Starting a Corporation in Alabama | What You Need to Know


Steve Bennett
Steve Bennett
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Start a Corporation in Alabama

In Alabama, starting a corporation can benefit entrepreneurs looking to establish a separate legal entity for their business. Incorporating your business provides liability protection for its owners and offers potential tax benefits and a professional image. This comprehensive guide will walk you through Starting a Corporation in Alabama, from choosing a corporate name to fulfilling ongoing compliance requirements. Some people consider starting a corporation since it has advantages and benefits rather than Starting an LLC in Alabama.

Webinarcare Editorial Team will help you gain knowledge in starting a corporation with thorough research and market study. It would be best to cross-check all the factors in this article before forming a corporation.

What is a Corporation in Alabama?

A corporation in Alabama is a business organization recognized as a separate legal entity from its owners, also known as shareholders. When a corporation is formed, shareholders invest capital by purchasing shares of stock and, in return, become partial company owners. The corporation is managed by a board of directors elected by the shareholders to oversee the company’s operations and make important decisions. Corporations in Alabama are required to have at least Three directors. One of the main advantages of a corporation in Alabama is that it provides limited liability protection to its shareholders, meaning their assets are not at risk if the corporation incurs debt or is legally sued.

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Common Types of Corporations

Before you start with a corporation, you should know what type of corporation you will form. There are several different forms of corporations you can take into consideration, depending on your corporation’s objectives and ownership structure.

C-Corporation

C-Corporation is the most known type of incorporation. They have almost all corporate distinguishing characteristics. Profits are distributed to corporate owners who are taxed at an individual level. The corporation is taxed similarly to a business unit.

S-Corporation

S-Corporation in Alabama is set up similarly to a C-corporation but has different tax implications and owner limits. An S-Corporation has no more than 100 stockholders and is not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.

Nonprofit Corporation

Religious, educational, and charity institutions frequently use nonprofit businesses to run their operations without making a profit. Thus, a nonprofit corporation is exempt from paying taxes. The nonprofit organization’s gifts, contributions, or cash are reinvested in the company to fund its growth, future endeavors, or operations.

It is recommended to Start a Corporation in Alabama if you would like to provide limited liability protection to your shareholders rather than Alabama LLC. However, you may want to consult to LegalZoom’s Business Attorney before starting a business.

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How to Start a Corporation in Alabama

To start a corporation in Alabama, you must follow the below steps that, include choosing a corporate name, hiring a Resident Agent, appointing directors, filing for Certificate of Incorporation, creating corporate bylaws, holding the initial board of directors, issuing stock, obtaining required licenses and permits, registering with state tax agencies, and annual reporting and ongoing compliance. All these steps are basic ones. It can be changed depending on the type of corporation you form and the nature of your business.

Step 1: Choosing a Corporate Name

The first step in starting a corporation is choosing an available name that complies with Alabama naming rules. Most states require that the name of a corporation be distinguishable from other registered business names and include a corporate designator such as “Corporation,” “Incorporated,” “Company,” or an abbreviation thereof.

Here are some guidelines you must follow while naming your corporation in Alabama-

  • Your business name must contain entity identifiers, such as “Incorporated,” “Limited,” “Corporation,” or “Company,” or an abbreviation, such as “Inc.,” “Co.,” or “Ltd.”
  • Exclude any words in your business name, such as “Trust,” “Bank,” “Credit Union,” or “Trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

To check the availability of your desired corporate name, you can search the Alabama Secretary of State‘s business name database and Business Name Search in Alabama. If the name is available, you may choose to reserve it for a specific period of 1 Year by filing a name reservation application and paying the online name reservation fee of $28 and mail name reservation fee of $28. If your corporation plans to operate under a name other than its legal name, you may also need to register a fictitious or “doing business as” (DBA) name.

The DBA filing can be done by three methods, online, by mail, and in person filing., which costs around $30. In addition, the DBA’s validity in Alabama is five years, which you can file in Alabama Secretary of State.

You can check out How to File a DBA in Alabama for clearer understanding.

Step 2: Hire a Resident Agent

Hiring a Resident Agent is essential in starting a corporation. Resident Agent is a person or company responsible for receiving important legal documents, tax notices, and other correspondence on behalf of your corporation. They ensure that your corporation remains compliant with state regulations and requirements. There are Alabama Resident Agent Services to check in forming Alabama Corporation. We reviewed some of the best-registered agent services and provided features as an add-on with their packages.

