How to Form a Professional Corporation in Alabama (2024 Guide)

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
Last updated: 
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Forming a Professional Corporation in Alabama

If you would like to start and learn how to form a corporation in Alabama, there are a few things that you should do now. However, in a professional corporation, professionals must create a special organizational structure to establish a professional or service corporation. Among the appropriate professions to organize a professional corporation in Alabama are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in Alabama or any business organization needs a certain number of steps. In this article, Webinarcare Editorial Team is going to share those steps. Keep in mind that these are general procedures. Depending on local law, it may be modified. For instance, your professional corporation may be subject to city or county-based rules.

What is a Professional Corporation in Alabama?

A professional service corporation (PSC), often known as a professional corporation (abbreviated as PC), is a particular type of organization that is permitted by state law to allow owners of specifically licensed professions to practice in the Alabama. A professional corporation’s owner is answerable for their own negligence or wrongdoing but is not held personally liable for the actions of other owners. The abbreviation PC or P.C. is frequently used to denote professional corporations.

This structure allows professionals to enjoy some of the benefits and protections of a traditional corporation while maintaining their professional status and abiding by the regulations of their respective licensing boards.

LegalZoom is the recommended corporation formation if you are thinking of forming a professional corporation from scratch. However, you can always start an LLC in Alabama, if you changed your mind.

WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in Alabama

To form a Professional Corporation in Alabama for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Resident Agent, filing the Certificate of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an Annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Alabama, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

To provide your service, you must be qualified and have a license. In most cases, you can now form a professional corporation after finishing your studies, passing the exam, and receiving your license. If you work in an industry that does not provide a license or professional certification, you should consider starting an LLC or corporation.

Step 2: Name your Professional Corporation in Alabama

After you have decided to form a professional corporation in Alabama, you must choose a name for your corporation. Here are some pointers to consider when naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • Limit of restricted words that need a license.
  • A unique name is needed with no match
  • No confusion with a government entity name.

In Alabama, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 1 Year. You must file a name reservation application in the Alabama Secretary of State to keep the name.

If not already present, a professional corporation, professional association, service corporation, or professional service corporation must be included in the name. You may register your business under a different legal name if your preferred legal name is unavailable. Once you’ve decided on a name, you can apply for Alabama DBA (doing business as). This way, you can run a clinic or law firm under your name.

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Step 3: Choose the Alabama Resident Agent

The next step in forming a professional corporation is hiring a Resident Agent, who accepts legal paperwork for your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Alabama. Forming a professional corporation for your service will be easier if you have Resident Agent in Alabama.

Alternatively, you can serve as your own Resident Agent if you have the time. Usually, in Alabama, a Resident Agent costs is ranging from $50 – $150. To make it easier, you can hire Alabama Resident Agent Services for your professional corporation.

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Step 4: File the Certificate of Incorporation in Alabama

After you hire a Resident Agent to form a professional corporation, the next step is to file the Alabama Certificate of Incorporation. In writing the Certificate of Incorporation, the business name, owner’s contact information, corporation address, and Resident Agent contact information, should be written. Include the names of all co-owners as well. All owners must demonstrate that they have the necessary licenses to practice the profession in question.

Filing the Certificate of Incorporation in Alabama may be done with one method that is filing by mail. The Certificate of Incorporation fee may vary from different state. However, in Alabama, it costs $200 for filing by mail. There’s no online filing available.. For offline filing, Send the form to the Secretary of State, P.O. Box 5616, Montgomery, AL 36103.

Step 5: Write an Operating Agreement in Alabama

An operating agreement in Alabama is a document that contains all of your company’s organizational details. It is optional to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The operating agreement includes information like-

  • About Business
  • Members and management
  • Capital contribution
  • Profit Distribution
  • Change of membership
  • Dissolution

Step 6: Designate the PC Board of Directors in Alabama

The next step is to form the first board of directors for your PC in Alabama. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the Alabama Secretary of State. As a shareholder and owner, you must ensure that a provision for appointing a new director is included in the By-laws. In Alabama, you must have Three directors in forming your Professional Corporation.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

Creating comprehensive corporate bylaws requires specific knowledge about the company, its structure, and operations. However, I can provide you with a general outline of what corporate bylaws usually include. It is crucial to consult with Alabama Business Attorney or a legal expert to ensure that your bylaws comply with the laws and regulations governing your jurisdiction and industry.

