Introduction – Why Alabama?

Whatever the reason for relocating a business to Alabama; the state definitely provides several benefits to each new and existing business. This state is considered amongst the ‘most favorable for business’ destinations in the entire southeastern region of the United States. As an entrepreneur, your business requirements would be different from that of others and this is where the state plays a key role in ensuring proper support and resources are made accessible to business owners. A diverse industry base along with robust logistics and infrastructure are just some of the business benefits in Alabama. Let us look in detail at some of the advantages your business can leverage in this state.

Excellent workforce

When moving your business to Alabama, one of the key factors to consider is availability of a skilled workforce. According to the 2023 Regional Workforce Development Rankings, Alabama has been ranked #1 (number one) in the South Central region of the USA as it is considered to possess the strongest overall workforce development ecosystem in this region. The Alabama Workforce Development Board has approved and introduced skills training programs amounting to more than $33 million so that Alabamians are able to advance their careers and this is one of the top business benefits in Alabama. Now, businesses will have access to a highly skilled and motivated workforce. There are programs by MAWA (The Mobile Area Workforce Alliance) where educational institutions as well as business entities come together on the same platform for aligning classroom learning with industry best practices and thus providing meaningful solutions to practical industry needs.

Thriving Business climate

Alabama is a strong contender in the southeastern region of the USA where a thriving business climate is concerned. In recent times, migration of businesses into Alabama has increased and this has led to the state investing heavily in creating a strong infrastructure network for supporting sustained economic growth. This is one of the key business benefits in Alabama as infrastructure plays an important role in providing the right environment as required by new and existing companies. One of the factors promoting this pro-business climate is the different industrial and business zones in the state. Relocating a business to Alabama in an opportunity zone, Foreign-Trade Zone (FTZ), or designated Enterprise Zones can provide different degrees of support, resources, and benefits. Alabama’s startup ecosystem seems to be coming of age as it has become broader with support through tech innovation. Today, the state is home to a diverse and innovation oriented entrepreneurial ecosystem replete with accelerators and incubators.

Competitive Taxes & Incentives

If you plan on moving your business to Alabama then one of the salient highlights is the attractive and competitive taxation environment the state offers. The state is popular amongst entrepreneurs as it is known to have one of the lowest overall tax burdens in the nation. In addition, the state also provides a variety of tax incentive programs that have been carefully designed to provide continued operational savings and make starting a new business cost-effective. The small business incentive programs are one of the principal elements in driving overall business growth and development and include a variety of tax incentive programs, small business grants, loans, and other forms of financial assistance. Whether you opt for entity domestication in Alabama or simply relocating your company, some of the tax incentive programs to consider include Jobs Credit programs, Sales & Property Tax Abatements, Growing Alabama Credit programs, and state-level tax incentives through the Enterprise Zone Program.

Quality of life

One of the salient highlights of relocating a business to Alabama is the exceptional quality of life the state provides. At the top of the list is the low cost of living driven by the cost of housing, where the average sale price of a house is almost 40 percent less than the national average. Alabama enjoys a moderate climate and the public schools here have one of the highest graduation requirements in the nation. The state is blessed with abundant natural resources and is home to diverse natural as well as scenic wonders including the prime Gulf Coast beaches and resort communities.

Steps to Move a Corporation to Alabama

One of the most favored business structures in Alabama is the C corporation. If you are thinking of moving a corporation to Alabama then there are several advantages that this state offers including pro-business regulations and laws. You may have several questions pertaining to moving your business to Alabama, so let us look at the various options available.

Register as a Foreign Corporation

Relocating a business to Alabama can be a complex process if you are unaware of the methods and the state laws. This is one of the favored options for those business owners who plan to expand in the state and want to also keep their company in the home jurisdiction operational. There is a process for moving a corporation to Alabama and it is known as foreign qualification. This process is governed by 2013 Code of Alabama, Title 10A; Article 7 – Foreign Entities. The process for foreign qualification is as follows:

• Designate a registered agent in Alabama for handling service of process pursuant to AL Code § 10A-1-5.31 (2013)
• Conduct a name availability search for the existing name and reserve it if available
• If the existing name is unavailable then you can register a trade name or DBA pursuant to AL Code § 10A-1-5.11 (2020)
• Foreign Corporation (Business or Non-Profit) Application for Registration pursuant to AL Code § 10A-2-15.01 (2020) along with a fee of $150.
• Apply for the necessary business licenses including professional license, local city or county licenses, and regulatory licenses if required

Do you want to start a foreign corporation in Alabama?

