How to Start a Professional LLC in Alabama

If you’re in a professional occupation like law, medicine, or architecture, forming a PLLC in Alabama will help you benefit in more ways than one.

First, you’ll get personal asset protection, ensuring that everything you’ve worked so hard for can’t be seized by creditors if your company ever fails to pay a debt. And secondly, you’ll avoid double taxation, due to pass-through taxation of PLLC entities.

Moreover, the cost of setting up a PLLC in Alabama isn’t that high, so every licensed professional, whether working alone or in a team, can form a legal entity.

Not sure how to start PLLC in Alabama? Don’t fret. With our guide on how to form a PLLC in Alabama, you will have all the information you need to get started.

What Is a PLLC in Alabama?

Essentially, a PLLC is not much different from an LLC when it comes to business structure. The main difference is that PLLCs are created for the purpose of providing professional services, while LLCs can be formed for any other type of business activity.

Another important thing is that, unlike an LLC, PLLC owners are required to have a court-issued license to be able to do business in Alabama. Other than that, the formation process is pretty much the same.

How to Form a PLLC in Alabama: Step by Step

There are a few steps that must be taken when opening a PLLC in Alabama. However, before anything else, you need to obtain a state license (also known as a business privilege license).

A business privilege license is required to legally run a business and must be obtained for all members of LLCs who will provide professional services.

What is great is that in Alabama, you don’t need to obtain a statewide license, and it’s enough to get one at a local probate office in the county where your business is presented.

Once that’s done, you can move on to the business formation. The steps on how to form a PLLC in Alabama are described below.

Step 1. Name Your PLLC

As the saying goes, “as you name the ship, so will it float.” The same applies to PLLCs. People will associate your service with the company’s name, so it should be chosen wisely. Other things to consider when selecting a name for your company include:

• Legalities. Alabama PLLC must contain either abbreviation, such as “PLLC”, “LLC”, “L.L.C.”, and “P.L.L.C.”, or the phrase “limited liability company” in the name;
• Name restrictions. Words and specific kinds of professions that are not related to your business, like, for example, “corporation” or “law firms”, cannot be used;
• Explanatory names. If possible, include phrases and words in your company’s name that explain what your business is about;
• Choose the name you like. It goes without saying that you should be proud when you hear your company’s name, so be sure to choose one that resonates with you;
• Name availability. Make sure that the name you chose is available for use. You could also request a name reservation even if you’re not ready to set up an LLC yet;
• Select a domain name. The aim of any business is to make itself known, and the best way to do it is through a company’s website with a distinct URL.

Step 2. Appoint a Registered Agent to Get a PLLC in Alabama

Starting PLLC in Alabama (or LLC, or corporation for that matter), every company must designate a registered agent that will act as a point of contact between your company and the government.

The main duty of a registered agent is to handle legal paperwork and inform business owners in a timely manner of any notifications requiring their attention.

Not only is it compulsory by state law to have a registered agent, but it is also quite important in terms of the company’s good standing.

With a registered agent, you’ll run no risk of failing to file compliance reports and avoid paying any penalty fees, which the state may impose if they decide to.

Generally, a registered agent can be:

• Any individual over the age of 18;
• A company with a physical address in Alabama that can work from the office during business hours;
• You can be your own RA, too.

That said, for most companies with busy schedules, it is easier and more reliable to hire professional registered agents that will handle the paperwork on their behalf.

Step 3. File Your PLLC Articles of Organization

Once the name of the company is chosen and you’ve already hired an RA, you’ll be required to fill out the LLC Certificate of Formation. This document is basically proof of the creation of your PLLC and contains the following information:

• Your company name;
• Name and address of your RA;
• Name and address of the individual who’s prepared the Certificate of Formation;
• A checkbox indicating you registered a PLLC;
• The company’s creation date;
• Any other information related to the business.

The next step is to sign and send the original of the Certificate of Formation to the Judge of your local probate’s office, along with two copies, the Name Reservation Certificate, and state filing fees.

The approval of the Certificate of Formation by the Secretary of State (SoS) constitutes the official establishment of your PLLC as a legal entity.

Step 4. Draft an Operating Agreement

Though not a mandatory step, drafting an operating agreement after you set up a PLLC in Alabama is a good idea.

For one, you may actually be asked to show a copy of this document when, for example, opening a bank account.

And for two, it may spike interest in business partners and encourage them to join your company if they are hesitant.

Operating agreements are easy to create using online templates. Alternatively, you can hire an attorney that will write this agreement for you.

Step 5. Get an EIN for Your Alabama PLLC Registration

Most owners of PLLCs will need to get an EIN number (also known as a federal tax ID) to do business in Alabama. It is used to open bank accounts, hire employees, and pay taxes.

To get this number, you can file a form on the IRS website, after which the EIN will be provided for free. In Alabama, you will also need to get a state tax ID number for other PLLC functions, such as paying business taxes and sales.

In addition, you may be required to pay local taxes, depending on the county where the business is located. To know which taxes are applicable to your business, make sure to familiarize yourself with Alabama taxes on the official website.

Cost to Start an LLC in Alabama: How Much Is a PLLC in AL

When it comes to the PLLC cost, you’ll find that it may vary drastically, depending on the whereabouts of your business. What’s more, some of the fees are not compulsory, but if you decide to introduce any change to your PLLC, they may add up to the total cost.

Overall, there are two types of fees:

• Compulsory fees. These are the fees that you need to pay to open a PLLC;
• Additional fees (or optional fees). You may have to pay additional fees in the course of running your business if you make any amendments to it.

Take note that you will also need to renew your license each year, which will add up to the cost.

First Tasks After Creating a PLLC in Alabama

When you finally completed all the paperwork and received a signed original of your Certificate of Formation from the registrar, you officially became the owner of the PLLC. However, there are a few more things to do in order to successfully manage your business.

Open a business bank account

First things first, see into opening a bank account that you will use solely for your business purposes. This will help you secure your personal savings and make filing taxes a lot easier.

To open a business bank account, you will need the EIN from the IRS.

Hire an accountant

Unless you have a financial education, you’d be much better off hiring an accountant to manage your business finances rather than attempting to do it yourself.

Having a professional working on your behalf will keep you from errors and ensure that your tax returns are filed and taxes are paid on due time.

Even if you decide to manage your finances yourself, it may still be a good idea to have someone with a professional background to help you with setting up the software and giving advice.

Get business insurance

PLLCs with 5 or more employees will also be required to obtain worker’s compensation insurance. 

Depending on the industry of your PLLC, it may also be a good idea to get general liability insurance that will protect your business from common risks, including property damage, bodily injuries, and so on.

Understand income and annual reporting

While the registration of a PLLC is a one-time procedure, filing reports is not, so it’s important to understand how it works to keep track of everything correctly.

Regardless of the industry, every PLLC has to file reports on the income several times a year. Even if you’ve not made any money, this report must be filed.

Annual reports are another important entity’s reports that must be updated due to the Secretary of State on an annual basis, along with a Business Tax Form.

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