Pete J. had always wanted to start his own business. He finally decided to take the plunge this year. After working for other companies for year, Pete knew that he would have to follow certain laws and regulations to get his business up and running. The first thing he had to learn was how to form a business in Alabama.
Alabama Business Entities
Understanding the different business structures allowed in the State of Alabama was important. There’s more involved than just whether you want your business to be called an “LLC” or a “Corporation.” Fortunately, Pete could choose from several types of businesses:
Sole Proprietorships have one owner. While sole proprietorships require very little paperwork and fees to form, there is no protection from liability. The business owner may have trouble raising capital and obtaining long-term financing. Still, some people may consider it their best option.
Partnerships have two or more owners and are fairly easy to form. However, at least one partner has unlimited liability and transferring or selling a partnership interest may be difficult.
Corporations are a separate legal entity apart from the owners. Liability is limited, and ownership interest is easier to sell or transfer. However, the corporation structure is more heavily regulated. Also, corporations are doubly taxed.
Limited Liability Corporations and Limited Liability Partnerships offer better tax status than a corporation with great liability protection.
Forming Your Business
The procedure used varies according to the business entity chosen.
Generally, the first steps are:
- Picking your business name.
- Filing a trade name or doing business as, although this is optional.
- Getting all licenses and permits needed for your industry.
- Applying for an Employer Identification Number.
Sole proprietorships and general partnerships do not have to file paperwork with the Alabama Secretary of State to start up. However, limited partnerships file a Domestic Limited Partnership Certificate in the county where they do business.
As we noted above, corporations require more work to get off the ground:
The corporation’s name must be available, meaning no one else is using it.
You must also file Articles of Incorporation, along with the Domestic Business Corporation Certificate of Formation and a Certificate of Name Reservation.
Choose a registered agent.
Prepare Bylaws. They don’t have to be filed with the State, but bylaws describe how a corporation will work.
It is critical to weigh the advantages and disadvantages of each type of business entity before choosing one.
Ready to Start Your Business?
At Adams & Miller, P.C., we make it our business to put our client’s needs first. We assist our clients in making legal decisions regarding their business interests. For a free consultation, contact us at 256-251-2137 or use our convenient Contact Form. We have offices in Anniston and Birmingham and we assist clients in the Leeds, Gadsden, Hoover, Talladega, Vestavia Hills, and surrounding areas.