Dissolve home Corporation and establish new Corporation in Alabama

The second option for moving your business to Alabama is to dissolve your company in the home state and then incorporate a domestic corporation in the new state. This process of relocating an entity will require you to follow the laws of dissolution in the state where the company has been formed. The process of dissolution will vary from one state to another and may involve administrative, judicial, or voluntary dissolution.

Dissolution in Home State

• You will need to file a Certificate of Dissolution or Articles of Dissolution
• Depending on the state, you may be required to submit a certificate of cancellation
• You will need to obtain the necessary tax clearance by submitting your final tax return
• It is important to address any or all pending claims
• Surrender your business licenses

New Incorporation in Alabama

• Designate and continuously maintain a registered agent in the state pursuant to AL Code § 10A-1-5.31 (2022)
• Identify and reserve a business name using the domestic entity name reservation form
• File Certificate of Incorporation pursuant to AL Code § 10A-2-2.03 (2022) along with the appropriate fee
• Prepare bylaws for Alabama Corporation
• Apply for relevant business licenses and permits including a business privilege license

Incorporate in Alabama with ease!

Steps to Move an LLC to Alabama

A limited-liability company has several advantages over other forms of entity structures and hence is often favored by business owners. If you are thinking of entity domestication in Alabama or relocating your LLC to this state then you can benefit from the robust infrastructure, low taxes and small business incentive programs. There are different options available for moving your business to Alabama, so let us study these processes.

Register as a foreign LLC

If you are thinking of relocating a business to Alabama and if the said structure is that of a limited liability company (LLC) then there are several aspects to consider including creating a deep understanding of state and local business laws. This can often be confusing as the laws in Alabama would differ from those in your home state. The process of moving an LLC to Alabama is known as foreign qualification and will be governed by the Code of Alabama, Title 10 – corporations, partnerships, and associations, Chapter 12 – Limited Liability Company Act, Article 9 – Foreign Limited Liability Companies. In the process of foreign qualification:

• You will need to hire and maintain an Alabama registered agent services for handling service of process and also for managing state annual requirements
• You can use the same business name as currently in use only if it is available. You will need to conduct a name availability search for this name.
• If the existing name is available then you can reserve it. If the name is not available then you need to file a trade name or DBA using the Application to register or Renew Trademark, Service Mark or Trade Name form.
• You will need to file the Foreign Limited Liability Company (LLC) Application for Registration form pursuant to section 10A-1-7.04, Code of Alabama 1975. This will authorize you to conduct business in this state.
• You will also be required to apply for relevant business licenses and permits in the state.

Apply for LLC foreign qualification in Alabama

Dissolve home LLC and form new LLC in Alabama

The transfer of an LLC to Alabama is also possible through the process of dissolution of your company in the home state and forming a new domestic LLC in this state. This process requires you to follow the laws of dissolution of the LLC home state or where the limited-liability company was originally formed. You will also have to follow the laws pertaining to new LLC registration in Alabama. This is one of the easiest ways of moving your business to Alabama. Let’s look at an example to understand this.

Dissolution in Home State

• Depending on the state laws, you will need to file a Statement of Dissolution or Certificate of Dissolution
• You will need to obtain the necessary tax clearances by filing pending state or local taxes
• Clear all pending claims towards customers, partners etc.
• Surrender your business licenses and permits

New LLC Formation in Alabama

• Appoint an Alabama LLC registered agent for service of process pursuant to AL Code § 10A-1-5.31 (2014).
• Identify and reserve a business name using the domestic entity name reservation form
• File Certificate of Formation pursuant to AL Code § 10A-5A-2.01 (2022) along with a fee of $200
• Prepare Alabama LLC operating agreement
• Open a business bank account
• Apply for and obtain necessary business licenses and permits in the state

Register your LLC in Alabama Today!

