Entrepreneurship is exciting—the thrill of developing a winning product or service, bringing that idea to life, and making life better for your clients—it’s fun. But unfortunately, it’s not free. Long story short: starting a business has a price tag. LLCs are no exception.
If you’re hoping to start an LLC in Alabama, you’ll quickly learn that you’ll have a pretty long list of fees for forms, licenses, and applications that you’ll need to get started. Some of those are optional fees, and some are unavoidable. In this guide, we’ll walk you through all the costs you can expect when starting an Alabama LLC. By the end, you’ll have a clear picture of how your new business will impact your wallet.
What’s the least amount I have to pay to form an LLC in Alabama?
If you’re crunching the numbers before diving right in, good on you! Planning ahead is a surefire way to start your business off on the right foot. But let’s make one thing clear: the phrase “cost to start an LLC” is a bit deceptive. That’s because you don’t want to get stuck focusing on the “day one” expenses of business.
That’s right—when budgeting for start-up costs, you need to account for the costs you’ll pay today and the costs you’ll pay a year or two down the road.
So let’s talk start-up costs and ongoing costs for your Alabama LLC. But to keep things simple, here we’ll cover the non-negotiable costs. Later on, we’ll talk about services that are nice to have (but you can live without if you have to).
AL LLC Start-up costs
There are two primary start-up costs for LLCs in Alabama. The most important one is the Certificate of Formation. The fee is a bit complicated, though; that’s because, technically, you pay two different filing fees for it. First, there’s the Secretary of State’s $100 filing fee. But you file a copy of your Certificate with both the Secretary of State and the Judge of Probate’s Office for your county. We can’t list that filing fee here, though. Each county charges a different fee. You can’t avoid these costs, though. If you don’t file the Certificate, you’re not a recognized business.
Next, every LLC will need to obtain a Business Privilege License, which is also issued by your local County Probate Office. LLCs involved in sales will also need to get a Store License, too. You can read more about these general business licenses here. Last but not least, there’s a good chance that your business will need a professional license. Alabama’s Business Licensing Videos are a helpful starting resource for those industry-specific licenses. Unfortunately, we can’t provide a comprehensive list of price tags for these licenses, but you can reasonably expect to pay an application fee when you get one.
Ongoing costs for an LLC in AL
If your business lasts (and we’re confident it will), then you’ll have several ongoing costs. These include license renewals, annual reports, and taxes. Let’s dig into those prices and fees.
License renewals
Unfortunately, licenses for LLCs aren’t perpetual; you’ll need to renew them on a regular basis. The professional licenses are a bit difficult to list here since each governing professional board has different renewal periods and different fees. The state business privilege license is a little easier to list, though. The license must be renewed every year during the month of October. And much like there’s a different application fee per county, the renewal fee varies depending on your location.
Annual taxes
In Alabama, one of the biggest annual costs you’ll have will be annual taxes. How significant that impact is largely depends on the taxation structure of your business. If you’re taxed as a pass-through entity, you’ll pay a rate ranging between 2% and 5% (depending on your income levels). LLCs taxed as corporations, however, pay a flat rate of 6.5%. Many Alabama businesses will also need to collect and pay the state sales tax (a 4% rate).
There’s also a wide variety of miscellaneous business taxes that could apply to your LLC: taxes for financial institutions, estates, and much more. You can learn more about these taxes at the Alabama Department of Revenue.
Annual report
Most states require LLCs to file some version of an “annual report,” or a document that informs the state about the current standing of your business. This document is usually required in addition to annual tax reports, since it usually includes information about your business address, members, your registered agent, and so on.
In Alabama, the annual report is technically called the annual Business Privilege Tax. The fee for it is graduated based on your income, but the minimum tax is $100. It’s easiest to file online, but you can also file by mail if you prefer. The due date varies based on your fiscal calendar.
What are the discretionary costs to form an Alabama LLC?
When you’re starting your business, your budget is usually pretty tight. Prioritizing costs can get tricky. The costs we listed above are unavoidable. Well, technically, you can avoid them, but you’ll be heavily penalized if you do. And there’s not much point to spending all that money on starting a business only to knowingly let it be dissolved because you didn’t pay your ongoing costs.
But if you can help it, doing the “bare minimum” is probably not the best way to start your business. There are plenty of discretionary costs you can pay for certain services that make life easier. Here, we’ll dig into those costs—and why you might consider paying them.
1. Name reservation application
Naming things can be a bit tricky; after all, sometimes inspiration is a little lacking! And since Alabama doesn’t allow you to use a name that someone else has already claimed, you have to work even harder to pick one that’s unique, memorable, and just right for your business.
It’s a multi-step process, really: you have to brainstorm name ideas, choose just the right words, meet state name requirements, and of course, ensure that the name isn’t already in use (you can check using a Business Entity Search by Entity Name).
If you’re like a lot of people, you probably want to ensure that your hard work doesn’t go to waste once you’ve created the perfect name. So you have to lay claim to your new business name. You can do so either by filing your Certificate of Formation, or by filing an Application for Name Reservation Request Form for Domestic Entities. You should only file this form if you’re not yet ready to file your Certificate. Otherwise, you’d be wasting your hard-earned cash. Alabama requires a $25 filing fee, and once you file, your name is protected for up to a year.
