

The Internal Revenue Service (IRS) gives every business an employer identification number (EIN). It is a nine-digit number used to determine federal taxes. You will also need an EIN to start a bank or business account. Getting an EIN is easy, costs nothing, and can be done entirely online. To apply for EIN, go to the website of the IRS.

7. Hold an Organizational Meeting

On the agenda for the planning meeting are the following:

• The board of directors will be chosen
• The making of the rules
• Putting out badges for shareholders
• Taking care of more general business license--related issues

8. Draft an Operating Agreement

An LLC-running agreement is a good thing for business owners to write. Operating agreements are usually not required in Alabama, but ensuring everyone knows what is in their best interest is a good idea. It may also be asked for by a bank when starting an account for a business or applying for a credit card.

The following things should be in an operating agreement:

• Percentage of ownership by members
• The Rights and Duties of Voting
• Member and boss rights and responsibilities
• How gains and losses are split
• Instructions on how to hold meetings
• Buyout and buy-sell deals are ways to change who owns a business or what happens if someone dies.
• The members of an LLC can run normal business hours doing it themselves or hire someone else to do it.

The first board of directors

In the Certificate of Formation, the first corporate directors are listed. They will serve on the board until the first annual meeting of shareholders, where the new board members will be chosen.

9. Hold your first meeting of the board of directors

At the first meeting of the corporation's board of directors, the directors should choose corporate officers, adopt rules, choose a corporate bank, give permission to issue shares of stock, set the corporation's fiscal year, and choose an official stock certificate form and corporate seal.

This meeting should happen soon after the business is set up. The incorporator or one of the directors must write down what the directors do in the company minutes. Also, if the company is going to be an S corporation, the S corporation voting should be approved by the board of directors.

It takes one or two weeks to write the minutes and forward them to all the directors to sign. See the Nolo website or the book Incorporate Your Business by Anthony Mancuso for company meeting minutes forms.

10. Issue Stock

Give each shareholder stock. Even though most states don't require it, small businesses usually give out paper stock certificates. Enter the name and contact information of each shareholder in the stock transfer record for the company.

Under state and federal securities laws, a piece of stock in your company is considered a security. These laws control how corporate stock can be bought and sold. But most small businesses don't have to follow these rules because the federal government and all states exempt them.

For example, federal law doesn't apply to "private offerings," which are sales that aren't announced and are only open to a small group of people (usually 35 or fewer). Most states have their own laws that are similar to this SEC protection.

Visit the website of your state's securities office to learn about the securities rules in your state. The North American Securities Administrators Association has a page called "Contact Your Regulator," where you can find links to all these offices.

11. Make sure you follow Alabama's tax rules

Every year, businesses in Alabama must send a Business Privilege Tax Return to the Department of Revenue. The first Alabama business privilege tax return is due two and a half months after the company starts up or gets approved to do business in Alabama by the Alabama Secretary of State. Every year, a tax of at least $100 must be paid. Visit the Alabama Department of Revenue page to learn more and get Alabama business privilege tax forms.

You must also pay a filing fee to the county estate judge and the fee you must pay to the Secretary of State. There is also a fee for putting a name on hold. Corporations have to pay both state and federal taxes on their income.

12. Follow the rules for other taxes and regulations

Your company has to meet more than minimum tax and legal requirements. These things are:

• EIN: Your business needs to get an EIN, which is a government employer identification number. You can complete an online application on the IRS page for an EIN. There's no cost to file.
• Filing as an S Corporation: If the company wants to be taxed as an S corporation, it must file Form 2553 Election by a Small Business Corporation, which all its shareholders must sign. The choice should be made within two months and 15 days of the company's start of the first tax year. Check out the IRS S Corporation page for more information.
• Business licenses: Your company may need to get other local and state business licenses, depending on what kind of business it is and where it is located.

13. Companies from other countries that do business in Alabama

All companies that were formed outside of Alabama must register with the Secretary of State before they can do business there. Foreign companies have to choose one registered agent address or person to service the process, which lives in Alabama.

To sign up, you must send the Business Services Division of the Secretary of State two original copies of articles of incorporation and the Foreign Corporation Application for Registration. The form has to be sent in by mail.

Before applying for Registration, the foreign company must reserve its name with the Secretary of State. With the application, you must send a copy of the corporation's articles of formation signed off by the Secretary of State of the corporation's home state.

Can you be your own Alabama registered agent?

Yes, you can. In fact, several small-business owners in Alabama have their own listed agents. But hiring Alabama registered agents for a fee will make your life a lot easier. A registered agent knows everything there is to know about filing for a business in Alabama. On top of that, Alabama registered agent takes care of the following issues:

Taking care of all the legal documents

A registered agent service puts all your notices and legal papers in a secure online account and lets you know when you need to do something. So you can focus on running your business instead of keeping track of a lot of paperwork.

Better privacy

If you list yourself as the registered agent for your business, you'll probably need to put your home address as the point of contact for your business. If you do that, you'll get a lot more sales calls and junk mail, and hackers and trolls who scrape the Secretary of State's website will be able to get more of your personal contact information. When you hire Alabama registered agent, they put their Alabama street address and phone number on the website instead of yours.

Your company gets business addresses

Web-based businesses sometimes need help with the paperwork of running an online business with no actual address. If an online company doesn't want to use someone's home address as the business address, they can hire a registered agent.

