How to Start a Limited Liability Partnership in Alabama | 2024 Guide

Start a Limited Liability Partnership in Alabama

A Limited Liability Partnership (LLP) is a popular business structure offering the flexibility of a partnership while providing limited liability protection like starting an LLC in Alabama. LLP structure is ideal for attorneys, accountants, and consultants. If you’re considering starting a Limited Liability Partnership in Alabama, this comprehensive guide will walk you through the necessary steps, from researching and planning to ongoing compliance and reporting requirements.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your Alabama LLP, all the steps in this article must guide you.

What is a Limited Liability Partnership?

Forming an LLP is like starting an LLC as well. However, there are differences in terms of it. A Limited Liability Partnership (LLP) is a type of business structure that combines elements of partnerships and corporations. It allows multiple individuals, known as partners, to jointly own and manage the business while providing limited liability protection to each partner. This means that each partner’s assets are generally protected from the debts and liabilities of the business, and they are only liable for their investment in the partnership.

LLPs are popular among professional service providers, such as lawyers, accountants, and consultants, as they allow for flexible management structures and profit-sharing arrangements. The partners in an LLP can directly manage the business, unlike forming a Corporation in Alabama, where a board of directors typically handles the management.

Each partner’s liability is also limited to the extent of their investment, and they are not personally responsible for the negligence or misconduct of other partners. This is a key difference between an LLP and Alabama General Partnership, where partners have unlimited liability for the partnership’s actions and other partners.

It is suggested that you speak with a legal professional before you begin setting up your limited liability partnership. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC rather than a limited liability partnership.

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Steps in Starting a Limited Liability Partnership in Alabama

To form a limited liability partnership in Alabama, you must consider following the below guidelines that include research and planning, choosing an LLP name, designating a Resident Agent, filing for Certificate of Formation, drafting a partnership agreement, get an EIN, obtaining necessary licenses and permits, the opening of business bank account and maintain ongoing compliance and reporting requirements. 

Step 1: Research and Planning

Before forming an LLP in Alabama, you must familiarize yourself with the state’s laws and regulations governing LLPs. Conduct thorough research to determine if an LLP is the right business structure for your needs, and create a detailed business plan outlining your goals, strategies, and financial projections.

Step 2: Choose an LLP Name

Selecting a unique and appropriate name for your LLP is crucial. First, check the availability of your desired LLP name with the Alabama business registry. Ensure that your chosen name follows Alabama naming guidelines and requirements, which typically include the use of “Limited Liability Partnership” or “LLP” in the name. You can register and reserve the name with Alabama Secretary of State if desired.

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

  • Be distinguishable from other businesses registered in your state
  • Include the words “Limited Liability Partnership,” “LLP,” or a similar abbreviation.
  • Not include words that are restricted by your state
  • Ensure that your chosen name does not infringe on any existing trademarks or intellectual property rights.

However, to check the availability of your desired LLP name, you can also search the Alabama Secretary of State business name database and Alabama Business Name Search. 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 LLP 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 the Alabama Secretary of State.

You can check out how to file a DBA in Alabama for clearer understanding.

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Step 3: Designate a Resident Agent

In Alabama, you’ll need to designate a Resident Agent for your LLP. The Resident Agent is responsible for receiving the partnership’s important legal and tax documents. Choose a qualified individual or Alabama Resident Agent Services to serve as your LLP’s Resident Agent, ensuring that they meet Alabama requirements.

However, If you plan to become a Resident Agent of your own LLP, follow the steps below. Also, this applies a guideline in hiring your registered agent.

  • Research the requirements in the state where you want to offer your service. Each state has specific criteria, such as having a physical address and being available during normal business hours.
  • Obtain a physical address in the state(s) if needed.
  • Be familiar with the rules, regulations, and compliance requirements for businesses in your state.
  • Create a business plan outlining your services, pricing, and marketing strategy.
  • Register your business entity, such as an LLP, if required.

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Step 4: File a Certificate of Limited Liability Partnership

To officially form your LLP, you must file a Certificate of Limited Liability Partnership with the Alabama Secretary of State. Obtain the necessary forms and provide the required information, such as the LLP name, principal office address, registered agent’s name and address, names and addresses of partners, and management structure. Pay the required filing fee and submit the completed forms to the Alabama Secretary of State’s office.

Step 5: Draft a Partnership Agreement

A well-crafted partnership agreement is essential for governing your LLP and protecting the interests of its partners. This document should cover crucial provisions such as roles and responsibilities of partners, profit and loss sharing, decision-making processes, partner admission and withdrawal, and dispute resolution. Consider having the partnership agreement reviewed by an attorney to ensure its completeness and compliance with Alabama laws.

