Doing Business in Alabama

Doing business in Alabama is considered favorable by entrepreneurs and new business owners due to the pro-business environment the state offers. The state also has a strong economy with the real gross domestic product (GDP) in excess of $200 billion. The state boasts of a strong transportation and logistics infrastructure that supports business growth. One of the salient highlights are the business incentive programs as well as Alabama small business grants programs that strive to provide startups with the much needed financial assistance. These are some of the reasons why the state is home to several growing companies like Vulcan Materials Company (Fortune 500), Buffalo Rock Company, Chester’s International, Hibbett Sports, Spire Alabama – Spire Energy, and Regions Financial Corporation (Fortune 500) among others. Some of the cities in Alabama are considered to be extremely business friendly like Birmingham, Millbrook, and Mobile.

Why is Alabama a good place to do business?

The state of Alabama is famous for policies and regulations that favor businesses, which is a good thing for small companies and startups. This along with availability of a skilled workforce makes doing business in Alabama highly fruitful and growth oriented. As a new company, access to Alabama small business incentives can provide numerous benefits including tax savings. Let us take a look at some of the advantages of conducting business in this state.

• Economic Growth and Development – Alabama is one of the few states in the nation that has been witnessing a positive economic growth and development in the last decade. The state has seen record employment levels as well as high growth in export of “Made in Alabama” goods, making doing business in Alabama really profitable. The state has generated commitments for projects amounting to $10.1 billion in new capital investment with Baldwin County leading the table with $2.5 billion in new investments. One of the top companies in the automobile industry is Hyundai and they announced a $300 million investment project. The leading industry in terms of capital investment is Aerospace / Aviation / Defense followed by Agricultural/Food Production and Automotive.
• Business Climate – One of the most defining factors for startups is the overall business environment of the state. Alabama has a pro-business environment, which is driven by several key industries and elements. These are:
  • Top cities like Millbrook, Prattville, Daphne, Cullman, and Montgomery with high economic vitality, low tax burden, and robust transportation infrastructure
  • The overall tax burden in Alabama is considered to be one of the lowest in the nation
  • Access to several Alabama small business incentives and grants
  • Deep transportation network that includes 6 Interstates, 9th largest deep-water seaport in the USA, 90 public & 5 cargo airports, and 4 Class-1 Railroads among others.
  • The state is home to five foreign trade zones
  • Alabama is home to 29 colleges and universities that help businesses to find talented and skilled personnel
  • Low cost of living as compared to other states and is 13% lower than the national average
• Thriving Startup Ecosystem – Apart from Alabama grants for small business; the state offers several other advantages to entrepreneurs like a thriving startup ecosystem. The state has always been famous for innovation and acceleration and hence, the Economic Development Partnership of Alabama (EDPA). EDPA has invested heavily in the startup scene of Alabama. The ecosystem is replete with everything right from active early-stage investors to access to networking and digital resources for promoting entrepreneurship.

Start a new business in Alabama and Enjoy State Benefits!

Small Business Grants & Incentives in Alabama

When you form a new business in Alabama, you will have access to a wide variety of Alabama small business grants and incentive programs. These programs have been created to provide necessary support and assistance to small and medium sized enterprises (SME’s) in building their operations in the state. Here is a list of some of the most popular incentive and grants programs in Alabama.

The Alabama Small Business Development Center Network

The Alabama Small Business Development Center Network began its operations in 1980 and has several programs revolving around providing Alabama small business grants to new or existing startups. They have over 700 grant programs and one of their popular programs is the NASE grants where an eligible business can benefit from a grant of up to $4,000. This grant can be used for different business activities like purchasing hiring help, new equipment, and creation of marketing or promotional material.

Innovate Alabama Supplemental Grant

One of the highly popular Alabama grants for a small business is known as the Innovate Alabama supplemental grant program. The primary objective of this program is to provide additional resources to small businesses in the state. This is especially valid for those businesses that are already active in the Phase I or Phase II of the Small Business Technology Transfer (STTR) grant or the Federal Small Business Innovation Research (SBIR). Innovate Alabama has till date awarded grant funding of more than $9.6 million. This grant fund can be used by businesses to enable product testing, market research, intellectual property protection and for technical work among others.

Amber Grants

Amber Grants program is a popular program initiated by the WomensNet and was first started in 1998. This type of Alabama grant for a small business is awarded to women entrepreneurs every month. The grant amount is $10,000 and there is also the possibility of receiving an additional grant fund of $25,000 annually. So, if you are a women entrepreneur searching for Alabama small business grants then applying for the Amber Grant can be quite beneficial.

Alabama Jobs Act

A grant is not always available as there is a specific time for applying for certain grants. In such a scenario, Alabama small business incentives can be quite useful. There are different types of incentives available in the state although the Job-creation tax credit and the Investment tax credits are one of the most beneficial. The Alabama Jobs Act is an incentives platform that offers these credits to eligible businesses. The investment credit is a discretionary credit program where you can get a maximum credit annually of 1.5% on qualified capital investment. This credit can be utilized against income tax including estimated tax, insurance premiums tax, and utility license tax among others.

• It is located in targeted counties
• The entity falls in the category of underrepresented companies
• It is a technology company
• It is a company engaged in various sectors like biomedical, pharmaceutical, medical supplies, medical technology and related R&D among others.

