## How to form an LLC in Alabama
A **Limited Liability Company (LLC)** is a business structure that combines the limited-liability protection of a corporation with the tax flexibility and operational simplicity of a partnership or sole proprietorship. Forming one in Alabama is straightforward — but maintaining one correctly is where most owners stumble.
### Alabama LLC formation cost
- **Initial filing (Articles of Organization):** $200
- **Annual obligations:** Annual Business Privilege Tax (minimum $50).
## The 6-step formation process
**1. Choose a unique name.** Your LLC name must be distinguishable from other business entities registered in Alabama and must include "LLC", "L.L.C.", or "Limited Liability Company". Reserve the name (about $25-$50 in most states) if you're not ready to file yet.
**2. Designate a registered agent.** Every LLC must have a registered agent — a person or company with a physical address in the state who can receive legal process and official correspondence. You can be your own registered agent (if you live in the state) or hire a service ($100-$300/year).
**3. File the Articles of Organization** (sometimes called Certificate of Formation or Certificate of Organization) with the Secretary of State. This is the formation document. Pay the filing fee.
**4. Create an Operating Agreement.** Most states don't require this to be filed, but every LLC should have one — it governs how the LLC is run (ownership percentages, voting rights, profit distributions, what happens when a member dies or leaves). Without one, the state's default LLC statute fills the gaps — usually badly.
**5. Obtain an EIN** (Employer Identification Number) from the IRS. Free at irs.gov. Required to open a business bank account, hire employees, and file taxes.
**6. Open a business bank account** in the LLC's name. Critical for maintaining liability protection — comingling personal and business funds can pierce the LLC veil.
## How LLCs are taxed
**Default ("pass-through") taxation** — single-member LLCs are taxed as sole proprietorships; multi-member LLCs are taxed as partnerships. The LLC files an informational return (or Schedule C); profits and losses flow through to the members' personal tax returns.
**S-corp election** — once profits exceed about $50,000-$80,000/year, many small businesses benefit from electing S-corp tax treatment (Form 2553). This can save self-employment tax on the portion of profits taken as distributions rather than salary. Talk to a CPA before electing.
**C-corp election** — rare for LLCs, but possible (Form 8832). Generally only makes sense for businesses raising venture capital or planning to retain significant earnings.
## What an LLC protects you from
**LLCs DO protect you from:**
- Most contract debts of the business
- Tort claims arising from the business's operations (without your personal involvement)
- Lawsuits against the business that don't involve you personally
**LLCs DO NOT protect you from:**
- Personal guarantees you sign
- Your own torts (negligence, fraud, professional malpractice)
- Unpaid payroll taxes (IRS comes after responsible individuals)
- Co-mingling of personal and business funds (can pierce the veil)
- Personal injury you cause directly (driving a company vehicle, etc.)
## Ongoing maintenance
To keep your LLC's protection intact:
- **File the annual report** (or pay the franchise tax) on time
- **Renew the registered agent** as needed
- **Keep business and personal finances completely separate** — separate bank accounts, no personal expenses on business cards
- **Sign contracts in the LLC's name** — "John Smith, Manager of XYZ LLC" not just "John Smith"
- **Hold member meetings and document decisions** — even single-member LLCs benefit from written resolutions for major decisions
- **Maintain insurance** — LLC protection is real but not absolute; general liability and professional liability insurance fill gaps
## Series LLCs
Some states (DE, IL, NV, OK, TX, TN, UT, others) recognize **Series LLCs** — a master LLC under which multiple "series" can be created, each with separate assets, liabilities, and members. Useful for real-estate investors and businesses with multiple distinct lines of activity. Tax treatment of series LLCs is still evolving at the IRS.
## Anonymous / privacy LLCs
**Wyoming, New Mexico, Delaware, and Nevada** allow LLCs whose members aren't publicly disclosed in state filings. Useful for privacy and (modest) asset protection — but doesn't shield from court orders, creditors who do their homework, or federal tax obligations.
## Single-member LLC trap
Single-member LLCs are popular but have a unique vulnerability: in some states (and especially in bankruptcy), creditors of the single member can reach the LLC's assets through a charging order — and a few jurisdictions have allowed full foreclosure of the membership interest. Multi-member LLCs (even with a 99/1 split) typically have stronger asset protection.
## What you should do
Forming an LLC yourself is realistic for simple single-owner businesses — most Alabama Secretary of State websites have step-by-step guides. Hire a business attorney when you have multiple founders (you NEED a custom Operating Agreement), are raising outside money, are taking on real-estate or other significant assets, or have any partnership-disagreement risk. Many Alabama attorneys offer flat-fee LLC formation packages that include a custom operating agreement.
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*This guide is general information about Alabama law as of early 2026 and is not legal or tax advice. Filing fees and annual obligations change, and federal tax treatment of LLCs is more nuanced than this guide can cover. Talk to a licensed Alabama business attorney and a CPA about your specific situation.*
This guide is for general information only and does not constitute legal advice. Laws change and outcomes depend on your specific situation — talk to a licensed attorney before acting on anything you read here.