Move Your Business to Alabama with IncParadise

If you are thinking of moving your business to Alabama then there are different options or methods available which can make your relocation possible. We at IncParadise, one of the top Alabama registered agent services can provide you with relevant information pertaining to entity domestication in Alabama as well as foreign qualification. We can also help in facilitating the paperwork necessary for dissolution in your home state and registration as a domestic entity in Alabama.

Alabama Foreign Qualification

If you are thinking of Alabama foreign corporation registration or LLC formation then one of the first things to consider is the advantages this particular state offers. Alabama, known as the Yellowhammer State has a vibrant economy supported by a growing startup ecosystem and pro-business regulations and climate. The state is home to top industries that have experienced immense growth and development in the last decade. The list of industries include health care, automotive, education, aerospace, bioscience, banking, and other heavy industries, including mineral extraction and steel production. Once Alabama foreign business registration is complete, you will also be able to apply for small business incentive programs, state sponsored grant programs, and tax credit programs.

What is an Alabama foreign qualification?

Foreign qualification is a process specifically created by each state in the USA to enable registration of those businesses or companies that have actually been formed or incorporated in another state. The Code of Alabama states that foreign qualification in Alabama is a process by which a company from another state or jurisdiction gets an authority to transact business in this state. It is important to note that a limited-liability company, limited partnership (LP), corporation, or limited liability partnerships (LLP) will not be able to transact business in this state without this foreign qualification and may be penalized if such an entity tries to conduct their business without the required permission.

Example: If you have formed a limited liability company in North Carolina by filing the Articles of Organization then it will be considered as a domestic entity. Here, North Carolina will be your home state or state of formation. Now, if you want to expand your business to Alabama then there are two options. One option is to close your existing business and register a new company in this state, which would then be considered a domestic LLC in Alabama. The second option is Alabama LLC foreign registration or foreign qualification and this will provide you with the authority to transact business in this state without closing your company in the home state or North Carolina.

Doing business in Alabama

Each state has its own law that governs what is known as doing business or conducting transactions in a specific state. A foreign qualification in Alabama will be necessary if you are doing business as permitted by the state law or what the state considers as conducting business. If your company has met those requirements as mentioned by Alabama Code then the said entity will be required to apply for Alabama foreign business registration. Generally speaking, “doing business” is defined by specific activities of an entity like maintaining a physical presence or office or having employees in Alabama.

• Such a company conducts a trade or business in this state
• The said entity engages in commerce of any kind
• The company is rendering a professional service of any type
• Such an entity conducts the insurance business subject to the regulatory authority of the Alabama Insurance Commissioner
• The primary activity of such a company is banking or that of a financial institution

Alabama Foreign Qualification Process

If you have registered a company in any other state and are planning to expand in the state of Alabama then your business will be considered to be a foreign entity in this state. You will then be required to apply for foreign qualification in Alabama and the process will be governed by the 2013 Code of Alabama, Title 10A; Article 7 – Foreign Entities. According to state statutes, each entity based in any other state but wanting to transact business in Alabama will need a proper authority or permission to do business, which can vary depending on the entity structure. Let us look at the process of Alabama foreign business registration for LLCs and corporations.

Alabama Foreign Corporation Registration

If you have already incorporated your company in another state and are considering expanding business operations in Alabama then you will need to apply for the process of foreign qualification. This process will initiate steps necessary for Alabama foreign corporation registration and provide you with the authority necessary for transacting business in this state. Let us understand in detail, what this process entails.

What is Alabama Foreign Corporation?

An Alabama foreign corporation is a type of entity that has been incorporated in any state other than Alabama and wants to conduct its business now in this state. Such an entity will be required to apply for Alabama foreign corporation registration.

How to register a foreign Corporation in Alabama?