A partnership agreement should include the following:

  • Business name
  • Description of the business
  • Contact information of the business and its owners

Ownership of all business partners, decision-making, capital contribution, profits and distribution, death and disability, and withdrawal and addition of partners is one of the key factors to consider when forming or creating a partnership agreement. In this way, all business partners will understand what this is all about and how to proceed if the mentioned scenarios happen. 

Without a partnership agreement, your company will often be subject to the general partnership default laws of Alabama. The default laws in Alabama might not be appropriate for your requirements.

Step 6: Get an EIN

Your LLP must obtain Alabama Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The application of an EIN 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.

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

Step 7: Obtain the Necessary Licenses and Permits

Depending on your specific industry, you may need to obtain Alabama Business Licenses and permits to operate your LLP. Research your business’s licensing and permit requirements and apply for them accordingly.

You can check out the United States Business License & Licensing Fee Resources for more information about the costs in Alabama.

Step 8: Open a Business Bank Account and Obtain Insurance

Maintaining clear financial records is crucial for any business, so open a separate bank account for your Alabama LLP. Additionally, obtain the necessary Alabama Business Insurance, such as general liability insurance, professional liability insurance (if applicable), and workers’ compensation insurance (if you have employees). 

Check the Best Bank for Small Businesses in Alabama to open a bank account.

Step 9: Maintain Compliance and Reporting Requirements

Stay informed about and comply with relevant laws and regulations to keep your LLP in good standing. File Annual Reports with the Alabama Secretary of State (if required), maintain accurate financial and operational records, and file and pay required taxes at the federal, Alabama, and local levels.

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Advantages of Forming a Limited Liability Partnership in Alabama

While the specific advantages of forming an LLP in Alabama can vary depending on the state’s unique laws and regulations, several public benefits associated with LLPs often apply across jurisdictions. Here are some advantages to consider when forming an LLP in Alabama:

  • Limited Liability Protection: One of the main benefits of an LLP is its limited liability protection to its partners. This means that each partner’s assets are generally protected from the debts and liabilities of the business, and they are only liable for their investment in the partnership.
  • Pass-through Taxation: An LLP typically enjoys pass-through taxation, which means that the profits and losses of the business are passed through to the partners, who report them on their personal income tax returns. This avoids the double taxation often associated with corporations.
  • Flexible Management Structure: Unlike corporations requiring a board of directors, LLPs allow for a more flexible management structure. Partners in an LLP can directly manage the business and make decisions without needing a formal board.
  • Profit-sharing Flexibility: The partnership agreement can outline the distribution of profits and losses among partners, allowing for a customized profit-sharing arrangement based on the partners’ preferences and contributions.
  • Easier Formation and Compliance: Forming an LLP is generally less complicated and expensive than forming a corporation. Ongoing compliance requirements may also be less burdensome than other business entities, depending on the specific laws and regulations in Alabama.
  • Professional Credibility: Forming an LLP can enhance your business’s professional credibility, as it demonstrates a commitment to a formal business structure and can offer reassurance to clients, customers, and potential investors.

Bear in mind that the advantages of forming an LLP in Alabama may vary based on the specific laws and regulations governing LLPs. Researching the applicable laws and consulting with legal or financial advisors is essential to fully understand the benefits and requirements of forming an LLP in Alabama.

Cost of Forming an LLP in Alabama

The cost of forming an LLP in Alabama may vary depending on the required filing fees and any additional services you may need. The filing fee for a Certificate of Limited Liability Partnership typically ranges from $50 to $200, depending on the state.

Can I Form an LLP in Other States?

You can form an LLP (Limited Liability Partnership) in other states. To form an LLP in a different state, you must follow that state’s specific registration requirements and filing procedures. This usually involves filing an application or certificate of registration, paying a registration fee, and obtaining any necessary permits or licenses.

Additionally, you may need to register your LLP as Alabama Foreign LLC if you plan to conduct business in multiple states. It is advisable to consult with an attorney or a business consultant familiar with the laws and regulations of the state where you plan to form your LLP.

Can an LLP Need to Have One Owner?

An LLP (Limited Liability Partnership) cannot have just one owner. By definition, an LLP is a partnership, which means it requires at least two partners to be formed. If you want a business structure with limited liability protection and only one owner, you may consider forming a Single-Member LLC in Alabama instead. An LLC can have one or more owners, known as members, and offers limited liability protection and pass-through taxation. The requirements for forming an LLC will vary by state, so consult your state’s laws and regulations.

