Forming an LLC in Alabama takes two separate trips to the Secretary of State: a name reservation first, then the actual Certificate of Formation. Most states skip straight to the second step, so this catches plenty of new filers off guard. On the compliance side, Alabama also retired its old annual report a few years back and swapped in a different filing entirely. Below is the process as it stands in 2026.
1. Which business structure fits you?
Start with the structure question, since it shapes almost every decision that follows.
- Sole proprietorship. Nothing to file to get going, and legally you and the business are one and the same. It's the simplest option, though every debt the business runs up is yours personally.
- Partnership. The same setup as a sole proprietorship but split between two or more people, which also means the liability gets shared rather than reduced.
- LLC. What most small Alabama businesses end up choosing, mainly because it puts a legal wall between your personal assets and anything the business owes or gets sued for.
- Corporation, S-corp or C-corp. Heavier on paperwork and formal upkeep, and generally not worth the trouble until you're bringing on investors or splitting ownership across multiple shareholders.
Our guide to choosing a business structure goes deeper on the tradeoffs.
The Alabama Secretary of State, Business Entities Division handles LLC and corporation filings statewide. Sole proprietorships and general partnerships have no reason to appear there, since neither files a formation document.
2. Register your business
Forming an LLC
Alabama splits LLC formation into two filings rather than one. You first submit a Certificate of Name Reservation, running $25 to $28, and only once that clears can you file the actual Certificate of Formation for $200. Add it up and you're looking at roughly $225 to $236 depending on how you file, with online approval usually landing within one to three business days.
Every LLC needs a registered agent, someone with a physical Alabama street address who's reachable during business hours. That can be you, or a paid service if you'd rather not use your own address.
Nothing in Alabama law forces you to put an operating agreement in writing, but multi-member LLCs in particular should have one anyway. It's the document that settles who decides what and how profits get divided, before a disagreement makes that urgent.
Sole proprietorships and DBAs
No filing with the Secretary of State applies to sole proprietorships. Operating under a trade name instead of your own? That gets handled at the county level, through your local probate office, with fees that vary by county.
3. Get an EIN
The IRS hands out Employer Identification Numbers at no charge, and the online application rarely takes more than 15 minutes. Banks want one before they'll open a business account, you'll need one to bring on any employee, and most tax filings ask for it too, single-member LLC with zero staff or not.
4. Check licenses and permits
There's no blanket state business license in Alabama. Instead, what applies to you depends on industry and location: certain professions need their own licensing, most cities and counties want a municipal business license (your local probate office handles that), and selling taxable goods or services means registering for a sales tax permit through the Department of Revenue. See our guides on professional licensing by industry and zoning laws for home businesses for the details.
5. Understand Alabama taxes
Personal income tax runs on a progressive scale, roughly 2% to 5%, and by default that's what your cut of LLC profits gets taxed at. Sales tax is a different story: the state base is only 4%, but once cities and counties layer their own rates on top, combined totals commonly land around 9.25% to 9.43%, among the steepest averages nationwide.
6. Stay compliant
The old Secretary of State annual report is gone; Alabama phased it out a few years ago. What replaced it is the Business Privilege Tax Return (Form PPT), filed with the Department of Revenue every year alongside your federal return, due April 15 for single-member LLCs and March 15 for multi-member ones. The minimum tax is $50, based on your LLC's net worth apportioned to Alabama, though if that calculation comes out to $100 or less, you're exempt from paying it at all.
Alabama business costs at a glance
| Item | Cost |
|---|---|
| Name reservation | $25 to $28 |
| Certificate of Formation (LLC) | $200 |
| Business Privilege Tax (every year) | $50 minimum (some exempt below $100) |
| Registered agent service (optional) | $100 to $250/year |
| EIN | Free (IRS) |
| State income tax | 2% to 5% (progressive) |
| State sales tax | 4% + local, averaging ~9.25% to 9.43% |
Frequently asked questions
Why does Alabama require two filings to form an LLC?
Alabama requires a Certificate of Name Reservation first (about $25 to $28), then the actual Certificate of Formation ($200), a two-step process most other states don't have.
How much does it cost to form an LLC in Alabama?
Around $225 to $236 total between the name reservation and Certificate of Formation.
Does Alabama require an annual report?
No longer. Alabama eliminated the separate annual report and replaced it with a Business Privilege Tax Return (Form PPT), minimum $50, due alongside your federal return.
What's the personal income tax rate in Alabama?
Progressive, roughly 2% to 5%, applying to your share of LLC profits by default.
How high is sales tax in Alabama?
A 4% state base, but local additions push combined rates commonly to around 9.25% to 9.43%.
Fees and rates above come from the Alabama Secretary of State and Department of Revenue as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to an Alabama-licensed attorney or CPA about your specific situation.