There is a specific process for Alabama foreign corporation registration and this will be different from that of incorporating a domestic entity. The various steps involved in this process are:

• Name of Corporation – One of the most important parts of a foreign business incorporation is name registration or reservation. The laws, process, and fee are different for different states. An Alabama foreign corporation registration will require you to first obtain a name reservation certificate. Since a foreign entity already has a name registered in the home state, it is important to conduct an Alabama foreign entity search also known as business name availability search. This will reveal if the existing name can be reserved or not. If the name is not available then you can file a fictitious name pursuant to AL Code § 10A-1-5.11 (2020). If the existing name is available then you can opt for foreign entity name reservation filing online. There is a processing fee of $28.
• Registered Agent – Whether you are forming a domestic entity or applying for an Alabama foreign corporation registration, there are certain state guidelines that are required to be followed. One such law is to continuously maintain a registered agent in the state pursuant to AL Code § 10A-1-5.31 (2013). We at IncParadise are one of the top Alabama registered agents and have helped several domestic and foreign entities to incorporate in this state.
• Foreign Corporation Registration – Once you have conducted an Alabama foreign entity search and reserved or registered a business name, you will need to apply for an authorization to conduct business in this state. This authorization will be provided through the process of Alabama foreign corporation registration where you will need to submit the form – Foreign Corporation (Business Or Non-Profit) Application For Registration pursuant to AL Code § 10A-2-15.01 (2020). This application has to be submitted with the Secretary of State, Business Services along with a processing fee of $150. You can also file this application for registration online.

Do you want to register a foreign Corporation in Alabama?

Alabama Foreign LLC Registration

If you are already operating a limited-liability company in another state and want to expand your business or conduct your business in the state of Alabama then you have to undergo the process of foreign qualification. This process is also known as Alabama LLC foreign registration and will help you to start operations without the need for registering a domestic LLC. The process of foreign qualification of an LLC is governed by the Code of Alabama, Title 10 – corporations, partnerships, and associations, Chapter 12 – Limited Liability Company Act, Article 9 – Foreign Limited Liability Companies.

What is Alabama Foreign LLC?

Any business or company is considered to be a foreign limited-liability company in Alabama if such a company has been registered in any state other than Alabama. If such an LLC wants to conduct their business in this state then it will be required to apply for Alabama foreign business registration. Let’s look at an example to understand this.

How to register a Foreign LLC in Alabama?

A limited-liability company is a type of structure that is quite popular amongst small business owners as well as established entrepreneurs. If you have already set-up an LLC in any state and believe that expansion in Alabama will bring good returns then it’s time to apply for Alabama LLC foreign registration. This is basically a process also known as foreign qualification and will vary from one state to another according to the business statutes of the said state. There are several aspects to consider as they are integral to Alabama foreign business registration. Let us take a look at the important requirements that are governed by the state laws:

• Name of LLC – One of the foremost requirements of Alabama LLC foreign registration is identifying a business name. Since your limited liability company is already operational in another state, hence it is recommended that you conduct a name availability search for the existing name. An Alabama foreign entity search will reveal whether your existing name is unique in this state or is already in use. If the said name is unavailable then you will need to file a DBA also known as a fictitious name or a trade name pursuant to AL Code § 10A-1-5.11 (2020). If the existing LLC name is available then you will need to reserve it with the office of the Secretary of State by filing foreign LLC application for registration.
• Registered Agent – The second most important aspect of the foreign qualification process is hiring a registered agent in the state. This is mandatory as they are responsible towards executing service of process. Alabama LLC foreign registration will not be possible or valid if your company doesn’t have a registered agent in the state. Alabama registered agent services offered by IncParadise will not only help fulfill state requirements like service of process but also assist with other annual compliances like filing of annual reports.
• Foreign Registration Statement – Once you have reserved or registered an LLC business name, the final step in this process will be to apply for permission or authorization to conduct business in this state. In order to receive this authorization, you will have to file Foreign Limited Liability Company (LLC) Application for Registration form pursuant to section 10A-1-7.04, Code of Alabama 1975. The application for Alabama foreign business registration has to be submitted with the Secretary of State, Business Services along with a processing fee of $150. You can also file foreign qualification applications online.

Want to form a foreign LLC in Alabama?

Need Any Assistance in Applying for Alabama Foreign Qualification?

Alabama with its pro-business regulations, robust infrastructure, good business climate, and vast resources provides necessary support to new businesses as well as foreign entities. Once you have registered your company in the state through foreign qualification in Alabama, you will also be able to participate in state governed business incentive programs. As one of the leading registered agents in Alabama, IncParadise can provide meaningful assistance towards Alabama foreign business registration.

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.