FAQs

What is a limited liability partnership and can I start one in Alabama?
A limited liability partnership is a type of partnership in which partners have limited liability for the partnership’s debts. Yes, you can start one in Alabama.
What is the process of starting a limited liability partnership in Alabama?
To start an LLP in Alabama, you will need to file a Certificate of Formation with the Alabama Secretary of State’s Office.
What must my Certificate of Formation for my LLP in Alabama contain?
Your Certificate of Formation must contain information such as the LLP’s name, the business purpose, and the name and address of registered agents in Alabama.
How much does it cost to file a Certificate of Formation for my LLP in Alabama?
The fee to file a Certificate of Formation for an LLP in Alabama is $100.
Can I file my Certificate of Formation for my LLP in Alabama online?
Yes, you can file your Certificate of Formation for your LLP in Alabama online through the Secretary of State’s website.
How long does it take to register as an LLP in Alabama?
The registration process generally takes about two to three weeks.
Do I need to have a registered agent in Alabama for my LLP?
Yes, you are required to have a registered agent in Alabama for your LLP.
What is a registered agent and what do they do for my LLP?
A registered agent is a person or entity that is designated to receive official legal documents on behalf of your LLP, such as tax documents or legal summonses.
Can I be my own registered agent for my LLP in Alabama?
Yes, you can be your own registered agent for your LLP in Alabama if you meet the requirements.
What are the qualifications for being a registered agent for an LLP in Alabama?
A registered agent for an LLP in Alabama must be a resident of Alabama or a corporation authorized to do business in Alabama.
If I change my LLP’s registered agent in Alabama, what do I need to do?
You will need to file a Statement of Change of Registered Agent with the Alabama Secretary of State’s Office.
Do I need to file an annual report for my LLP in Alabama?
Yes, you are required to file an annual report for your LLP in Alabama.
When is the deadline to file an annual report for my LLP in Alabama?
The deadline to file an annual report for an LLP in Alabama is April 1st of each year.
How much does it cost to file an annual report for my LLP in Alabama?
The annual report filing fee for an LLP in Alabama is $100.
What information do I need to include in my LLP’s annual report in Alabama?
Your LLP’s annual report in Alabama must include information such as the current address of your LLP’s principal office, names and addresses of all the LLP’s partners, and any changes to partnership agreement or business purpose.
If I want to change the name of my LLP in Alabama, how do I do it?
You will need to file an Amendment to Certificate of Formation with the Alabama Secretary of State’s Office.
Does my LLP in Alabama need to have an operating agreement?
No, an LLP in Alabama is not required to have an operating agreement, but it is recommended to have one to establish how things will get done.
Can I add a non-partner to my LLP in Alabama as an employee?
Yes, you can add a non-partner to your LLP in Alabama as an employee.
Do I need to have LLP insurance for my partnership in Alabama?
No, LLP insurance is not mandatory for an LLP in Alabama, but it is recommended to have one to protect your LLP from liability.
Does an LLP in Alabama need a business license?
Depending on your LLP’s business activity, you will need to obtain a business license from the municipality or county in which the business is located.
Do I need to submit an IRS Form SS-4 when forming my LLP in Alabama?
Yes, you must submit an IRS Form SS-4 (Application for Employer Identification Number) when forming your LLP in Alabama.
What are the income tax requirements for an LLP in Alabama?
An LLP in Alabama is a pass-through entity that doesn’t pay taxes at the entity level but passed through profit and loss of the partnership to its individual partners.
Can a non-resident/non-citizen form an LLP in Alabama?
Yes, a non-resident/non-citizen can form an LLP in Alabama.
Can a member of an LLP be a corporation in Alabama?
Yes, an LLC in Alabama can be a member/partner of an LLP.
What are the name requirements for an LLP in Alabama?
The name of the LLP should include the words “Limited Liability Partnership,” “LLP,” or “L.L.P.” Anything else is not available.
Does an LLP in Alabama require a foreign qualification to form in another state?
Yes, if you want your Alabama LLC to do business out of the state, the LLP will have to file for a foreign qualification in the appropriate states.
How often does my LLP renewal with the Alabama Secretary of State’s Office?
An LLP must file for renewal with the Alabama Secretary of State’s office every five years.
Can an LLP convert to a different type of entity in Alabama?
Yes, in Alabama, an LLP can convert to different entities such as LLCs or general partnership following the applicable Conversion Statute.
What is a limited liability partnership?
A limited liability partnership is a legal business structure that protects owners from personal liability for the partnership’s debts and obligations.
