Alabama is one of the only states that makes you reserve your LLC name before you're even allowed to file. Most states treat name reservation as an optional step you can skip and go straight to filing. Alabama requires it, which trips up founders who assume the process starts with the formation document itself.
The rest of the process looks familiar: a registered agent, a formation filing, an EIN. But Alabama also swapped its old annual report for a net worth based tax that still needs its own deadline tracked. Here's how the steps actually run in Alabama.
TL;DR
- Why Alabama: the state dropped its traditional annual report in October 2024, which simplifies ongoing compliance compared to states that still require one.
- Step 1, reserve the name first: Alabama requires a name reservation before you can file the Certificate of Formation, unlike most states where reservation is optional.
- Step 2, registered agent: you need a physical Alabama street address to receive legal notices, and a PO box doesn't qualify.
- Step 3, Certificate of Formation: file with the Alabama Secretary of State's Business Entities Division for a $200 fee.
- Step 4, EIN without an SSN: the IRS online tool needs an SSN or ITIN, so non-US founders apply by phone, fax, or mail instead.
- Step 5, Form 5472: a 25%+ foreign-owned single-member LLC must file this every year, even at zero revenue, or risk a $25,000 minimum penalty.
- Step 6, Business Privilege Tax: Alabama's replacement for the annual report, based on net worth, with its own initial and annual filing deadlines.
- Common mistakes: filing before reserving the name, and missing the initial Business Privilege Tax return because there's no "annual report" habit to anchor it to anymore.
Why Form Your LLC in Alabama?
Alabama eliminated its traditional annual report requirement for LLCs and corporations effective October 1, 2024, under Act 2024-213. That's a real simplification for founders who used to track a separate annual filing on top of everything else.
Formation costs sit in a moderate range compared to other states, and Alabama works as a standard operating-state choice for a founder who's actually doing business there. The tradeoff is the mandatory name reservation step, which adds a bit of friction most other states don't require.
Step 1: Reserve, Then Choose Your LLC Name
Alabama requires you to reserve your LLC name with the Secretary of State before you can file the Certificate of Formation. This is the opposite of how most states handle it, where reservation is optional and you can just file directly.
- Reservation fee: $28 if you file online, or $25 by mail.
- Timing: the reservation holds your name for a limited window. The exact duration isn't clearly published, so confirm the current length directly with the Secretary of State before you plan your filing timeline.
- Include a designator like "LLC" or "Limited Liability Company" in the name.
- Check availability first. The Secretary of State's business name search lets you confirm your name isn't already taken in Alabama.
Skipping this step and trying to file the Certificate of Formation directly is the single most common way Alabama founders get their filing bounced back.
Step 2: Appoint a Registered Agent
Every Alabama LLC needs a registered agent: a person or company with a physical street address in Alabama, available during business hours to accept legal documents and state notices on the LLC's behalf. A PO box doesn't qualify.
- Can be an individual or a commercial registered agent service. If you don't have someone with an in-state address, a commercial service fills that role.
- Needed before you file. The Certificate of Formation lists your registered agent's name and address.
- Keeps you in good standing. Missing legal notices because the agent's address is outdated or unreachable can put the LLC out of compliance.
Step 3: File Your Certificate of Formation
This is the filing that legally creates your Alabama LLC. You file it with the Alabama Secretary of State, Business Entities Division, after your name reservation is in place.
| Detail | What to expect |
|---|---|
| Filing fee | $200 for a domestic Certificate of Formation |
| Agency | Alabama Secretary of State, Business Entities Division |
| Online processing | Often same-day or within a few business days |
| Mail processing | Typically longer once received; total turnaround varies with current queue volume, so confirm with the Secretary of State |
What it lists: your reserved LLC name, registered agent, and formation details. An out-of-state LLC that wants to do business in Alabama instead files an Application for Registration ($150) to foreign-qualify, and must reserve its name first too, the same as a domestic filer.
Draft an Operating Agreement
An operating agreement isn't filed with the state, but it backs up your liability protection by showing the LLC is genuinely operated as a separate entity from its owner.
- It spells out ownership percentages, voting rights, and how profits and losses get allocated among members.
- It documents what happens if a member wants to leave, sell their stake, or if the LLC needs to dissolve, which helps avoid disputes that default state rules don't address cleanly.
- Banks and other institutions sometimes ask to see it when you open a business account or apply for financing, even though it isn't filed publicly anywhere.
Even a single-member LLC benefits from putting one in writing. It reinforces that the business is a separate legal entity from its owner, which matters if your liability protection is ever challenged.
Step 4: Get an EIN, Even Without an SSN
Most founders can apply for an EIN online through the IRS and get it in minutes. Founders without a Social Security Number or an Individual Taxpayer Identification Number (ITIN) can't use that option and have to apply a different way.
An Employer Identification Number (EIN) is what the IRS uses to identify your LLC for tax purposes, and you'll need one to open a US bank account or file taxes. It's free directly from the IRS either way.
| Method | Who can use it | Typical speed |
|---|---|---|
| Online EIN application | SSN or ITIN holders | Minutes |
| Form SS-4 (phone, fax, or mail) | Founders without an SSN or ITIN | Same-day to several weeks |
Founders without an SSN or ITIN use Form SS-4 by phone, fax, or mail instead of the online tool. The wait mostly depends on IRS volume and how completely the form was filled out the first time, so getting the responsible-party details right on the first submission matters more here than in the online flow.