Tax Abatements

Different states have different forms of incentives and one of the most common forms is that of tax abatements. This is a type of Alabama small business incentives program where you can enjoy a reduction in the amount of tax that you or your company is required to pay in a specific situation. It is often offered on certain business opportunities or specific types of real estate. If you are doing business in Alabama and qualify for specific projects within the state then tax abatements will be applicable in the following areas:

• Tax abatement in the non-educational part of any applicable sales and use tax on construction equipment, materials, as well as other capitalized costs.
• The state offers property tax abatement on personal and real property that has been incorporated into a qualifying project
• Tax abatements are also offered for new as well as expanding projects in non-educational state, county, and city property taxes

Income Tax Incentives

Small businesses like sole proprietorships, partnership firms, home-based businesses, and single-member LLC’s can apply for income tax incentives offered by the state. These Alabama small business incentives are available in several different forms like:

• Heroes for Hire Income Tax Credit – Employers can leverage a $1,000 non-refundable income tax credit for hiring full-time, unemployed veterans.
• Full Employment Act of 2011 Credit – This type of incentive allows small businesses employing 50 employees or less to qualify for the income tax credit. If you are doing business in Alabama and have 30 employees then you can receive an income tax credit equal to $1,000.

Apprenticeship Tax Credit

There are several Alabama small business grants that you can benefit from but the state also provides business incentive programs that can help small businesses in more ways than one. The Apprenticeship Tax Credit is one such tax incentive that provides income tax credit for employers employing an apprentice for a minimum of 7 months prior to their taxable year. You can apply this tax credit against your income tax as well as financial institution excise tax.

Ready to Start a Business in Alabama?

Every new startup or small and medium enterprises (SME’s) require some form of financial assistance during their formation stage. This is where Alabama grants for a small business can be quite useful. Once your business is set up and operational, you can even apply for a variety of Alabama small business incentives. The incentives will provide relief from taxes through credits and abatements or rebates. The important thing is to first register your small business in the state and this is where IncParadise can provide necessary guidance and assistance.

Alabama Business Tax

Generally speaking, when you start a new company in any state, there will be some form of state, local, and federal taxes applicable. Some of the most common forms of business taxes in the USA include corporate taxes, income tax, estimated taxes, self-employment tax, and withholding taxes. Now, it’s not necessary that the Alabama business tax will include all of these as most states have some form of deviation or the other. Taxes are considered to be an integral part of the annual business compliances in the state of Alabama and hence have to be filed by all entity structures whether domestic or foreign. The tax rates would also vary according to the type of taxes and this necessitates the use of an Alabama business tax Calculator.

What taxes do businesses pay in Alabama?

Alabama has a very pro-business climate and hence has been attracting small business owners, investors as well as medium enterprises. The Alabama business tax climate is also considered quite favorable as the state enjoys one of the lowest corporate income tax rates in the country. According to the 2024 State Business Tax Climate Index Report by Tax Foundation, Alabama has a better tax environment as compared to states like Minnesota, New York, California, and Massachusetts. The ranking of Alabama Corporation taxes is #19 as compared to that of Illinois at 43 and Delaware at 50. Whether you form a C Corporation, S Corporation, a sole proprietorship, or a limited-liability company, the overall tax burden will be lower thanks to several tax credit programs that the state has introduced. Let’s try to understand the different types of taxes applicable to new and existing businesses in this state.

Alabama Individual income tax

One of the most important types of Alabama business tax is the individual income tax applicable in the state. This tax is levied on working individuals as well as owners of certain types of businesses like sole proprietorships. This tax is one of the primary Alabama LLC taxes as it has to be filed by each member. Other pass-through entities and partnerships will also be required to file income taxes using their personal tax returns. The individual tax rate for Alabama State varies from 2 percent to 5 percent and hence is known as graduated individual income tax. A tax rate of 2 percent is applicable to individuals on the first $500 of their taxable income, 4 percent on the next $2,500, and 5 percent on all taxable income above $3,000.

Business Privilege Tax

The Alabama business privilege tax is one of the most important taxes that is applicable to most entities registered in the state or conducting their business in this state. It is levied on legal as well as disregarded entities, domestic, and foreign entities. Hence, this form of tax is also considered as a part of Alabama Corporation taxes or LLC taxes. The taxable income calculations and filing are governed by Alabama Administrative Code, Title 810 – Alabama Department of Revenue, Chapter 810-2-8. The taxable income rate will remain the same for C Corporations and Limited Liability Entities pursuant to AL Admin Code R 810-2-8-.01.

• Calculation of the taxpayer’s net worth, which is assets minus the liabilities
• Apportioning (sourcing) that have a high net worth to Alabama (payroll, sales, and property in Alabama compared to total payroll, sales, and property); and
• Determine the privilege tax rate to be applied to the taxpayer’s “net worth in Alabama.”

Corporate Income Tax

The Alabama corporate income tax is one of the most important taxes in the state and is levied on every corporation that has been organized in this state. It is also imposed on every foreign corporation that is qualified to conduct business in this state. The tax rate for corporate income tax in Alabama is 6.5 percent of the corporation’s taxable income in this state.

Withholding Tax

Withholding tax or tax withholding is referred to the amount of federal income tax that is being withheld from the paycheck of every employee working in a specific company. The amount of Alabama corporate income tax that an employer withholds from the regular pay of their employees is dependent on two factors, which are:

• The amount earned by the employee
• The information provided by the employee to their employer on Form W–4

Alabama sales and use tax

The sales and use tax is an important category of Alabama business tax and is applicable to those entities that are selling a product or service within the state. Alabama sales and use tax is an umbrella term that constitutes several other taxes including Alabama LLC taxes or corporate taxes. The Alabama sales and use tax comprises of:

• Sales tax
• Consumers tax
• Sellers use tax
• Simplified sellers use tax
• Rental tax
• Lodgings tax
• Utility taxes
• Various other business taxes and fees.