  • Name and Purpose of the Corporation
  • Registered Office and Agent
  • Shareholders
  • Board of Directors
  • Officers
  • Committees
  • Indemnification and Insurance
  • Conflict of Interest
  • Records and Reports
  • Amendments
  • Miscellaneous

Step 8: Hold the First Board of Directors’ Meeting

Gather the board of directors for the first meeting after drafting the corporate bylaws. This meeting will conclude with the appointment of directors to manage the company’s daily operations, approval of the bylaws, selection of the corporation’s financial reporting year, and approval of the stock issue. Minutes should be taken at all board meetings and kept with the company’s records.

Step 9: Request an EIN in Alabama.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in Alabama. The tax ID for your professional corporation will be an EIN. The Internal Revenue Service can provide an EIN (IRS). It has nine digits and is comparable to a social security number. Nevertheless, EIN is different from SSN. Only business-related tasks, primarily filing general taxes, are performed using it. The form needs to be filled out and submitted online to the IRS.

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 the 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.

After you have your EIN number, you can benefit in several ways. It will give your professional corporation the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Step 10: Open a Bank Account and Prepare for Taxes.

You should open a business bank account as soon as you have applied for and received your Employer Identity Number because you will use this account for yourself, your clients, and your staff. Check out the Best Banks in Alabama for you to decide on which bank you are going to open an account.

Due to your organization’s increased legality and liquidity, having a US business bank account may make conducting business in Alabama easier. Most banks require an EIN for businesses other than sole proprietorships to open a business bank account. Also, keeping your accounts separate will prevent you from merging your personal and business finances. Also, filing taxes is simpler when you have an EIN. You can expect to pay employee and corporate taxes when you form a professional corporation.

Step 11: Get a Business License in Alabama

Before your professional corporation operates in Alabama, you must have Alabama Business License first. A business license is a formal document issued by a state government agency that allows you to conduct business in the geographic area governed by that agency. The cost of business licenses and permits in Alabama ranges from $50 – $300. You must check with the local authorities to see if any special licenses or permits are required.

Step 12: File Your Taxes in Alabama

Finally, you’ve arrived at the final process. Remember to file your taxes when you have obtained a business license and are ready to begin operations. To avoid a large tax bill, you should begin paying taxes quarterly as soon as possible. Each state has different tax requirements. Start examining the Alabama tax classification for the taxes that an LLC in Alabama must pay.

Main Characteristics of a Professional Corporation

In forming a Professional Corporation, the main characteristics must be distinguished before forming it. These are the general characteristics of forming a Professional Corporation in Alabama.

  • Limited Liability Protection: A professional corporation provides its owners, shareholders, or members limited liability protection like a regular corporation. This means the shareholders’ personal assets are generally protected from business debts, obligations, and lawsuits, except in malpractice or professional negligence cases.
  • Alabama Licensing Requirements: All shareholders must typically be licensed professionals in the same field in a professional corporation. The corporation must also comply with specific state regulations and licensing requirements that govern the profession.
  • Governance and Management: A professional corporation is governed by a board of directors, who the shareholders elect. The board appoints officers to manage the day-to-day operations of the corporation. All directors and officers must be licensed professionals in the same field as the corporation.
  • Taxation: Professional corporations are taxed as C corporations, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received from the corporation. However, some professional corporations may be eligible for S corporation status, allowing pass-through taxation. Income, losses, deductions, and credits flow to the shareholders, who report this information on their income tax returns.
  • Restrictions on Ownership and Transfer of Shares: Professional corporations often restrict the ownership and transfer of shares to ensure that only licensed professionals in the same field can become shareholders. This helps maintain the professional nature of the corporation and adheres to state licensing requirements.
  • Malpractice Liability: While a professional corporation provides limited liability protection for general business debts and obligations, it does not shield shareholders from liability for their own malpractice or professional negligence. Shareholders can still be personally liable for their actions in providing professional services.

In summary, a professional corporation is a specialized corporate structure designed for licensed professionals, offering limited liability protection and a formal governance structure while adhering to state licensing requirements and regulations.