How do I form a limited liability partnership in Alabama?
To form a limited liability partnership in Alabama, you must file a Certificate of Formation with the Alabama Secretary of State.
How much does it cost to form an LLP in Alabama?
The filing fee for a Certificate of Formation for a limited liability partnership in Alabama is currently $250.
Can a sole proprietorship become an LLP in Alabama?
Yes, a sole proprietorship can convert to an LLP in Alabama by filing a Certificate of Conversion with the Secretary of State.
What are the tax implications of forming an LLP in Alabama?
LLPs are taxed like partnerships, which means they are pass-through entities and the partners report their share of profits or losses on their personal income tax returns.
Can an LLP in Alabama have only one partner?
No, Alabama law requires that an LLP have at least two partners.
What are the naming requirements for an LLP in Alabama?
The name of an LLP in Alabama must end with the words “Limited Liability Partnership” or “LLP.”
Is a registered agent required for an LLP in Alabama?
Yes, every LLP in Alabama must have a registered agent with a physical address in the state.
Can a foreign LLP register in Alabama?
Yes, foreign LLPs can register to do business in Alabama by filing an Application for Registration with the Secretary of State.
How often must an LLP file an annual report in Alabama?
LLPs in Alabama must file an annual report with the Secretary of State by April 1st of each year.
Does Alabama require LLPs to have insurance?
No, Alabama does not require LLPs to have insurance, but it is generally a good idea to have liability insurance.
Can partners in an LLP have different levels of liability?
Yes, partners in an LLP can have different levels of liability depending on their investments in the partnership.
Do partners in an LLP pay self-employment taxes in Alabama?
Yes, partners in an LLP pay self-employment taxes on their share of the partnership’s profits.
Must an LLP in Alabama have an operating agreement?
No, an operating agreement is not required for an LLP in Alabama, but it is highly recommended.
Can an LLP be owned by a corporation in Alabama?
Yes, a corporation can be a partner in an LLP in Alabama.
What information is required on a Certificate of Formation for an LLP in Alabama?
The Certificate of Formation for an LLP in Alabama must include the name of the partnership, the address, the names and addresses of the partners, and the name and address of the registered agent.
How long does it take to form an LLP in Alabama?
The processing time for a Certificate of Formation for an LLP in Alabama is typically 5-7 business days.
How do I dissolve an LLP in Alabama?
To dissolve an LLP in Alabama, you must file a Certificate of Dissolution with the Secretary of State.
Can partners in an LLP in Alabama be held personally liable for the partnership’s debts?
No, partners in an LLP in Alabama are protected from personal liability for the partnership’s debts and obligations.
Can an LLP designate a partner as the managing partner in Alabama?
Yes, an LLP in Alabama can designate a partner to serve as the managing partner for the partnership.
Is an LLP required to have a business license in Alabama?
An LLP in Alabama must obtain any necessary business licenses for the type of business it is conducting.
What happens if an LLP in Alabama fails to pay its taxes?
If an LLP in Alabama fails to pay its taxes, the state can impose penalties and interest and possibly file a tax sale or lien against the partnership’s assets.
What is an LLP agreement in Alabama?
An LLP agreement in Alabama is a written agreement between the partners that outlines the objectives, operations, and financial responsibilities of the partnership.
How are profits distributed in an LLP in Alabama?
Profits in an LLP in Alabama are typically distributed among the partners according to their ownership interest in the partnership.
Can an LLP in Alabama have an unlimited number of partners?
No, Alabama law limits the number of partners in an LLP to a maximum of 50.
Must an LLP in Alabama hold annual meetings?
While not required under Alabama law, many LLPs choose to hold annual meetings to discuss business operations and financials.
How can I check the availability of an LLP name in Alabama?
You can check the availability of an LLP name in Alabama by searching the database on the Secretary of State’s website.
Is it necessary to have an attorney to form an LLP in Alabama?
While it is not required, it is generally advised to seek the guidance of an attorney to ensure compliance with all legal requirements and avoid potential legal pitfalls.

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Conclusion

Starting an LLP in Alabama may seem daunting, but you can successfully establish and run your business with thorough research, planning, and compliance with legal requirements. Feel free to seek professional assistance from legal or financial advisors when needed to ensure your Limited Liability Partnership’s smooth operation and growth in Alabama.

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