Are you thinking of starting a small business in Alabama?

How are Alabama Businesses Taxed?

Once you register or start a new business in Alabama, you will be required to maintain compliance with all annual state requirements. One such annual requirement is that of filing federal and state taxes. The type of Alabama business tax that your company is required to file will depend on the type of entity structure as well as the business activity. Your company may be required to file multiple state or local business taxes. Let us look at the different types of entities and their tax obligations in this state.

Taxes for an LLC

If you are planning to register a limited-liability company in Alabama then one of the important annual requirements will be filing of federal taxes and Alabama LLC taxes. An LLC is considered to be a pass-through entity and this means that the owners or members will be required to file state income tax on their profits, minus any deductions or state allowances. Since the state has a graduated individual income tax rate hence it will vary from 2 percent to 5 percent. The second most important tax for any LLC is the Alabama business privilege tax. This tax is mandatory for almost all entity structures and the calculation of the same will vary according to the taxpayer’s net worth.

Taxes for a C Corporation

If you are planning to organize a corporation in Alabama then you will be required to file different types of Alabama Corporation taxes as a part of the state’s annual maintenance requirements. The most important amongst these is the Alabama corporate income tax. This tax is levied on all corporations, domestic and foreign. The current tax rate is 6.5 percent of annual net income. Since, the tax rate is applicable on income derived from sources within the state of Alabama; this also includes income from any property located within this state.

Taxes for S Corporation

If you have started a limited-liability company or a C Corporation, you can always elect S Corporation status from a purely tax perspective. An S Corporation is not an entity structure but a tax designation issued by the Internal Revenue Service (IRS). You will be required to file Form 20S for any entity to be treated as an S-Corp. This form is basically an S Corporation Information/Tax Return form that has to be filed with the Alabama Department of Revenue. This is one of the primary Alabama Corporation taxes and is considered to be a composite return, which is normally due on the 15th day of the third month following the end of the tax period for an S corporation.

Taxes for a Sole Proprietorship

If you take a decision to form a sole proprietorship in Alabama then you will be required to file an individual income tax return. This has to be filed by the owner on their business profits. Tax has to be reported on the Form 40 (Alabama Individual Income Tax Return). A sole proprietorship will also be required to file Alabama business privilege tax, which is applicable for registered businesses as well as disregarded entities. You can use an Alabama business tax calculator to determine the amount of privilege tax to be filed. A sole trader may be required to file other forms of taxes depending on their location and business activity like sales and use tax as well as self-employment tax.

Taxes for Partnerships

A partnership is considered as a pass-through entity and hence such a business will be required to file Alabama business tax as a part of their annual requirements. The income tax requirements are quite similar to that of a sole proprietorship and single-member LLC’s. Since it is a pass-through entity, individual income tax returns have to be filed based on the income or profits earned through the business. This is also known as Partnership Income Tax and has to be filed using Form 65 (Partnership/Limited Liability Company Return of Income). The due date for this tax return is on or before the 15th day of April following the close of the calendar year. Apart from this, a partnership company may be required to file taxes similar to Alabama LLC taxes like business privilege tax, sales tax, and use tax.

Ready to incorporate your Alabama Company?

Alabama is one of the top states for new businesses in the Southeastern region of the United States. The state has the right business climate, pro-business regulations, and offers several tax credit and business incentive programs. You can choose to register your company as a partnership firm, Limited Liability Company, C Corporation, sole proprietorship, and S Corporation. Once you form a company in this state, it is important to maintain compliance with all annual requirements including filing Alabama business tax returns. IncParadise can provide information and assistance pertaining to filing of state taxes.

Doing Business As or DBA in Alabama

There are over 400,000 small businesses in the state of Alabama and this includes home-based firms, LLC’s, general partnerships, and sole proprietorships among others. The state is also home to several top companies including Vulcan Materials Company, Regions Financial Corporation, BASFIN Corporation, Alfa, and Qualitest Pharmaceuticals among others. Some companies prefer to use a traditional business name while others prefer applying for an Alabama DBA online. If you are planning to start a new company in this state then you can choose to use your legal name (owners full name), a business name (e.g., Alabama Pharma), or get a DBA in Alabama. Each state has its own DBA laws and hence the guidelines related to fictitious name registration in the state are also different from those of other states. Let’s start by trying to understand what a DBA really is.

What is DBA in Alabama?

If you are thinking of establishing a startup then you need to first choose a name for the company as it will be the cornerstone of your company image or brand. Whether you start a limited liability company, sole proprietorship, C or S Corporation, or even a partnership, the chosen company will be identified by its name. A business name can be classified in three ways and they are:

• Business owners’ names like Anjie David LLC.
• Traditional business names like Alabama Trading Inc.
• Trade name or filing a DBA in Alabama like Nathan’s Hikes

When do you need a DBA in Alabama?

If you are thinking of applying for an Alabama DBA online then you will be happy to know that you can do so without worrying about the type of structure chosen for your company. You or any company can choose to file a trade name owing to numerous reasons including expansion of a company into new product areas or starting a sister organization. Let’s look at why any company would want to get a DBA in Alabama:

• New line of business: If you already own a business but want to start a new line of business that should not reflect the current business name then filing a DBA in Alabama would be a great alternative. The product or services you plan to promote may or may not be connected to the current catalog of product or services being offered by the existing company. Let us look at an example to get a clear picture:

  Example: You currently own a business specializing in PC assembling, installation, and repair. The name of this company is Prattville Computers LLC. Now, you are planning to sell laptops and gaming consoles to expand your business. You could file an Alabama DBA online application for this new portion of your business.