Maintain Professional and Business License in Alabama

You must maintain or renew your professional license regularly now that you have established your professional corporation. Even if your company is well-established, it is only meaningful if you have a valid operating license. And it makes no difference if your professional license is still valid for a year or two, but your business license has already expired.

Make time at least once a year to check the status of your licenses. You won’t miss anything important this way. You can address any issues that arise.

Filing Annual Report in Alabama

In Alabama, you must submit a report. The owners’ and Resident Agent’s names and contact details are listed in the Annual Report. Also, it should include all of your yearly financial activity. You must submit the report every 1 year (15th April of every year) in the Alabama Secretary of State.

FAQs

What is a professional corporation?
A professional corporation is a type of business that is formed in Alabama to provide professional services, in which the shareholders are licensed professionals.
What types of professionals in Alabama can form a professional corporation?
In Alabama, the following professionals can form a professional corporation
How do I form a professional corporation in Alabama?
You can form a professional corporation in Alabama by filing Articles of Incorporation with the Alabama Secretary of State’s Office and paying the required fees.
How much does it cost to form a professional corporation in Alabama?
The cost to form a professional corporation in Alabama varies depending on the type of professional services being offered and the number of shareholders. Contact the Alabama Secretary of State’s Office for the exact fee schedule.
Is there a minimum amount of capital required to form a professional corporation in Alabama?
No, there is no minimum amount of capital required to form a professional corporation in Alabama.
Do I need to draft by-laws for my professional corporation in Alabama?
Yes, Alabama law requires that you adopt by-laws for your professional corporation.
Can I form a professional limited liability company (PLLC) instead of a professional corporation in Alabama?
Yes, Alabama also allows licensed professionals to form PLLCs instead of professional corporations.
How do I choose a name for my professional corporation in Alabama?
The name of your professional corporation in Alabama must include “Professional Corporation” or the abbreviated form “P.C.” After selecting a name, you should ensure that it is available for use and then file it with the Secretary of State’s Office.
Will my professional corporation in Alabama be required to file annual reports?
Yes, Alabama requires professional corporations to file annual reports with the Secretary of State’s Office.
Will I need to obtain any licenses or permits to operate my professional corporation in Alabama?
Yes, depending on the type of services you are offering, you may need to obtain licenses or permits from the Alabama licensing board for your profession.
Are there any restrictions on the structure of a professional corporation in Alabama?
Yes, in Alabama, the shareholders of a professional corporation must all be licensed professionals in the same field.
Can a professional corporation in Alabama be owned by a non-professional?
No, Alabama law requires that the shareholders of a professional corporation all be licensed professionals within the same field of services.
Can a professional corporation in Alabama offer multiple professional services?
Yes, a professional corporation in Alabama can offer services within multiple professional fields.
What kind of insurance is necessary for a professional corporation in Alabama?
A professional corporation in Alabama should have professional liability insurance to protect against negligence claims.
Can a professional corporation in Alabama have only one shareholder?
No, Alabama law requires that a professional corporation have at least two licensed professional shareholders.
Can a professional corporation in Alabama have a non-licensed officer?
Yes, a professional corporation in Alabama can have a non-licensed officer, such as a Chief Financial Officer (CFO), as long as their role is not in the performance of professional services.
Are there any residency requirements for shareholders of a professional corporation in Alabama?
No, there are no residency requirements for shareholders of a professional corporation in Alabama.
Can a CPA and a chiropractor form a professional corporation in Alabama?
No, Alabama law requires that the shareholders of a professional corporation all be licensed professionals in the same profession.
Can a lawyer and a tax accountant form a professional corporation in Alabama?
Yes, a lawyer and a tax accountant can form a professional corporation in Alabama if they are both licensed professionals and offer services within the same professional field.
Can an out-of-state professional form a professional corporation in Alabama?
Yes, out-of-state licensed professionals are allowed to form a professional corporation in Alabama as long as they comply with the state’s requirements.
Can an Alabama professional practice under a professional corporation formed in a different state?
No, Alabama law requires that an Alabama professional practice through a professional corporation that is incorporated in Alabama.
Can a non-profit offer professional services through a professional corporation in Alabama?
No, only licensed professionals can offer professional services through a professional corporation in Alabama.
Is there a deadline for filing annual reports for a professional corporation in Alabama?
Yes, the annual report for a professional corporation must be filed with the Alabama Secretary of State’s Office by the fifteenth day of the fourth month following the close of the corporation’s fiscal year.
Can an inactive professional corporation in Alabama be revived?
Yes, an inactive or dissolved professional corporation in Alabama can be revived by filing an application for revival with the Secretary of State’s Office.
Can a professional corporation in Alabama change its name?
Yes, a professional corporation in Alabama can change its name by filing an application for a name change with the Secretary of State’s Office.
Can a professional corporation in Alabama have a dba (doing business as) name?