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Step 3: Appointing Directors

Corporations in Alabama are required to have at least Three directors, though some states may require more. Directors are responsible for overseeing the corporation’s management and making major decisions on behalf of the company. In Alabama, directors must be at least 18 years old and do not need to be state residents.

When appointing directors, it is essential to consider individuals who are knowledgeable, trustworthy, and capable of making sound business decisions. Maintaining a record of appointed directors, including their names, addresses, and terms of service, is also a good idea.

Step 4: Preparing and Filing Certificate of Incorporation

After you appoint the initial board of directors in your Alabama corporation, the next step is to write and file a Certificate of Incorporation. In writing, the Alabama Certificate of Incorporation, the corporation name, principal place of business, the purpose of business, Resident Agent contact information, and the names and addresses of incorporators and initial board members, should be written.

To officially form your Alabama corporation, you must prepare and file Certificate of Incorporation with the Alabama Secretary of State. The Certificate of Incorporation is a legal document that outlines essential information about your corporation, such as its name, address, purpose, and details about its stock.

The specific requirements for Certificate of Incorporation vary by state, but generally, the document must include the following:

  • The corporate name
  • The purpose of the corporation
  • The name and address of the registered agent
  • The names and addresses of the initial directors
  • The number of authorized shares and their par value
  • The name and address of the incorporator(s)

Once the Certificate of Incorporation are complete, please submit them to the Alabama Secretary of State’s office, along with the required filing fee. Fees vary by state, but in Alabama, the Certificate of Incorporation filing fee costs around $200 for filing by mail. It is crucial to provide accurate and complete information on this document, as errors or omissions may result in delays or rejection of your filing.

  • Online Filing: There’s no online filing available.
  • Offline filing: Send the form to the Secretary of State, P.O. Box 5616, Montgomery, AL 36103

Step 5: Creating Corporate Bylaws

Now you are done filing Certificate of Incorporation in Alabama, the next step is to draft corporate bylaws. While not always required by law, creating corporate bylaws is essential in establishing Alabama corporation. Bylaws are the internal rules and regulations that govern the corporation’s operations and management. They outline the rights and responsibilities of directors, officers, and shareholders and provide guidelines for holding meetings and making decisions.

Key provisions to include in your corporate bylaws may include:

  • The corporation’s purpose and principal place of business
  • The roles and responsibilities of directors, officers, and shareholders
  • The process for appointing and removing directors and officers
  • The procedures for holding annual and special meetings
  • The methods for amending the bylaws and Articles of Incorporation
  • The procedures for issuing stock and maintaining shareholder records

Once the bylaws are drafted, they must be adopted by the corporation’s board of directors. Keeping a copy of the bylaws with your corporate records and updating them to reflect changes in the corporation or applicable laws is essential.

Step 6: Holding the Initial Board of Directors Meeting

The initial board of directors meeting is a crucial milestone for your Alabama corporation. During this meeting, the directors will adopt the corporate bylaws, elect officers, and make other key decisions to set the foundation for the corporation’s operations.

The agenda for the initial board meeting may include the following:

  • Adopting the corporate bylaws
  • Ratifying any pre-incorporation actions taken by the incorporator(s)
  • Electing corporate officers (e.g., president, vice president, secretary, treasurer)
  • Designating a corporate bank account
  • Authorizing the issuance of stock
  • Approving necessary licenses, permits, and tax registrations

It is essential to keep detailed minutes of the initial board meeting, documenting the decisions made and actions taken. These minutes should be stored with your corporate records.

Step 7: Issuing Stock

Corporations in Alabama are required to issue stock to their owners, also known as shareholders. When preparing to issue stock, you must determine the number of authorized shares and their par value, as outlined in your Certificate of Incorporation. You may choose to issue different classes of stock, each with its rights and privileges, such as voting rights and dividend preferences.

The process for issuing stock typically involves the board of directors approving a stock issuance resolution, determining the price per share, and recording the issuance in the corporation’s stock ledger. Maintaining accurate and up-to-date records of all stock transactions, including transfers and cancellations, is crucial to ensure proper ownership tracking and compliance with securities laws.