• Franchise and Sole Proprietors: It is extremely common amongst sole proprietors and franchise owners to file or get a DBA in Alabama. Franchise owners prefer a DBA or a trade name for establishing their identity as a local Alabama business. Sole proprietors prefer to use a DBA as the process of registering a trade name is neither complex nor expensive.
• Several Benefits: There are many benefits of applying for an Alabama DBA online. One of the major advantages is that it provides business credibility to a company especially to small businesses like general partnerships and sole proprietorships. A DBA can also be used for opening a business bank account.

Filing DBA in Alabama LLC and Corporation

A DBA (doing business as) is a type of business name that is often known as a fictitious name or an assumed name. In the state of Alabama, this is also known as a trade name. If you are planning to form a sole proprietorship, a limited-liability company or a corporation then ideally you need to apply for a business name reservation. Alternatively, you can simply opt for filing a DBA in Alabama. This trade name will be known as the DBA or assumed name for the said company. There is a specific process behind filing an assumed name and includes conducting a trade name search in Alabama. The process as well as fee will also be different for registering a trade name as compared to reservation of the standard business name for a LLC and a corporation.

Do Alabama Trade Name Search

If you have chosen a trade name for your Alabama LLC or corporation then the first step would be to ensure this name is compliant with state DBA laws as well as other business name statutes. One of the key areas to focus on prior to applying for registration of the DBA is conducting a trade name search in Alabama. This is also known as the Business Entity Records Search and is facilitated by the website of the Alabama Secretary of State. It is important to note that applying for an Alabama DBA online is possible only if the search indicated availability of the said name. This simply means that the proposed name is not in use currently and can be registered. The Business Entity Records Search provides only one option for conducting this search and that is using the name of the entity.

Search by Entity Name

If you want to get a DBA in Alabama then conducting a search using an entity name is the most common approach. This search will allow new businesses, both domestic corporations and foreign LLC’s to check if their chosen name is available. The variable that can be used for conducting this search are:

• Name
• Type of business (LLC/Corporation)
• Place of Formation
• Principal City
• Status

Register Your Alabama DBA

Once you have conducted a trade name search in Alabama successfully, the next step is to register such a name. You will be required to complete the Application to Register or Renew Trademark, Service Mark or Trade Name form. You will be required to provide information pertaining to classification of your business in terms of the industry like agriculture, forestry, and fisheries or retail trade – miscellaneous. You will also be required to select the classification of goods and services like Beverages, Beverage Syrup, and Beer or Transportation and Storage.
This form and information required will be applicable for both LLCs and corporations – domestic and foreign. It is important to double check all information provided prior to filing a DBA in Alabama. You will need to ensure that this registration form is duly notarized by a Notary Public. The filing fee is $30. Alternatively, we can help you to register a DBA in Alabama or a trade name through a process which is easier and faster.

Do you want to get a DBA in Alabama?

Managing Alabama DBA

After applying for an Alabama DBA online, you can start using this as the business name within the state. There are certain state rules and regulations pertaining to a DBA or a trade name including that of renewal of a DBA, changing, or canceling of the trade name in the jurisdiction where the business is operating from. Let’s look at the various processes applicable for managing a trade name including how to get a DBA in Alabama renewed.

How to renew Alabama DBA?

Once you have filed an Alabama DBA online application, the trade name can be renewed only once in every five years. You will be required to complete and file the “Application to Register or Renew Trademark, Service Mark or Trade Name” form. It has to be submitted with the Alabama Secretary of State, Trademarks Division along with a fee of $30.

How to change Alabama DBA?

After filing a DBA in Alabama, if you want to change the trade name at any given point in time then is it possible? Yes, it is possible but you will be required to contact the Alabama Secretary of State’s Trademarks Division. You can call them at (334) 242-5325 to understand the process for the same.

How to cancel Alabama DBA?

Once you have filed an Alabama DBA online application, if you decide after some time that you want to cancel the said trade name then is it possible? According to 2006 Alabama Code – Section 8-12-13 — Cancellation, it can be canceled by the office of the Secretary of State if not renewed on time. If you want to cancel the trade name prior to renewal then you will have to call the Trademarks Division at (334) 242-5325 and request deregistration.

Need Any Assistance in Filing Alabama DBA?

The process of applying for an Alabama DBA online will require you to provide complete and accurate information while being compliant with state trade name laws as well as federal trademark laws. The process of conducting a trade name search in Alabama and adhering to all naming rules and guidelines can be quite confusing as well as complex. IncParadise can gladly assist you with this process. We have expertise and knowledge regarding the Alabama state DBA laws and Federal Trademark regulations.

Sole Proprietorship in Alabama

Alabama is home to more than four hundred thousand small businesses including sole proprietorships operating from commercial spaces as well as in residential areas. Most home-based businesses in the state prefer to file a sole proprietorship in Alabama as opposed to other types of entities like corporations or limited-liability companies. There are several other reasons why first time business owners prefer this type of business entity. These include a robust industrial infrastructure in the state and an excellent business climate. Alabama is also known to have a low tax burden and availability of a highly motivated workforce which makes it just the right place to conduct business in any industry or sector. You can form a sole proprietorship in Alabama online and start leveraging state benefits right from small business loans to varied repertoire of tax credit programs.

What is a sole proprietorship in Alabama?

In order to be informed on how to start a sole proprietorship in Alabama, you need to first try and understand what this type of business entity constitutes. A sole proprietorship is considered to be an unincorporated business that is owned and operated by one individual. This form of entity is often known as a sole trader and some of the top examples of such businesses include photographers, bakery owners, graphic designers or freelance programmers, dental clinics, and pet rescues among others. It is easy to start a sole proprietorship in Alabama as it has several advantages over other forms of businesses including less paperwork, documentation, lower taxes, and overall minimal cost of operation.

