Alabama has a formation quirk that catches people off guard: you can't file an LLC directly. You have to reserve your name first, then file the actual formation document as a second step. Once that's done, the state dropped its old annual report a couple of years ago in favor of a different filing. Here's what it takes to start a business in Alabama in 2026.
1. Which business structure fits you?
Before you file anything, it helps to know what you're actually choosing between.
- Sole proprietorship. No filing required to start, and you and the business are legally the same entity. Simple, but you're personally liable for whatever the business owes.
- Partnership. Two or more people running a business together, with the same liability exposure as a sole proprietorship, just split across partners.
- LLC. The most common structure for small businesses in Alabama. It separates your personal assets from the business's debts and lawsuits.
- Corporation, either S-corp or C-corp. More paperwork and more formality, usually worth it once you're bringing on investors or multiple shareholders.
For a deeper comparison, see our guide on choosing a business structure.
LLCs and corporations register with the Alabama Secretary of State, Business Entities Division, the agency that handles business filings statewide. Sole proprietorships and general partnerships don't register there.
2. Register your business
Forming an LLC
Forming an LLC in Alabama takes two separate filings. First, you reserve your business name with a Certificate of Name Reservation, which costs about $25 to $28. Only after that's approved can you file the Certificate of Formation itself with the Secretary of State, for $200. Together, the real cost to form lands around $225 to $236 depending on filing method. Online approval typically takes one to three business days.
Every LLC needs a registered agent with a physical Alabama address, available during business hours. You can act as your own agent, or hire a commercial service.
Alabama doesn't require an operating agreement by law, but it's still worth writing one, particularly for multi-member LLCs, to spell out how decisions and profits get split.
Sole proprietorships and DBAs
Sole proprietorships don't file with the Secretary of State. If you're operating under a trade name, requirements and fees are handled at the county level through your local probate office.
3. Get an EIN
An Employer Identification Number is free straight from the IRS and takes about 15 minutes online. You'll need one to open a business bank account, hire anyone, or file most business tax forms, even if you're a single-member LLC with no employees.
4. Check licenses and permits
Alabama doesn't have a general statewide business license. What you need depends on your industry and city: professional licensing for regulated fields, a municipal business license in most cities and counties (contact your local probate office), and a sales tax permit from the Department of Revenue if you sell taxable goods or services. Our guides on professional licensing by industry and zoning laws for home businesses cover more of this.
5. Understand Alabama taxes
Alabama's personal income tax is progressive, roughly 2% to 5%, and applies to your share of LLC profits by default. Sales tax starts at a 4% state base, but local additions push the combined rate to some of the highest averages in the country, commonly landing around 9.25% to 9.43% depending on the city and county.
6. Stay compliant
Alabama eliminated the separate Secretary of State annual report a couple of years ago. In its place, every LLC files a Business Privilege Tax Return (Form PPT) with the Department of Revenue each year, alongside your federal return: April 15 for single-member LLCs, March 15 for multi-member LLCs. The minimum tax is $50, calculated based on your LLC's net worth apportioned to Alabama, though entities with $100 or less in calculated tax are exempt entirely.
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.