Open a US Business Bank Account
Keeping business funds separate from personal money is what actually preserves your LLC's liability protection, and a dedicated bank account is the simplest way to do that.
- Most banks ask for your EIN, Certificate of Formation, and operating agreement to open a business account, so having those documents ready speeds up the process.
- Founders without a US address or SSN can find this step harder, since some banks require an in-person visit, though a growing number of banks and fintech platforms support remote account opening for foreign-owned LLCs.
- Mixing personal and business funds, sometimes called commingling, is one of the fastest ways to undermine the liability shield an LLC is supposed to provide.
Set this up before the business takes in any revenue or spends any money, rather than treating it as a step you'll get to later.
Step 5: File Form 5472 if the LLC Is Foreign-Owned
If your single-member LLC is 25% or more foreign-owned, the IRS requires an annual Form 5472 filing, even at zero revenue. This is a federal requirement, not an Alabama one, so it applies the same way regardless of which state you formed in.
- Filed with a pro forma Form 1120, a placeholder corporate return required alongside the 5472, even though the LLC itself owes no separate corporate tax.
- Reports transactions between the LLC and its foreign owner, like capital contributions or payments for services.
- Applies even when dormant. A low-activity LLC that hasn't earned revenue yet still has to file.
The IRS's stated minimum penalty for a late or missing Form 5472 is $25,000, per form, per year, whether or not the LLC made a dollar. Treat this as non-negotiable from the day your Alabama LLC exists.
Step 6: Handle Alabama's Ongoing Compliance
Alabama no longer has a traditional annual report. Act 2024-213 eliminated that standalone filing for LLCs and corporations effective October 1, 2024. In its place, Alabama LLCs pay the Business Privilege Tax (BPT), a franchise-style tax based on net worth apportioned to Alabama.
- Tax rate: $0.25 to $1.75 per $1,000 of net worth apportioned to Alabama.
- Minimum tax: $100, though it's reduced to $50 for many filers who'd otherwise owe the minimum.
- Small-filer exemption: entities whose calculated tax comes to $100 or less are fully exempt from filing, for tax years beginning after December 31, 2023. That's a real break for small or dormant LLCs.
- Initial return: Form BPT-IN is due 2.5 months after your LLC forms.
- Annual return: Form PPT is due on the same date as your federal return.
Alabama LLCs are pass-through by default for state income tax purposes, so members report their share on personal returns instead of the LLC paying entity-level tax. This is separate from the BPT franchise tax above, which applies regardless of income tax treatment.
Foreign non-resident members generally owe Alabama tax only on Alabama-source income, but this is general information, not tax advice, and your specific situation should go through a tax professional.
Common Mistakes to Avoid
- Filing before reserving the name: Alabama rejects a Certificate of Formation submitted without an active name reservation, unlike most states where this step is optional.
- Missing the initial BPT-IN return: it's due just 2.5 months after formation, and it's easy to overlook since there's no "annual report" habit left to anchor it to.
- Treating the EIN as the finish line: for a foreign-owned LLC, the EIN is closer to the starting gun on an annual Form 5472 filing than the end of the process.
- Using a home or friend's address as the registered agent: it can put the LLC out of good standing and exposes a personal address on public record.
- Delaying the operating agreement: it's easy to skip until there's a dispute, and much harder to write fairly once there is one.
How FinStackk Helps With Starting Your Alabama LLC
FinStackk is an accounting and tax compliance platform for U.S. businesses, helping you go from incorporation to ongoing accounting, tax, and compliance, all in one place.
Through Fin-Start, we handle the incorporation steps above, including name reservation, EIN applications, and registered agent service. It's built to handle Overseas Direct Investment (ODI) compliance and other cross-border details for founders incorporating from outside the US.
Once your LLC exists, Fin-Tax keeps the ongoing tax filings, including Form 5472, on a proactive calendar so nothing slips through because there's no "annual report" habit to rely on anymore.
Fin-Comply tracks Alabama's Business Privilege Tax deadlines, including the initial BPT-IN return and the annual PPT filing, alongside your other state and federal obligations in one place. Book a free demo to see both in action.
FAQ
Why does Alabama require reserving an LLC name before filing?
Alabama's Secretary of State requires a name reservation as a separate, mandatory step before you can submit the Certificate of Formation. Most states let you skip straight to filing and only offer reservation as an optional way to hold a name in advance.
In Alabama, you can't file without one, so budget the $28 online or $25 mail fee and confirm the reservation window before you plan your filing date.
What is Alabama's Business Privilege Tax and do I still need to file something annually?
Alabama eliminated the traditional annual report in October 2024, but LLCs still owe the Business Privilege Tax, based on net worth apportioned to Alabama at $0.25 to $1.75 per $1,000.
The initial return, Form BPT-IN, is due 2.5 months after formation, and the annual return, Form PPT, is due with your federal return. Entities whose calculated tax comes to $100 or less are fully exempt from filing.
Do I need to be physically present in Alabama to form or run an LLC?
No, forming an Alabama LLC doesn't require physical presence. Filing the Certificate of Formation can typically be done online or by mail, and a registered agent covers the physical in-state address requirement for you.
Opening a US bank account remotely can be harder and varies by bank, though some banks and fintech providers support remote or video-based verification for non-resident founders.