Pros and cons of sole proprietorship in Alabama

Although a sole proprietorship is the most basic of all entity structures, it has a certain advantage over several other bigger structures. This type of non-registered single-individual run business also has its disadvantages. Hence, it is important to identify the pros and cons to help you determine whether you should form a sole proprietorship in Alabama online or go with some other business structure.

Pros

Every type of business structure has a set of advantages that makes the entity different from other structures. If you start a sole proprietorship in Alabama there are several advantages:

• The biggest advantage of a sole proprietorship is that it is inexpensive and easy to form this entity
• You will be able to protect the business name in a sole proprietorship as the legal name will be your personal name unless you want to use an Alabama DBA
• Ownership is a great advantage as being the only owner, you will have complete control over the company operations
• Once you file a sole proprietorship in Alabama, you will be able to participate in key state incentive programs including jobs tax credit
• Forming a sole proprietorship means you will have simpler income tax obligations
• Banking operations would also be simpler vis à vis corporations or other form of entities

Cons

Each type of business structure has disadvantages or limitations including a sole proprietorship entity. Let’s look at some of the disadvantages:

• If you opt to file a sole proprietorship in Alabama then you will not be able to enjoy liability protection, which is a core strength area of an LLC (Limited Liability Company).
• It is often difficult for sole proprietorships to get financing through private investors or any form of business credit.
• This type of business may witness an increase in debts and unnecessary expenses
• A sole proprietor may be required to file self-employment taxes on their earnings

Steps to Start Sole Proprietorship in Alabama

If you are wondering how to start a sole proprietorship in Alabama then there are several processes to consider. There are different processes associated with forming a new business and making it operational. There are annual maintenance requirements of the state as well, which every new company in the state has to be compliant with. Let’s look at the various important processes and steps involved.

1. Prepare a business plan

If you have decided to file a sole proprietorship in Alabama then one of the immediate tasks is to identify the risks associated with forming this business and mitigating them. This is possible by creating a detailed plan that takes into account different functions and aspects of the business. This type of strategic plan is most commonly known as a business plan. It is not just a way of identifying risks but is also a roadmap that will indicate growth prospects, and factors that can contribute towards making the business sustainable and profit oriented. The most common elements including in any sole proprietorship business plan are:

• Executive Summary
• Company Description
• Concept behind the specific business/activity
• Long and short-term Objectives
• Competition Analysis
• Market analysis
• Product and Services
• Target audience
• Operating plan
• Marketing Plan and Sales Tactics
• Financial Plan and Projection

2. Choose an Alabama business name

The name of a business is as important to a sole proprietorship as is the name to an individual. It serves the same purpose. A business is known by the name. The name plays a key role in various aspects of the overall process of forming a company and conducting the business right from marketing and branding to opening a bank account or communicating with the state and the customers. The name will also be useful for registering a domain name and setting up a website. So, here are some important tips that will get you started.

• It is important to think of a name that is easy to spell and remember
• Try to choose a name that is not similar to that of a competitor
• Follow the naming guidelines of the state of Alabama
• You can take help of online business name generators
• Your company can use your name (e.g. – James Long Sandwiches) or you can opt for an Alabama DBA
• While choosing a name, take into consideration your products, services, and customers (e.g. – James Alabama Bakery)
• Be sure to check for availability as a domain name for your website
• Try to secure trademark protection for your chosen business name

3. File fictitious business name

If you are thinking of the processes connected to how to start a sole proprietorship in Alabama then the first step would be to file a fictitious business name. A fictitious business name is also known as a DBA (doing business as). In the state of Alabama, it is also known as a trade name.

Do you want to start a sole proprietorship in Alabama?

4. Get EIN

If you want to start a sole proprietorship in Alabama, you will be required to file personal income tax as well as any other state taxes. A sole proprietorship is a single owner company and hence the owner or individual has to file income taxes using his or her Social Security Number (SSN). There is another option, which is to opt for an Employer Identification Number (EIN) as this can be quite beneficial in the long-term. According to the IRS (Internal Revenue Service), there are certain criterias that come into play when applying for an EIN and they are:

• If a sole proprietorship business starts hiring employees
• If such a company plans to open a business bank account
• If you or the owner has a Keogh plan
• If you are required to file excise tax returns
• If you change the entity structure like from a sole proprietorship to a limited-liability company If you file Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy

5. Obtain necessary licenses and permits

If you are wondering how to start a sole proprietorship in Alabama then one of the important areas to focus on is the type of licenses that your company may require. Licensing of a sole proprietorship business is primarily for ensuring that such a company maintains safety standards where the public is concerned. If you file a sole proprietorship in Alabama, then you will need to apply for proper licenses and permits to make your business operational.

Business licensing in the state of Alabama can be categorized as under:

• Business Privilege License
• Professional licenses
• Municipal or local licenses
• Regulated licenses
• Zoning permits

6. Open a bank account for your Alabama business

One of the easiest entity structures that you can form is a sole proprietorship but you need to ensure that it remains compliant with all Alabama business requirements. One such requirement apart from an Alabama DBA is that of a business bank account. This type of banking account, also known as a checking account is considered to be separate from a personal savings account. The primary advantages of a business bank account is to help you in management of all types of business finances, filing of taxes, and limiting your personal liability.

