Menu
For those tired of doing the same old 9-5 service job, starting a business of their own is a dream come true. The southeastern state of Alabama is also a good place to start a business as you will likely not have to break the bank paying for rent and making other ends meet.
If you are in Alabama and are looking to start a business, the following are some of the steps you will need to take:
Whether in Alabama or anywhere else in the world, starting a business means having a business-worthy idea. So, start there. Brainstorm an idea and preferably chalk out a business plan so you have a clearer idea of what your goals will be.
This makes forming a business a lot easier as you have answers to a few logistical questions beforehand.
Once you have a solid idea and plan in place, you need to select what kind of business entity you want to pursue. In layman’s terms, the business entity you pick will be the legal structure of your business.
It will dictate how the business is formed, how it is taxed, and who gets to own shares of the business. Typically, there are four types of business entities you can choose from in Alabama—sole proprietorship, corporation, partnership and LLC (Limited Liability Company).
Under a sole proprietorship, you will be an individual who is going into business. There is no coordination with other stakeholders and this is one of the easiest ways of forming a business in Alabama.
There is also no state filing involved in a sole proprietorship model. However, this also means the individual has to endure all the losses and debts on their own.
In a partnership, there will be two or more general partners who will be entering into a business together. While there is no formal state filing, the income from the business is likely to be taxed under self-employment and there is no tax on business income. Again, all the liabilities are endured by the partners in case the business does not perform well.
A corporation is different from an individual entity. There are a host of shareholders involved which take liability away from owners and provide personal asset protection.
There are two types of corporations you can choose from, depending on the size of the business. For a business with over 100 shareholders, you can choose a C Corporation structure, and for a business smaller than that, an S Corporation structure is apt.
The tax liability in both these types of corporations is different so you can pick one according to the size of the company and the prevailing tax laws in the region. A corporation, however, is far more difficult and expensive to form.
You need to acquire a Certificate of Formation which costs $177 in Alabama. This includes a name reservation fee, a probate judge fee, and a filing fee ($100) to the Alabama Secretary of State. You will also need to set aside a $100 minimum for Initial Business Privilege Tax Return.
Finally, an LLC works as a corporation in that it provides liability protection to owners. But its ease of operations is like that of a sole proprietorship model. It also has fewer tax burdens compared to a corporation and there is less coordination required among shareholders.
Of all the four business entities, an LLC has the most flexibility when it comes to tax obligations. Again, you will need a Certificate of Formation, which costs around $177 (minimum) in Alabama. This fee includes a name reservation fee, probate judge fee and a filing fee to the Alabama Secretary of State. In this circumstance too you will need to pay a minimum of $100 for Initial Business Privilege Tax Return.
Once you have selected the business entity you want to work with, it is time to register the name of your business. After all, clients need to know how to identify your business.
If you have chosen sole proprietorship or general partnership, you will need to register a trade name in Alabama. In the case of corporations or LLCs, you will have to select a name at the stage of registration.
This name must be registered with the Alabama Secretary of State. But while you will not be able to register the name with the Secretary of State if the name already exists, it will not provide you with protection against your name being used elsewhere.
You will need a trademark to legally protect your business name. The US Patent and Trademark Office (USPTO) is the body you will need to turn to for this.
The next step is to acquire an Employer Identification Number (EIN) which is the nine-digit tax identification number provided by the Internal Revenue Service (IRS). But if you have a sole proprietorship or are a single-member LLC that does not have any employees, you can skip this stage.
Depending on the type of business you are forming and the location, the license and permit requirements may vary. Some of the common licenses you may require, include:
Once all the paperwork and registrations are in order, you can seek out funding or can finance the capital by yourself if you have the means. Depending on the type of business you are forming, you may need to hire employees.
It is also advisable to set up a professional accounting system so that all your affairs are in order when tax season comes around.
Forming a business takes a lot of work and it is work that one must be able to sustain. Alabama is a fairly business-friendly state so if you have an idea, do not hesitate to look into the options to get started.
The Incorporation Academy is run by a group of entrepreneurs who know the difficulties of starting and running a business. We are dedicated to helping businesses get started correctly and run more efficiently.
