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Alabama LLC FAQs
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In the state of Alabama, an LLC is defined as “any entity, other than a corporation, through which business may be conducted while offering limited liability to the owners of the entity with respect to some or all of the obligations of the entity.” This means the members’ personal assets are generally safeguarded against the company’s debts or legal disputes, except in cases where they may be personally liable under other laws.
LLCs are popular among business owners because they offer flexibility and simplicity in managing their operations. Owners have the option to decide whether the company will be managed by its members or by appointed managers. Additionally, compared to corporations, LLCs typically have fewer legal compliance requirements and a more straightforward operational structure.
Finally, LLCs allow business owners to pay taxes for business income as part of their individual taxes, although LLC owners may elect to pay their business taxes as a separate entity, similar to how a corporation is taxed. This can give business owners more flexibility to choose the tax classification that is right for them as they grow and evolve their business.
LLCs can protect your personal assets against business debts and lawsuits in many cases, as long as you take careful steps to separate your business and personal affairs and maintain compliance.
Here are some common ways to separate your affairs and stay compliant:
If you don't maintain your compliance obligations or fail to properly separate your business and personal matters, then you may be opening yourself up to personal liability for business activities or responsibilities.
You may want to register for an LLC in Alabama when:
There are a few steps required to start your LLC in Alabama, including:
To start an LLC in Alabama, you must file a document called a Certificate of Formation with the state of Alabama. In other states, this document may be called a "Certificate of Organization," "Certificate of Filing," or "Articles of Organization."
In Alabama, you will need the following information to file your Certificate of Formation:
In Alabama, there are a few fees that you may be charged when you choose to start your LLC. They include the following:
State fees: $233
Rocket Lawyer filing fee: $0
Processing time: Determined by the county; generally 10-20 business days.
Note: The above state fees and processing times are provided as a summary and may encompass various fees mandated by your state or local authorities. If you have questions, speak to a Rocket Lawyer representative to understand the costs and processing times that apply to your specific filing.
Taxes for your LLC will depend on how you file and how much your LLC earns.
The default method for LLC taxes is called "pass-through taxes." This means that the profits and losses of the LLC are passed through to the individual members, who report them on their personal tax returns. The share of profits or losses each member receives and reports on their taxes is determined by the terms in the LLC's operating agreement. With pass-through taxes, the LLC itself does not file its own tax returns, and the owners only pay taxes on the business once. (Note: The term "pass-through taxes" is an informal term. Single-member LLCs are treated as a "disregarded entity" and taxed as a sole proprietorship, and LLCs with multiple members are treated as a partnership.)
With pass-through taxes, Social Security and Medicare taxes are not withheld from the members' paychecks, so they are responsible for paying these as "self-employment taxes" instead. In addition to Social Security and Medicare taxes, LLC members will need to pay taxes as a percent of their share of profits every quarter as estimated taxes. LLC members can also deduct business expenses and losses from their personal tax returns, which can significantly reduce the amount of profits reported to the IRS.
In Alabama, there is also a Business Privilege Tax that is based on the taxable income of the taxpayer in a pass-through entity. The maximum privilege tax is $500 for a Family Limited Liability Entity.
Alternatively, if the LLC members prefer not to utilize pass-through taxes, they have the option to elect for the LLC to be taxed as a corporation instead. This may be preferred when the corporate tax rate is lower. To elect a different tax classification, you need to file the necessary forms with the IRS.
If you do not want to tackle your LLC's taxes alone, our Rocket Tax services can help you by gathering some information about your business and then matching you with the right tax professional.
The state of Alabama requires that the names of all LLCs in the state:
Rocket Lawyer can help you determine whether your business' name is eligible for registration in Alabama and may be able to help you reserve the name before you file your LLC.
Any LLC that does business in Alabama must file with the State of Alabama.
LLCs based in Alabama are called "domestic LLCs," and out-of-state LLCs are called "foreign LLCs." Foreign LLCs and domestic LLCs may have different filing and compliance requirements -- Rocket Lawyer can help you navigate foreign LLC registration, regardless of where you live.
If you are planning to conduct business in another state, you may need to register an LLC in that state. Rocket Lawyer can help you determine which states you should register in.
Other states may have their own rules for taxing foreign LLCs that originate in Alabama or domestic LLCs that also operate in Alabama. Talk to an attorney to understand the tax requirements for the state(s) in which you plan to operate.
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Yes, LLCs with only one owner can still register their business in Alabama. In this case, the LLC would be referred to as a single-member LLC (SMLLC), whereas if there is more than one owner, the LLC may be called a multi-member LLC.
The main difference between single-member and multi-member LLCs lies in ownership structure and management. With a single-member LLC, you have full control over the business. In contrast, a multi-member LLC has multiple owners, each with a specific percentage of ownership as defined in the operating agreement. This means that in a multi-member LLC, owners share profits, losses, and tax responsibilities based on their ownership percentage.
However, many aspects of LLCs remain the same whether they are single-member or multi-member. Both types of LLCs default to pass-through taxation (though separate filing is an option), and owners can choose to manage the LLC themselves ("member managed") or hire designated managers to handle day-to-day operations ("manager managed").
An LLC is a structure establishing your business as an entity that can legally conduct business in the state(s) within which it is filed. Alternatively, a "Trade Name" filing is a legal mechanism to specify another name under which you plan to do business. Trade Names may also be called a "Fictitious Business Name" (or "FBN"), "Assumed Business Name" (or "ABN"), or "Doing Business As" (or "DBA") and are commonly confused with sole proprietorships. While Trade Names can help you specify a name for a business, they do not establish a legal business entity and also do not provide business owners with liability protection. In Alabama, filing a Trade Name, or Fictitious Business Name, is required if your business is planning to operate under a different name than the one that is filed with your Certificate of Formation.
If you have an existing company and would like to conduct business under a new or additional name, a Trade Name will allow you to conduct business with the new name through your existing LLC, S-Corp, C-Corp, or Nonprofit. If you're not sure if you should form an LLC or file a Trade Name, a Rocket Lawyer representative can help you understand the differences and take the next step.
After organizing an LLC in Alabama, the state requires you to:
Although not required, you may also want to:
An LLC is one of the easiest businesses to maintain. Here are a couple things to keep in mind when looking to maintain your Alabama LLC:
The state of Alabama requires the following information to be kept:
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