7. Report and pay taxes

If you start a sole proprietorship in Alabama then you will be the owner of the company in the books of the Internal Revenue Service (IRS). Hence, you will be required to file the owner’s individual tax returns on state income tax. The individual income tax rate varies in the state from 2 percent to 5 percent and certain jurisdictions have to also collect local income taxes. If you form a sole proprietorship in Alabama online then you may be required to file Alabama Business Privilege Tax (ABPT). If your company has employees then you will have to file withholding tax as well. Apart from these, depending on the industry or location of the company, a sole proprietorship may be subjected to a variety of local taxes including sales tax.

Know more about starting an Alabama Sole Proprietorship!

If you are faced with several queries on how to start a sole proprietorship in Alabama efficiently and operate it with ease then our “Frequently Asked Questions” can provide the right answers. We have created this section to provide quick access to helpful information that will assist in good decision making.

Do you have to register a sole proprietorship in Alabama?

If you are planning to file a sole proprietorship in Alabama then it will not be considered as a legal entity structure. This is the very reason why you will not be required to register the company with the Alabama Secretary of State. However, if you want to file an Alabama DBA then you will have to submit a DBA registration form with the Office of Secretary of State, Trademarks Division.

What is the difference between a sole proprietorship and an LLC in Alabama?

It is important to choose the right business structure as this will determine the sustainability, growth, finances, and operations of the said business. The two popular entity structures that most first time business owners prefer are sole proprietorships and limited liability companies (LLC’s) due to their simplicity and flexibility. You can even form a sole proprietorship in Alabama online and later on if required convert the structure to that of an LLC.

How much does it cost to start a sole proprietorship in Alabama?

You are not required to file a sole proprietorship in Alabama with the office of the Secretary of State. This simply means that there will be no business registration costs although formation costs will take into account filing an Alabama DBA or trade name. If you file online then the cost is $31.20 and if you submit by mail then the fee is $30. There is a renewal fee of $10 each year as well. Apart from this, the costs will vary according to the type of business licenses and permits required and taxes being filed. The sole proprietorship may also incur other expenses like renting or leasing of office space, utility bills, and employee salary

What taxes do sole proprietors pay in Alabama?

A sole proprietorship is a type of entity structure where the owner as well as the business are not seen as different entities. Hence, the primary tax will be that of personal income tax where the rate will vary from 2% to 5%. Other state taxes may also be applicable based on business activity, employees, and location. The Alabama business privilege tax has to be filed by all registered as well as disregarded entities like a sole proprietorship

Do sole proprietors need a business license in Alabama?

Yes. If you are planning to form a sole proprietorship in Alabama online then a business license will be mandatory to conduct transactions in this state. The most important of them is the privilege license, which you will need to obtain in every county you are planning to conduct your business in. Apart from this, you may also require municipal or local licenses, zoning permits, and professional licenses.

Should I convert my sole proprietorship to LLC in Alabama?

Once you start a sole proprietorship in Alabama, you may feel that a limited liability company suits your business objectives better. In such a situation, it is important to reason out if converting to an LLC is really necessary. A sole proprietor or sole trader is considered as a self-employed individual and hence there is always that risk of personal liability towards business debts and any other obligations. A limited liability company on the other hand will provide you with liability protection and since it’s a pass through entity, you will be filing personal tax returns just like in a sole proprietorship.

Ready to Start a Sole Proprietorship Business in Alabama

If you have taken a decision to file a sole proprietorship in Alabama then this is a good decision in terms of simplicity of structure and ease of formation. You will not be required to register your company with the Secretary of State unlike several other forms of businesses. However, you will be required to maintain different types of state annual maintenance compliances in order to enjoy a good standing with the state.

Business License in Alabama

One of the most important aspects of any new business formation is choosing the right structure and reserving a company name. Once this is done, you can register your company according to the state laws but will you be able to operate such a company? Yes, but first you will need to apply for and obtain an Alabama privilege license or an operational permit. If you conduct business without proper business licenses then it will be deemed as unlawful and this may lead to penalty for violation of state or local ordinances requiring licenses and permits. You may have to pay a hefty fine and can even be imprisoned according to 2020 Alabama Code – Section 11-51-93.

Who needs an Alabama business license?

An Alabama business license can be defined as a mandatory permit or approval, which is normally issued by a state or government agency authorizing a domestic or foreign entity to operate within a specific city, county, or jurisdiction. In order to understand whether your company needs to apply for and obtain Alabama business licenses and permits, it is important to understand why licenses and permits are essential. The state issues different types of licenses based on certain criteria as the primary objective is to hold businesses accountable for any action as well as behavior while ensuring safety and protecting the health of the public (consumers).

What business license do I need in Alabama?

Some states in the USA have a general license for all forms of businesses but Alabama does not have any statewide general license. Instead, the state requires individuals, firms like LLC or corporations engaging in any trade, commerce, business, occupation, or profession for the sole purpose of profit or gain will be required to apply for an Alabama privilege license. It is one of the few states where a privilege license exists. Apart from this you may also be required to apply for and obtain an Alabama business license based on specific activity, the location of the business, and municipal licenses among others.

Obtain Applicable Federal Licenses

If you are planning to start an LLC or a corporation in Alabama then you would need to apply for several different Alabama business licenses and permits depending primarily on the business activity. One of the important licenses that some businesses may require are Federal licenses. The federal government has formed regulatory agencies in each state, which are responsible for issuance of licenses and permits for certain regulatory activities. If your company is engaged in any activity that has been regulated by the federal government then you have to obtain a license or permit for the same from the state regulatory agency. You will need to conduct appropriate Alabama business license search for regulated business activities. Let’s look at an example to understand the same.