You will get a business Schedule

An Alabama registered agent has to be at their actual place of work during regular business hours to be able to receive notices. If you don't keep regular work hours, this could cause problems. A registered business agent can help you with any problems you might have getting legal papers during usual business hours.

You can do business in different states

In each state where your business works, you'll have to register with that state, and in each state where you register, you should have a registered agent with a physical location in that state. Because of this, several business owners hire registered agent services to follow state rules and ensure all necessary notices to the business are saved in one place, with their registered agent.

How to do business and pay taxes in Alabama

When you start a new business in Alabama, you must sign up for state and county tax accounts. This is vital if you have workers.

State Business Tax LLCs must follow specific rules when they file taxes. You can tax your LLC as a C company, an S corporation, or something else. If your LLC is taxed as a company, 6.5% of its taxable income goes to taxes. If your LLC is set up so that the tax is passed through to the individual tax records of the members, there is no state tax.

Employer tax by state

If your LLC has employees, it must follow employment tax rules, even if the workers are also members. As a boss, you might have to:

• Tell the Alabama Department of Labor about all new hires.
• Set up accounts for paying taxes.
• Pay unemployment insurance.
• Workers' compensation insurance is a must.
• Taxes on sales and use.

You will likely need to set up a sales tax account if your business sells anything. As the seller, it is your job to get the tax from the buyer and send it to the state. Your city or town may also have a sales and use tax.

Licenses and Permits for a Business

Your LLC gets a business privilege license by registering in Alabama. But based on what kind of business you have, you may need more licenses and permits. Check with your state, town, and county offices to find out what to do and how to register.

Getting Registered in Other States

If you want your LLC to do business in different states, you have to register as a foreign LLC with the principal office of the Secretary of State in those states. This state may ask for a certificate of good standing in Alabama called a "certificate of compliance," which you can get from the Alabama Department of Revenue. It costs $14. The Certificate shows that your LLC has met all its tax filing and payment responsibilities.

Annual Requirements in Alabama

Remember, you must pay your taxes and file your paperwork yearly to keep your Alabama LLC in good shape. Listed below are many of the rules that will apply to your LLC.

Alabama Tax Return for Business Privilege Each Year

The LLC must file a yearly annual report due with the Alabama Department of Revenue the year after filing the Initial Business Privilege Tax return. If your LLC uses the calendar year, the annual report is due on April 15 of the following year. If not, the annual report is due on the 15th of the third month after your LLC's end of the business year.

• An LLC that acts as a "pass-through" company fills out a PPT form.
• A CPT form is a legal document filled out by an LLC that has chosen to be treated as a company.
• Alabama's Business Privilege Tax is paid once a year.
• Alabama's state tax is based on how much you pay in federal income tax, and the last state fee you have to pay is $100.

How to set up a nonprofit Alabama business

Step 1: Call 1-800-TAX-FORMS, which is the number for the Internal Revenue Service (IRS), and ask for the following:

• Form 8718: A request for a user fee from a tax-exempt organization or a letter of determination.
• Package 1023: Application for Recognition of Exemptions and Instructions.
• Form SS-4: Employer Identification Number (EIN) Application.
• Publication 557: Your Group's Tax-Exempt Status.

You can also get these things by going to www.irs.gov. After filling out the forms, please send them to your Alabama IRS office. For tax-exempt status forms, the IRS charges a fee that ranges from $150 to $465. (If there will be a delay before you file for tax exemption, you may want to file SS-4 as soon as you're established.)

Step 2: Call the Alabama Secretary of State's office at (334) 242-7200 or go to their website at http://www.sos.alabama.gov/BusinessServices/DomesticCorps.aspx. to ask for information about forming a nonprofit. To get tax-exempt corporation status, you have to incorporate.

Before you fill out your corporation formation package of papers, you must get a Certificate of Name Reservation. (Reservation of Names for U.S. Entities) Your company's name doesn't have to include the words "Corporation" or "Incorporated" or a version of one of these words.

File the original and two copies of the Domestic Nonprofit Corporation Certificate of Formation and the Certificate of Name Reservation in the county where the corporation's registered office is based.

The application fee for the Secretary of State will be taken care of by the Probate Judge. Some Probate Judge's Offices don't take credit cards or fees for fast processing. Check with the Office of the Probate Judge before you file to find out how to pay and if you can get fast processing. Filing Fees: Secretary of State: $100, minimum fee for a probate judge: $50.

Step 3: Get a board of directors together. Choose the organization's mission statement. Write and pass the corporation's articles of incorporation and rules. The articles of incorporation say what the nonprofit group is called and what it is for. Bylaws are the most essential set of rules for a group. They set the rules for how the charity will do its work.

These will be in the articles:

• The name of the business.
• A statement that says whether the corporation is for the general good, the good of all, or religious reasons.
• The main office's address and the name of the listed agent at that location
• The name and address of every founder
• Whether or not the business will have members
• Provisions that don't go against the law about dividing up assets and ending the business.

These rules will be in the bylaws:

• The name of the business or group.
• What the organization's goal is.
• The area that the group works in.
• Membership (Duties, Fees, Quorum, and Voting Process).
• Jobs, Officers, and Meetings of the Board of Directors.
• Committees.
• How to run things.
• The operating year of a business.
• How to make changes to the rules.

Step 4: Set long-term goals for the group and plan business finances carefully for the first year of business. Even though this step isn't needed by law, you must tell the IRS what you plan to do and how your budget will look for the next three years.

Step 5: Get ready to wait and to be asked questions by the IRS. Plan on it taking at least ten weeks.