Yes, a professional corporation in Alabama can register a dba name with the Alabama Secretary of State’s Office.
Can a shareholder of a professional corporation in Alabama sell their shares to a non-professional?
No, Alabama law requires that all shareholders of a professional corporation be licensed professionals.
What happens if a shareholder of a professional corporation loses their professional license?
If a shareholder of a professional corporation loses their professional license, they will no longer be able to hold shares in the corporation, and the corporation must be dissolved or restructured to comply with Alabama law.
What is a professional corporation in Alabama?
A professional corporation is a type of corporation in Alabama that is specifically designed for professionals in certain fields, such as doctors, lawyers, engineers, accountants, and architects.
What are the benefits of forming a professional corporation in Alabama?
Some of the benefits of forming a professional corporation in Alabama include limited liability protection, the ability to separate personal and business assets, and increased credibility with clients.
What are the requirements for forming a professional corporation in Alabama?
In Alabama, you need to file articles of incorporation with the Secretary of State’s office, obtain a certificate of good standing from the Alabama State Bar or Board of Medical Examiners, and obtain any necessary licenses or permits.
Can professionals in any field form a professional corporation in Alabama?
No, only those in certain fields, such as medicine, law, engineering, accounting, or architecture, are allowed to form professional corporations in Alabama.
How must a professional corporation in Alabama be named?
A professional corporation in Alabama must include the professional corporation designation, which can be “PC,” “P.C.,” or “Professional Corporation,” in its name.
Can non-professionals invest in or own a professional corporation in Alabama?
In Alabama, only licensed professionals can be shareholders or owners of a professional corporation.
What is the liability protection for shareholders in a professional corporation in Alabama?
Shareholders of a professional corporation in Alabama generally have limited liability protection, which means they are not personally liable for the debts and obligations of the corporation.
How are profits and losses divided in a professional corporation in Alabama?
The profits and losses of a professional corporation in Alabama are divided among the shareholders in proportion to their ownership or investment in the corporation.
Does a professional corporation in Alabama pay taxes?
Yes, a professional corporation in Alabama must pay state and federal income taxes.
Can a professional corporation in Alabama have more than one profession?
No, a professional corporation in Alabama can only practice one profession per corporation, except in certain cases where the professions are deemed similar or closely related.
Can a professional corporation in Alabama practice in other states?
Yes, a professional corporation in Alabama can practice in other states, but it must comply with the requirements of those states.
What happens if a professional corporation in Alabama violates its ethical standards?
The professional corporation could lose its license to practice in the state of Alabama.
Can a professional corporation in Alabama dissolve itself?
Yes, a professional corporation in Alabama can dissolve itself if it meets certain legal requirements and obtains the necessary approvals.
Is there a limit to the number of incorporators a professional corporation in Alabama can have?
No, there is no limit to the number of incorporators a professional corporation in Alabama can have.
What happens if an Alabama professional corporation violates state laws?
The corporation could face legal penalties and fines, and its license to practice in the state may be revoked.
How long does it take to file and form a professional corporation in Alabama?
The time it takes to form a professional corporation in Alabama can vary depending on the specific requirements and documentation needed, but it usually takes between one and two weeks.
What is the annual fee for maintaining a professional corporation in Alabama?
The annual fee for maintaining a professional corporation in Alabama is $100.
How many shareholders can a professional corporation in Alabama have?
There is no limit to the number of shareholders a professional corporation in Alabama can have.
What qualifications must a shareholder have in order to own shares in a professional corporation in Alabama?
Shareholders of a professional corporation in Alabama must be licensed professionals in the field of the corporation.
Can a non-professional serve as a director or officer in a professional corporation in Alabama?
Yes, but only if they are not a shareholder or owner of the corporation.
What is the purpose of a certificate of good standing for a professional corporation in Alabama?
The certificate of good standing is a document that confirms that the professional corporation is in compliance with all state laws and regulations.
What are the consequences of operating a professional corporation in Alabama without a license?
Operating a professional corporation in Alabama without a proper license can result in legal penalties, fines, and the potential loss of your professional license.
Are there certain fields of professionals that are prohibited from forming a professional corporation in Alabama?
Yes, some professions, such as real estate agents and brokers, are prohibited from forming a professional corporation in Alabama.
Does a professional corporation in Alabama require a board of directors?
Yes, a professional corporation in Alabama must have a board of directors in place to manage its affairs.
How is income taxed for a professional corporation in Alabama?
A professional corporation in Alabama is taxed as a separate legal entity, which means it is subject to state and federal income taxes.
Can a professional corporation in Alabama change its name or practice area?
Yes, a professional corporation in Alabama can change its name or practice area, but it must comply with all legal requirements to do so.
What are the consequences of failing to follow Alabama’s laws on professional corporations?
Failing to follow Alabama’s laws on professional corporations can result in legal penalties, fines, or the revocation of your professional license.