Example: If you start a food establishment and plan to serve alcohol in the premises then this will come under regulated activity. You will need to check with the Licensing and Compliance Division of the Alabama Alcoholic Beverage Control (ABC) Board for the type of license required by your establishment and the corresponding fee. If you want to sell Beer (Retail – on or off premises) then the Alabama business license fee will be $150. Now, if you want to expand into Lounge Retail Liquor – Class I then you will need to apply for a separate Lounge Retail Liquor License for on-premises and off-premises consumption pursuant to AL Admin Code R 20-X-12-.04. The fee for this type of Alabama business license and permits is $300.

Obtain a Professional License

If you start a business where-in the primary business activity is defined as a profession then you will need to apply for a professional certification or license prior to conducting business or transaction in the state.

What is a professional license in Alabama?

A professional license is a type of permit, registration, license, certificate, temporary license or permit, qualification, or temporary registration. This type of Alabama business license and permits can be issued to individuals as well as firms. It is also referred to as a non-transferrable authorization that is required for carrying out a specific activity. You will need to conduct an Alabama business license search and identify the required license as well as the State Licensing Board responsible for issuance of that license. Different professional licenses will be issued by different agencies. For instance, the Alabama State Board of Public Accountancy provides licensing and fee information for Certified Public Accountants (CPA), Public Accountants (PA), and CPA/PA Firms.

Which professions required licensing in Alabama?

If you start a business, you may not need to apply for a professional license. Again, there are some businesses that may even require both Alabama privilege license as well as a professional license. Here is a list of professions that will require you to apply for and obtain a professional license in the state.

• Accountancy
• Architecture
• Behavior Analysis and Therapy
• Communication Disorders and Sciences
• Counseling and Rehabilitation Education
• Dental Hygiene
• Engineering Programs
• Forestry
• Geology
• Health Care Management – Long Term Care Administration
• Human Nutrition and Dietetics
• Interior Design
• Law
• Mortuary Science and Funeral Service
• Nursing
• Occupational Therapy
• Physical Therapy
• Physician Assistant
• Psychology
• Public Health
• Radiologic Science
• Recreation Professions
• Social Work
• Teacher Education

Other Alabama Business Licenses

Whether you start a small company, startup, large enterprise, or even a home-based business, the licensing requirements in the state will vary according to the activity and the location of your company. Apart from the Alabama privilege license, you may even require permits and licenses in the county you are conducting your business in. Let’s look at the various other forms of Alabama business license and permits that may be required by any company operating in the state.

City or county for local licensing in Alabama

The most common type of business license required by businesses is the county license also known as municipal license or local license. Depending on the city or county where your business is established, you can conduct an Alabama business license search to identify the permits required. It is also important to note that if the municipality where you are conducting your business, has a business license ordinance, then you will be required to obtain a license or permit. Once you obtain an Alabama business license you will need to renew them as well. Most municipal business licenses are due on January 1 each year and hence you need to renew them to avoid penalties.

Building & Zoning Permits

One of the important forms of Alabama business license and permits is the building or zoning permit. Each county or city in Alabama has their own local ordinances, which define the need for such permits. Some cities and counties may have separate building code ordinances as well. The issuance of license and zoning permits vary from one county to another depending on these ordinances. Let’s look at an example:

Alabama home-based licenses

Over the years, the small businesses sector has witnessed a steady growth with many home-based businesses mushrooming across the USA. Alabama has also seen a rise in the number of startups becoming operational from the home or residence of an individual. Such businesses are often in the form of sole proprietorships but some have even formed partnerships and LLC’s (both single and multi-member). Once you have gone through the planning and new business formation stage, it is important to focus on the business licensing aspect. It is important to note that a startup from home may also require an Alabama privilege license as it is mandatory for every individual or firm that is engaged in a business activity, profession or occupation as mentioned in Title 40, Chapter 12; Code of Alabama 1975. A home-based business may also be required to obtain an Alabama business license or a professional license along with municipal and local licenses depending on the primary business activity and the location of the company.

Need any Assistance in Obtaining Your Alabama Business License?

If you are planning to start a small business or a medium enterprise in the state of Alabama then certain compliances need to be met to ensure the business becomes operational. You will need to apply for state and local Alabama business licenses and permits to enable you to transact in the state with ease. The Alabama business license or permit application, fees, and renewal processes will vary according to the type of license and municipality your business is operating from.

Alabama Business Entity Search

A business name is a powerful driver of business or customers if given the right direction. You will need to choose a name that not only reflects the brand identity but also helps impress investors. This is one of the many reasons why it is important to conduct an Alabama business name search. This type of search will not only reveal availability of your chosen name but also open the doors to creativity. You will be able to see other names or names of various LLCs and corporations in the state thus providing a platform to choose the right name. Business names can vary from simple (Pizza Hut) to extremely creative (Nike). The sky’s the limit but you need to also maintain compliance with Alabama business name rules.

• First and foremost is to choose a name that people can spell and pronounce
• It is also important to follow the Alabama LLC or Corporation name rules and guidelines
• Choose a name that is easy to remember
• Ensure that the chosen company name is consistent with your brand
• Be careful and ensure your company name is not similar to that of a competitor
• You can be creative with a company name
• Always conduct an Alabama business entity search prior to finalizing the name
• Try to make the entity name web-friendly as this ensures availability of domain
• Last but not the least; you can use online business name generators for identifying a name

What is an Alabama business name search?

Once you have chosen the entity structure, the next important step would be to identify a business name. The name of a company will define the future of the business and increase customer’s brand recall value. If you have chosen a name following the naming guidelines then conducting an Alabama business entity search becomes necessary. This type of entity search is available in all states of the USA although the governing or facilitating authority will be different. The governing authority for an entity name search is facilitated by the office of the Alabama Secretary of State.

