Alabama has changed its LLC rules significantly in the last few years, and much of what you’ll read online is out of date. The state abolished the annual report in 2024, and most small LLCs no longer owe the business privilege tax that used to carry a $100 minimum. What hasn’t changed: you must reserve your name before you can form, and Alabama has a layer of local business licenses and taxes to plan for.
What an Alabama LLC costs
Table of Contents
| Item | Cost | When |
|---|---|---|
| Certificate of Name Reservation | About $25 by mail, $28 online | Before formation (required) |
| Certificate of Formation | $200 ($208 online) | At formation |
| Annual report | None (abolished in 2024) | — |
| Business privilege tax | $0 if your calculated tax is $100 or less | Yearly, with your return, if owed |
| Business privilege license | Set by county and city | Yearly |
Realistically, budget about $225 to $236 to form, then mostly local license fees each year.
Step 1: Choose your name and reserve it
Alabama is unusual: you must obtain a Certificate of Name Reservation from the Secretary of State before filing your formation document. The name must include "limited liability company", "LLC" or "L.L.C." and be distinguishable from other names on file. Search the state’s records, then check federal trademarks, domains and social handles with our business name checklist.
Include your name reservation certificate with your Certificate of Formation.
Step 2: Appoint a registered agent
Every Alabama LLC needs a registered agent with a physical Alabama address, available during business hours. You can serve yourself, name another adult or use a commercial agent.
Step 3: File the Certificate of Formation
File a Certificate of Formation with the Alabama Secretary of State, online or by mail, and pay $200 (online filings include a small convenience fee). Alabama’s document is called a Certificate of Formation, not Articles of Organization. You’ll include the LLC’s name, registered agent and office, the name reservation information, and the organizer’s signature. Online filings are usually processed within a few business days, and rush service is available.
Step 4: Create an operating agreement
Alabama doesn’t require you to file an operating agreement, but every LLC should have one, covering ownership, management, profit sharing and what happens when members join or leave.
Step 5: Get an EIN and open a bank account
Apply for a free EIN from the IRS online, then open a business bank account using your filed Certificate and EIN. See choosing a business bank account.
Step 6: Understand the business privilege tax today
Alabama’s business privilege tax applies to LLCs and corporations, based on net worth in Alabama. Two recent changes matter:
- For tax years beginning after December 31, 2023, entities whose calculated business privilege tax is $100 or less owe nothing and don’t have to file a return for that year.
- The old $100 minimum tax no longer applies to those small entities.
Many older guides, and some formation services, still tell new owners to budget $100 a year. Calculate your position, or ask an accountant, before paying anything. Larger LLCs with more net worth may still owe the tax and file returns.
Step 7: Get your business privilege license and register for sales tax
Alabama’s business privilege license is separate from the business privilege tax. Most businesses obtain one from the county probate judge or license commissioner, and many cities issue their own business licenses as well. Requirements and fees depend on your county, city and type of business.
If you sell taxable goods or services, register for sales and use tax with the Alabama Department of Revenue through its online system. Alabama’s state sales tax is 4%, and most cities and counties add their own, often making combined rates among the highest in the country. Some local sales taxes are administered by the state, others locally.
Local taxes to check
Some Alabama cities, including Birmingham, levy an occupational tax on wages earned within the city, which employers withhold. Check the rules in every city where you or your employees work.
How an Alabama LLC is taxed
By default, LLC profits pass through to the owners, who pay federal income tax, self-employment tax and Alabama’s graduated personal income tax. Multi-member LLCs taxed as partnerships file an Alabama partnership return. Alabama also lets eligible pass-through entities elect to pay tax at the entity level. LLCs electing C corporation status pay Alabama corporate income tax. Ask a tax professional which option suits you.
Hiring your first employee in Alabama
Beyond the federal steps in our first employee guide, Alabama employers generally:
- Register for withholding with the Department of Revenue and unemployment insurance with the Department of Workforce.
