Tips for Starting a Business in Alabama

Alabama offers a great opportunity to new business owners. It has some of the lowest tax burdens and cost of labor in the US, offering budding entrepreneurs a higher chance of success.

Business people

You will still need all the relevant licenses and an Alabama tax ID number (check out how to get an EIN in Alabama) because, despite the excellent business opportunity Alabama offers, you still need to take all those important steps to give your business the best chance from the off.

Set Up your Business Structure

Once you have got a business in mind you need to determine what kind of business structure would be best suited for your start-up. Depending on your industry and your professional goals you will likely pick one of the following: sole proprietorship, partnership, or Limited Liability Company (LLC).

Sole proprietorship is best for individuals who want to keep things simple and are not planning on hiring any employees to support them. The major downside of this structure is that it does not offer any liability protection so if your business falls into debt or is sued then you will be held personally responsible and risk losing your personal assets such as your house or car.

A partnership is exactly as it sounds, it is a business with two people running it as opposed to a sole proprietorship. Although it is similar to a sole proprietorship in the fact that it offers no liability protection and both of you risk your personal funds should your business fall on hard times. The main benefit of a partnership is how easy it is to set up as it does not require any official bylaw, operations agreement, or other recurring paperwork.

For liability protection, you want to consider an LLC. In most cases, an Alabama LLC has a fairly low tax rate as tax obligations bypass the company and are issued to the business owners instead. The combination of minimal paperwork and liability protection makes this structure a popular choice.

Check out all the different business structure types to see what best suits your Alabama business.

Name and Register your Business

The naming process depends on the type of business structure you choose for example if you go for sole proprietorship or partnership then you might want to choose a trading name or a DBA (doing business as) which you will need to register with the state.

A Name Reservation form costs around $25 for an LLC or a corporation and once you have secured your name you can complete the formation documents and submit them to the Alabama Secretary of State. This can cost roughly $200.

Apply for Licenses and Permits

Some other states are pretty relaxed about licenses and permits but Alabama does require all business owners to complete several steps before they start operating. Regardless of what industry you are in you will need to apply for a business license or business privilege license from the Alabama Department of Revenue. Additional licenses or permits may be necessary such as a sales tax permit, city business license or occupational license.


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