2. Obtaining a Trade Name
Wait—didn’t we just cover business names? Yes. But there’s a distinction: your business name, which you’ll write in on your Certificate of Formation, is the legal name of your business. A trade name, sometimes called a DBA or assumed name, is like a nickname for your business. For example, your legal name might Joseph Smith, but your friends call you Joe for short. Joe is a perfectly valid name, but you can’t put it on legal paperwork. You’d have to legally change your name to do so.
A Trade Name acts kind of like a nickname for your business; some LLCs and corporations also use Trade Names to establish new product lines or new “businesses” under the LLC “parent company.” But regardless of why you use a Trade Name, if it differs from your legal name, you need to register it before you can use it.
Unlike some states, Alabama allows the owner of a Trade Name to have exclusive use of that name for 5 years. So not only must you ensure that your name isn’t the same as the name of another LLC or corporation, you also have to make sure it’s not the same as a Trade Name. Once you’re sure your name is available, you can register it with an Application to Register/Renew Trademark, Service Mark, or Trade Name form.
There’s a $30 filing fee for this registration, and the renewal fee (every 5 years) is the same price. For more information on this registration, check out our guide to Trade Names in Alabama.
3. LLC formation services
Paperwork is a massive hassle. And unless you’re starting an LLC to help other Alabama residents with their paperwork, odds are you don’t want to deal with much paperwork yourself.
The bad news? Paperwork is an unavoidable part of starting an Alabama LLC: the Certificate of Formation, the business franchise tax, state and professional license applications—the list goes on and on. The good news? You can hire an LLC formation service to do the pesky paperwork for you.
Of course, there’s some cost involved. And while there are a lot of great LLC formation services, they aren’t all created equal. And they all have different price points.
Many LLC formation services offer a wide variety of packages, with basic options starting at low prices like $39 from Zen Business (one company, Incfile, even offers a starter package for $0). But if you’re willing to shell out some serious cash for comprehensive assistance, you’ll find package prices going as high as $799.
These services are completely optional; you can DIY your Alabama LLC formation. But many entrepreneurs find the time saved is worth the money. If you do opt to hire a service, please make sure you take the time to understand what you’re buying. Some services charge one-time fees, and others tack on “free services” that will cost you next year. If you don’t read the fine print, you can get slapped with unexpected service fees. And surprise bills are never fun.
4. AL Registered agent services
Alabama law clearly states that every LLC must designate a registered agent to act as a middleman between your business and the state. Long story short, the registered agent accepts service of process (and any other official communication from the state) on your behalf.
Technically, this is another thing you can DIY; Alabama allows you to serve as your own registered agent. However, in our opinion, it’s worth the expense to hire a registered agent.
Why? For starters, a registered agent’s address becomes part of the public record; anyone in the state can find that address. That leads to spam mail (sometimes worse). Plus, a registered agent must be present at the registered address during all standard business hours. If you serve as your own, you’d be tied down to your location constantly. A registered agent service prevents those annoyances. A service will also help you keep track of annual filing requirements, license renewals, and more.
These services typically charge an annual fee. For example, annual fees for our top 4 Alabama registered agent services range from $99 to $299 per year depending on the service you choose. That said, some offer the first year free if you use them as an LLC formation service.
Quick Note: If you need to later down the line, you can always change your registered agent.
5. Expedited filing fees
In Alabama, filing speeds aren’t incredibly fast because there are two steps: you send your filing to the probate judge, who forwards it to the Secretary of State, who processes it, too. The Secretary of State takes about 3-5 days to process the Certificate of Formation once they receive it. So all told, the process can take up to 14 business days. You can pay a $100 expedited processing fee if you’d like to speed things up. It only applies to the Secretary of State’s processing speeds, though. That will ensure that your document is processed within 24 hours of receipt.
6. Business attorneys
Starting a business is a complicated process. And it’s a legal one. We do our best to make the process seem less daunting with guides like this one. But at the end of the day, we can’t write a guide that would cover every single question every business will ever face. That’s because your business is unique.
Business attorneys, however, can talk you through all the nuances of forming and running your business. In many cases, the advice of an attorney can save you thousands by helping you avoid expensive legal mistakes.
However, the upfront costs of hiring a business attorney can be pretty pricey. For example, many attorneys charge per hour, with rates ranging between $150-$350. Others offer “LLC formation packages” for flat rates that fall between $500-$2000. And of course, those fees vary based on the attorney’s experience, location, and so on.
If you’d like to hire one, we recommend checking out sites like Avvo.com. Their database is nearly comprehensive, so it’s a great way to search Alabama business lawyers. You can also narrow results by location, cost, overall satisfaction rating, and more. It’s the best place to look to find the right legal consultation for your business.
Conclusion
Long story short: starting an Alabama LLC can be a pretty pricey endeavor. If you look at each cost separately, it doesn’t seem too bad (even the most expensive fee, for the Certificate of Formation, is just $100+ the probate’s fee). But when you add them all up or tack on some additional services, the total price tag grows pretty quickly.
Thankfully, since you’ve read this guide, you know what you’re up against. And sometimes, knowing is half the battle—and now you’re armed with all the information you need to budget the start-up costs so you can start your Alabama LLC off on the right foot. We wish you and your new business the best!