- Carry workers’ compensation insurance once they have five or more employees.
- Use E-Verify, which Alabama requires of employers.
- Withhold local occupational taxes where they apply.
- Report new hires to the state.
Your Alabama LLC compliance calendar
| Deadline | Filing | Paid to |
|---|---|---|
| Ongoing | Keep your registered agent current | Secretary of State |
| Yearly, if your tax is more than $100 | Business privilege tax return | Department of Revenue |
| Yearly | Business privilege license renewal | County and city |
| Monthly, quarterly or yearly | Sales and use tax returns | Department of Revenue; local authorities |
| As assigned | Withholding and occupational tax, if you have employees | Department of Revenue; cities |
Example: state costs for your first two years
For a single-member LLC whose calculated business privilege tax is under $100:
| Year 1 | Year 2 | |
|---|---|---|
| Name reservation and Certificate of Formation | About $225 to $236 | — |
| Annual report | — | $0 |
| Business privilege tax | $0 | $0 |
| State total | About $225 to $236 | $0 |
Add county and city business privilege licenses, sales tax registration and any professional license. Use our startup cost calculator to plan.
Alabama rules for common types of business
Contractors. Alabama’s general contractors board licenses contractors for projects above set dollar thresholds, and residential home builders are licensed by their own board. Electrical, plumbing and HVAC trades have separate state licensing. See our home services industry profile.
Food businesses. Restaurants and food trucks are permitted by county health departments under the state health department. Alabama’s cottage food rules let some home cooks sell certain foods directly to consumers. See our cottage food business guide.
Childcare. Child care centers and homes are licensed by the state’s human resources department. See our home daycare guide.
Alabama compared with nearby states
| State | Filing fee | Recurring state report |
|---|---|---|
| Alabama | $200 plus name reservation | None |
| Georgia | About $110 | About $60 yearly |
| Tennessee | $300 minimum | $300 minimum yearly, plus franchise and excise tax |
| Florida | $125 | $138.75 yearly |
| Mississippi | Low filing fee | Free yearly report |
Alabama’s formation cost is above average, but with no annual report and no business privilege tax for most small LLCs, its ongoing state costs are now among the lowest in the region. See our Georgia, Tennessee and Florida guides.
Mistakes to avoid
- Filing a Certificate of Formation without reserving the name first.
- Paying a business privilege tax you don’t owe because of out-of-date advice.
- Confusing the business privilege license with the business privilege tax.
- Underestimating local sales tax rates and city licenses.
- Forgetting occupational tax withholding in cities that levy it.
- Letting your registered agent lapse, now that there’s no annual report to prompt updates.
Frequently asked questions
Does Alabama still require an annual report for LLCs? No. The requirement was abolished in 2024.
Do I owe the $100 minimum business privilege tax? Not if your calculated tax is $100 or less, for tax years beginning after December 31, 2023.
How long does it take to form an Alabama LLC? Name reservation and formation can usually be completed within a few business days online.
Can I be my own registered agent? Yes, with a physical Alabama address where you’re available during business hours.
Why are older guides different? Alabama abolished the annual report and exempted small business privilege tax amounts in 2024. Many articles and formation services haven’t updated their figures, so check the Department of Revenue’s current guidance before paying.
Is my LLC’s information public? Your LLC’s name, registered agent and office appear in the Secretary of State’s public records.
Next steps
Read the Start a Business A–Z guide, see taxes and bookkeeping for 2026, and plan with the break-even calculator.
This guide is general information, not legal or tax advice. Fees and rules change; check the Alabama Secretary of State and Department of Revenue before you file.
Sources
- Zenind, How much does an LLC cost in Alabama (2026)
- Start Business By State, Alabama requirements (May 2026)
- File.Business, Alabama filing requirements verified June 2026
- Alabama Department of Revenue, Business Privilege Tax
Last reviewed October 18, 2026. Startup costs are estimates; check local prices, licensing and tax rules before you commit money.
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