Step 8: Obtaining Required Licenses and Permits

Depending on the nature of your corporation’s activities and location, you may need to obtain various licenses and permits to operate legally. These may include federal, state, and local requirements, such as:

  • A Federal Employer Identification Number (EIN) for tax reporting and employee withholding purposes.
  • State sales and use tax registration, if your corporation sells taxable goods or services
  • Professional or occupational licenses for specific industries (e.g., healthcare, construction, food service)
  • Alabama Business Licenses, zoning permits, and health department approvals

Researching and obtaining all required Alabama licenses and permits before commencing operations and maintaining compliance with any ongoing renewal or reporting requirements is essential.

Step 10: Registering with State Tax Agencies

In addition to obtaining licenses and permits, your Alabama corporation may also need to register with various tax agencies. This may include registering for sales and use tax, obtaining an Employer Identification Number (EIN) in Alabama for payroll tax purposes, and filing state income tax and franchise tax returns.

An EIN will serve as the tax ID for your Alabama corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Alabama can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Each state has tax requirements, so consult a tax professional or Alabama Department of Revenue for guidance on your specific obligations.

Step 11: Annual Reporting and Ongoing Compliance

Once your Alabama corporation is up and running, you must fulfill ongoing reporting and compliance requirements to maintain good standing. This may include filing Annual Report with the Alabama Secretary of State, updating your corporate records to reflect changes in directors or officers, and staying current on any required licenses or permits.

In addition, it is essential to stay informed about changes in corporate laws and regulations that may impact your business and to seek professional advice when needed.

Paying Your Taxes in Alabama

Even if you have established your corporation in Alabama, pay your taxes and keep everything up to date so you won’t pay any penalty. Unlike an LLC, there is a corporate tax that every corporation in Alabama has to pay. On the other hand, they must pay income taxes based on their business income. Some other types of taxes in Alabama are sales tax, franchise tax (not applicable to all the states), and other state taxes.

Cost of Forming a Corporation in Alabama

In forming a corporation in Alabama, a filing and Annual fee must be paid. Without it, your corporation won’t operate. A corporation’s initial filing fee may vary from state to state. However, in Alabama, it costs $200 for filing by mail. The corporation in Alabama also has to file an Annual Report (though it might not be mandatory, it is recommended to file one). Ensure you comply with all the necessary fees and costs so your corporation will run successfully and smoothly.