Naming your Alabama LLC

If you have taken a decision to form a limited liability company then there are several processes that you need to follow in order to successfully establish your business. One of the most important processes is that of naming your LLC, as a business name helps in creating an identity among the customers as well as competitors. If you think of an effective business name then it will influence the decision of your prospective customers. When choosing a name, you can conduct an Alabama LLC name search to get some ideas as well as to check availability of the chosen name in the state. Let’s look at the two important aspects to consider when it comes to naming your limited liability company.

General Alabama LLC naming rules

One of the most important areas to focus on during naming of your limited liability company is Alabama business name rules and regulations. The business naming guidelines are regulated by 2022 Code of Alabama, Title 10A – Alabama Business and Nonprofit Entities Code, Chapter 1 – General Provisions, Section 10A-1-5.06 – Name of Limited Liability Company or foreign limited liability company. The general rules for an LLC name are:

• It should have words like Limited Liability Company or abbreviations like LLC or L.L.C. pursuant to AL Code § 10A-1-5.06 (2014)
• The business name should be distinguishable from any other name in the Alabama Secretary of State database
• It is important to note that the reservation of certain names are prohibited pursuant to AL Code § 10A-1-5.12 (2014)

Alabama LLC business search

Once you have identified a name for your limited-liability company then the next step will be to conduct an Alabama LLC name search. The Alabama Secretary of State offers an online portal that will enable LLC name search through the entire state database or business entity records. There are different ways to conduct the search and the main method is:

• Search by Entity Name: This is the most common form of Alabama business name availability search. This search will help both new domestic as well as foreign LLC’s to check if their chosen name is available. You can search using variables like searching with the chosen name, type of company (LLC), place of formation (county), principal city, and the status of the company that has a similar name like exists or dissolved. Let’s look at an example to understand this process.

  Example: If you want to start a business skilled in Computer Consulting/Computer Software Development then the name should be appropriate to the services being offered. If you chose a name like “Software Architects LLC” and conducted an Alabama LLC name search in the state database then it will show an active company with such a name operating out of Albertville, AL. Now, if you change the name to “Software Specialists LLC” then the Alabama business entity search shows “no matches”. This means the new name is available and you can reserve it.

• Business Entity Search By Agent or Officer or Incorporator
• Entity ID
• Reservation ID

Are you planning to form an LLC in Alabama?

Naming your Alabama Corporation

One of the most popular forms of businesses is a traditional corporation also known as a C Corp. If you are thinking of starting a domestic corporation in the state then it is important to start by identifying a corporate name. You will have to reserve this name pursuant to AL Code § 10-2B-4.01 (2022) prior to incorporating your business. A corporate name is a powerful driver of brand identity and recognition and hence it is important to follow Alabama business name rules as suggested by the state. There are several ways to pick out a name for your company thanks to the online business name generators available. Once you come up with a name, you will also need to conduct an Alabama Corporation name search to check for availability of the said name. This process will facilitate reservation of your corporate name. Let’s look at the important aspects to consider when it comes to naming your business corporation.

General Alabama C & S Corporation naming rules

If you are planning to form a domestic or foreign corporation then you will need to reserve a name prior to applying for incorporation. If you want an S Corporation then the naming guidelines will vary according to the entity structure chosen. An S corporation (S corp) is tax designated and you can form a limited liability company and then elect S Corp status or form a corp and then opt for S Corp status. Either ways, you will need to conduct an Alabama business name availability and the name reserved for your LLC or corporation will be the name for the S Corporation.

• It should have words like “Corporation,” “Incorporated,” or abbreviations like Corp. or INC pursuant to AL Code § 10A-1-5.04 (2014)
• The name should be unique and should not imply that the said corporation has been organized for any purpose other than what is outlined in the articles of incorporation.
• According to Alabama business name rules, use of certain words or names are prohibited pursuant to AL Code § 10A-1-5.03 (2014) like Bank, Banking, Engineer, etc.

Alabama Corporation Business Search

Once you have identified a name for your corporation in compliance with state naming rules and guidelines, the next step is to look for Alabama business name availability. This is facilitated by the online portal of Alabama Secretary of State also known as business entity records search. There are different ways by which you can conduct this search and the main method is:

• Search by Entity Name: This is the most popular method of conducting Alabama Corporation name search. This search can be used by both domestic and foreign corporations. You can search using variables like search using a chosen name, the type of entity structure (Corporation), place of formation (county), principal city, and the status of the company like it exists or has been dissolved. Let’s look at an example to understand this process.

  Example: If you want to start a business focusing on the Architecture industry then try to choose a name that is in-sync with the services offered or the industry. If you choose a name like “Bay Area Architects Inc.” then follow it up with an Alabama Corporation name search. The process will search the entire state entity database and show a dissolved company with such a name. Since the company is dissolved, you will be able to reserve this name. Now, if the corporation was active then you would have had to choose another name and conduct an Alabama business entity search again and if available, reserve it.

There are other search options available, which are:

• Search for business entity By Agent or Officer or Incorporator
• Search using Entity ID
• Search using Reservation ID

Are you thinking of Incorporating in Alabama?

Need any Assistance in Alabama Business Name Search?

A corporate or an LLC name is the top branding vehicle as consumers, competitors, partners, and vendors will associate the business name with your products and services. An Alabama business name search will facilitate the entire process of reservation of a name without which you will not be able to proceed with company formation or incorporation. Business name reservation also facilitates several other important sub-processes like opening a business bank account and issuance of licenses.