Also Read

How to Save Money While Forming Alabama Professional Corporation

One of the main areas where substantial savings can be achieved is during the initial setup of the professional corporation. It is advisable to seek the assistance of a reputable attorney who specializes in business and corporate law. However, be sure to thoroughly research and compare legal service providers to find the one that offers the best value for your money. Spending a little extra time finding the right lawyer who offers his or her services at a reasonable cost can lead to considerable savings in the long run.

Another aspect to consider when forming a professional corporation on a budget is employee wages and salaries. Start by analyzing what roles and responsibilities are truly indispensable for operating the corporation. By keeping the number of employees to a minimum and carefully evaluating their compensation packages, you can save substantial amounts of money. Consider employing dedicated and diligent individuals who are willing to handle multiple tasks, effectively minimizing the need for additional staff.

Rent and office space costs also make up a significant portion of a professional corporation’s budget. To save money in this area, consider sharing office space with other professionals or even subleasing from an existing company. Sharing overhead costs, such as rent, utilities, and maintenance expenses, can help alleviate the financial burden. Additionally, remote working arrangements are becoming increasingly popular and provide an excellent opportunity to cut back on office rental expenses altogether.

Costly marketing campaigns can quickly drain a new professional corporation’s limited funds. However, there are several affordable alternatives that can help increase visibility and attract clients. Utilize free or inexpensive marketing options, such as social media platforms, local publications, or community events. Smart and focused marketing strategies that target specific audiences are often far more effective than expensive global marketing campaigns. Embracing alternative and cost-effective marketing approaches is essential for boosting your corporation’s profitability and saving money.

While it is crucial to save money during the formation of a professional corporation, it is equally important not to cut corners when it comes to compliance and legal obligations. Failing to meet legal requirements and regulatory obligations can lead to substantial fines, penalties, or even the dissolution of the corporation. Ensuring that the corporation complies with all the necessary licenses, permits, and tax filings is of the utmost importance. Seeking professional guidance and advice from a certified public accountant or business consultant with expertise in Alabama corporate law is highly recommended.

In conclusion, saving money while establishing an Alabama professional corporation requires a strategic and deliberate approach. Carefully choosing your legal representation, streamlining employee compensation, reducing office space costs, and implementing cost-effective marketing strategies all contribute to maximizing your savings. However, it is vital to remember that cutting costs should not compromise legal compliance and meeting all statutory obligations. By following these guidelines, you will be well on your way to setting up a successful professional corporation in Alabama while minimizing financial strain.

Conclusion

In conclusion, forming a professional corporation in Alabama is a strategic decision for licensed professionals who seek to combine their expertise and services under a single corporate entity. This business structure offers limited liability protection, a formal governance structure, and compliance with state licensing requirements. However, it also comes with certain restrictions on ownership, transfer of shares, and personal liability for professional malpractice. By carefully considering the advantages and disadvantages of a professional corporation, professionals can determine whether this structure aligns with their business goals, regulatory requirements, and risk management needs, ultimately contributing to a more organized, secure, and compliant professional practice.

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