FAQs

What is the first step to start a corporation in Alabama?
The first step is to file Articles of Incorporation with the Alabama Secretary of State.
How many individuals are required to start a corporation in Alabama?
At least one individual is required to start a corporation in Alabama.
Can a non-resident start a corporation in Alabama?
Yes, a non-resident can start a corporation in Alabama.
What is the minimum age requirement to start a corporation in Alabama?
There is no minimum age requirement to start a corporation in Alabama.
Does a corporation need a physical address in Alabama?
Yes, a corporation needs a physical address in Alabama to conduct business.
Is it necessary to have a registered agent in Alabama to start a corporation?
Yes, it is mandatory to have a registered agent in Alabama if you want to start a corporation.
Can an individual serve as the registered agent for their corporation?
Yes, an individual can serve as the registered agent for their corporation in Alabama.
What are the advantages of incorporating in Alabama?
Some advantages of incorporating in Alabama include limited liability, tax benefits, and credibility.
Who needs to sign the Articles of Incorporation to start a corporation in Alabama?
The Articles of Incorporation need to be signed by all the incorporators and the registered agent.
How much does it cost to incorporate in Alabama?
The filing fee to incorporate in Alabama is $100.
How long does it take to incorporate in Alabama?
It usually takes 3-5 business days to incorporate in Alabama.
Can you incorporate online in Alabama?
Yes, you can incorporate online in Alabama on the Secretary of State’s website.
What is the difference between the S Corporation and C Corporation in Alabama?
The main difference between an S Corporation and C Corporation in Alabama is the way they are taxed.
Can you change your incorporation type in Alabama later on?
Yes, you can convert your corporation from an C Corporation to an S Corporation in Alabama.
When is the Annual Report due in Alabama?
The Annual Report is due every year by April 15th in Alabama.
What is required in the Annual Report of an Alabama corporation?
The Annual Report requires the company name, officers and directors’ names and addresses, and disability access information.
What is the Tax Identification Number and how can I get it for my corporation in Alabama?
A Tax Identification Number is a nine-digit number used to identify your business by the IRS. It can be obtained by applying online or by mailing a Form SS-4 to the IRS.
What is the minimum capital requirement to start a corporation in Alabama?
There is no minimum capital requirement to start a corporation in Alabama.
Can a foreign corporation do business in Alabama?
Yes, a foreign corporation can do business in Alabama if it is registered with the Alabama Secretary of State.
What are the restrictions on the corporation name in Alabama?
There are no major restrictions on the corporation name in Alabama. However, certain words such as “bank” and “trust” require additional documentation.
What happens if the corporation fails to file Annual Reports in Alabama?
The corporation may incur penalties or fines for failing to file Annual Reports.
What is the minimum number of Directors required for a corporation in Alabama?
At least one director is required for a corporation in Alabama.
Can the bylaws of a corporation in Alabama be amended later on?
Yes, the bylaws can be amended later on as per the corporation’s requirement.
Is an operating agreement required for a corporation in Alabama?
No, an operating agreement is not required for a corporation in Alabama.
How can I dissolve a corporation in Alabama?
A corporation can be dissolved in Alabama by filing articles of dissolution with the Secretary of State.
What is a Certificate of Good Standing in Alabama?
A Certificate of Good Standing is a document that verifies the status of a corporation in Alabama.
Is the registered agent required to sign the Articles of Incorporation in Alabama?
No, the registered agent is not required to sign the Articles of Incorporation in Alabama.
Can a corporation issue stock in Alabama?
Yes, a corporation is allowed to issue stock to its shareholders in Alabama.
What is a corporation in Alabama?
A corporation in Alabama is an independent legal entity formed by a group of individuals to conduct business activities.
What are the benefits of incorporating in Alabama?
The benefits of incorporating in Alabama include limited personal liability for company debts, significant tax write-offs and protections, greater access to funding capital, and expansion opportunities in the southeast.
Can a corporation in Alabama be owned by a single individual?
Yes, a corporation in Alabama can be owned by a single individual, known as a sole proprietor.
How can an individual incorporate a business in Alabama?
An individual can incorporate a business in Alabama by filing articles of incorporation with the Alabama Secretary of State, obtaining a business license, holding an organizational meeting, and issuing stock to initial shareholders.
What is the minimum number of shareholders required to incorporate in Alabama?
In Alabama, a corporation requires a minimum of one shareholder.
What is the minimum number of incorporators required in Alabama?
In Alabama, a corporation requires only one incorporator.
What is the cost to incorporate in Alabama?
The cost to incorporate in Alabama varies, ranging from $100 to $475 based on the type of corporation registered and the corporation formation service provider used.
What is the residency requirement of an incorporator or director in Alabama?
There are no residency requirements for incorporator or directors in Alabama.
What is a registered agent in Alabama?
In Alabama, a registered agent is a designated person or third-party organization who accepts legal documents and official correspondence on behalf of a corporation.
What are the requirements to be a registered agent in Alabama?
The requirements to be a registered agent in Alabama include being a resident in Alabama or a corporation registered to operate as a foreign corporation in the state.
Can a corporation established outside Alabama be registered to conduct business within Alabama?
Yes, a corporation established outside Alabama must register to conduct business within Alabama, typically referred to as a foreign corporation, and appointed a registered agent.
What are the annual filing requirements for Alabama corporations?
Alabama corporations must file an annual report with the Alabama Secretary of State on or before April 15 of each calendar year.
What are the incorporation time frames for Alabama?
Incorporation time frames in Alabama vary depending on the level of company information preparation, but on average, it takes between two to three weeks.
Can an Alabama corporation be dissolved voluntarily?
Yes, an Alabama corporation can be dissolved voluntarily by a resolution of its shareholders or directors.
Are there any tax incentives for corporations based on Alabama?
Alabama provides several tax incentives to encourage business operations, including tax savings and credit opportunities.
What are the tax implications for an Alabama corporation?
As a legal separate entity, an Alabama corporation must file a separate business tax return and pay taxes on its earnings, even if no income tax is due.
Are nonprofit corporations entitled to any tax benefits in Alabama?
Yes, nonprofit corporations are entitled to several tax benefits in Alabama, including exemptions on state sales tax and municipal property tax.
What are the ramifications for non-compliance with annual filing or bylaw guidelines by Alabama corporations?
Non-compliance with annual filing or bylaw guidelines can lead to administrative fines being levied, loss of corporation good standing, and overall reduction in corporate protections.
Are there any requirements to appoint a board of directors?
No, Alabama law does not impose any specific requirements to appoint a board of directors for a corporation.
Can a nonprofit corporation be established by one person alone?
Yes, an individual can establish a nonprofit corporation by filling articles of incorporation and adopting a set of bylaws.
Are shareholders permitted to participate in corporate tax exchange programs in Alabama?
No, Alabama shareholders are not permitted to participate in separate corporate tax exchange programs.
Is a motorcycle required to be incorporated in Alabama?
No, a motorcycle is not required to form a corporation in Alabama.
Are there any requirements associating certified partners in Alabama?
No, no specific requirements or associations with certified partners are necessary for corporations in Alabama.
Can foreigners incorporate in Alabama?
Yes, foreigners can form a corporation in Alabama by following the requirements for incorporating including registering a registered agent, preparing incorporation documents.
What steps should one take after incorporating their business in Alabama?
After incorporating the business int Alabama, one should, obtain a tax ID, obtain any additional state-required licenses and permits, and build operational procedures.
Can online forms be used to form a corporation in Alabama?
One can use online platforms who offer assistance for filling forms to form the corporation in Alabama.
Can one use debit or credit card payment methods to pay the filing fees when forming a corporation in Alabama?
Yes, one can use debit and credit card payment at present in filing fees while forming the corporation in Alabama.
What are annual reports in Alabama?
Alabama corporations file annual reports as required by the Secretary of State, updating company and locating information, detailing the officers, directors, registered agents, and principal office location of the business.

Also Read

How to Save Money While Forming Your Alabama Corporation

One of the first steps in forming a corporation is choosing the right business structure. While many entrepreneurs opt for a traditional corporation, there are other options, such as a limited liability company (LLC), that may be more cost-effective. By carefully considering the advantages and disadvantages of each structure, you can choose the one that best fits your business needs and budget.

Another way to save money when forming your corporation is by DIY-ing some of the tasks typically outsourced to professionals. For instance, you can draft your own articles of incorporation or operating agreement, instead of hiring a lawyer to do it for you. There are plenty of resources available online that can guide you through the process and help you create these legal documents at a fraction of the cost.

When it comes to registering your business, it can be tempting to rush through the process and hire a registered agent service to handle everything for you. However, this can come with a hefty price tag. Instead, consider serving as your own registered agent to save on those added fees. You can designate yourself or another member of your corporation to fulfill this role, providing a cost-effective alternative to outsourcing.

Renting office space can also be a significant expense for a new business. If you’re not ready to commit to a long-term lease, consider alternative options such as coworking spaces or virtual offices. These spaces offer the flexibility of short-term leases and can provide you with all the essential amenities at a fraction of the cost of traditional office space.

Furthermore, take advantage of free or low-cost resources available to Alabama entrepreneurs. There are numerous organizations and programs in the state that offer assistance with business planning, obtaining financing, and complying with legal requirements. By tapping into these resources, you can save money while receiving valuable guidance and support for your new corporation.

Finally, keep a close eye on your business expenses and look for areas where you can cut costs. Whether it’s negotiating better deals with suppliers or trimming unnecessary expenses, being mindful of your spending can help you save money in the long run. By keeping a lean and efficient operation, you can increase your chances of success while minimizing your financial burden.

In conclusion, forming a corporation in Alabama doesn’t have to break the bank. By carefully considering your options, DIY-ing certain tasks, leveraging free resources, and being mindful of your expenses, you can save money while creating a strong foundation for your new business. With a little creativity and ingenuity, you can achieve your entrepreneurial dreams without draining your bank account.

Conclusion

Starting a corporation in Alabama involves several critical steps, from choosing a corporate name to fulfilling ongoing compliance requirements. Following the steps outlined in this guide and seeking professional advice when needed, you can successfully establish your Alabama corporation and enjoy the benefits of limited liability, potential tax savings, and a professional business image.

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