The certificate of formation costs $200 and takes twenty minutes. It is not the hard part.
These six decisions are what you are actually making. Five of them are much harder to change later than to get right now.
1. The name
It has to be distinguishable from every other entity registered in Alabama, and it has to be available. A name reservation costs $25 under Ala. Code § 10A-1-4.31 and it is worth doing before you print anything.
Two checks worth running at the same time, because they are separate questions: is the domain available, and is the name in use as a trademark by somebody else? Alabama registering your entity name does not give you trademark rights, and it does not protect you from a business that has them.
2. The registered agent
Someone with an Alabama street address who accepts legal papers during business hours. It can be you, but understand what that means: your address becomes a public record, and a process server may arrive at your home or in front of a customer.
A commercial registered agent removes both problems for a modest annual fee. Most small businesses should use one.
3. Member-managed or manager-managed
| Member-managed | Manager-managed | |
|---|---|---|
| Who runs it | All members | A designated manager, who may or may not be a member |
| Who can bind the company | Generally any member | Generally the manager |
| Suits | A small company where everyone works in it | Passive investors, or one operator with silent partners |
| Most common for | Two or three active owners | Property-holding entities and companies with outside money |
Working through these?
It is a short conversation and it is much cheaper now than as an amendment later. Call the Athens office.
4. Who owns what — and what “equal” means
Two people who each put in half the money and half the work is straightforward. Almost nothing else is.
- One puts in the money, the other the work. Is that 50/50?
- One brings the customers and the other does the job. Is that 50/50?
- One works full time and the other keeps a job. Is that 50/50?
There is no correct answer, but there is a wrong process, which is not discussing it and defaulting to equal shares because it feels fair. Equal shares with no tie-breaker is how a company deadlocks.
5. What happens when someone leaves
The clause missing from nearly every template we are handed. Every one of these needs an answer:
- A member wants out and the others want to continue
- A member dies — does their spouse become your business partner?
- A member divorces, and their interest is a marital asset
- A member becomes disabled and cannot work but still owns half
- A member simply stops turning up
- A member wants to sell to somebody you have never met
You cannot agree today what a member’s interest will be worth in six years. You can agree how it will be calculated — a formula, an appraisal process, a book-value method, or a fixed multiple.
That single clause converts a future argument about a number into an arithmetic exercise. It is the highest-value paragraph in most operating agreements.
Decide the method while nobody knows who will be leaving.6. The tax election
A separate decision from the entity choice, and one for your CPA. An LLC can be taxed several ways, and the right answer depends on your numbers rather than on a rule of thumb from a website. Nothing here is tax advice — the point is simply that it is a decision, not a default.
Then file
- Reserve the name$25, Secretary of State.
- File the certificate of formation$200, Secretary of State — not the county probate judge, despite what a lot of published guides still say.
- Get an EINFree, directly from the IRS. Never pay a service for one.
- Open the business bank accountAnd run nothing personal through it, ever.
- Sign the operating agreementThe one with the six decisions in it.
- Check licencesBusiness licensing in Alabama is largely county and municipal. Check the city and the county, not just the State.
For taxable years beginning after 31 December 2023, the Alabama Department of Revenue states there is a full exemption from the business privilege tax where tax due is $100 or less, under Act 2022-252 — and those taxpayers are no longer required to file the return.
A great deal of published material still tells Alabama business owners they owe a $100 minimum every year.
Alabama Department of Revenue notice on 2024 Business Privilege Tax filing requirements.Questions before forming
Can I be my own registered agent in Alabama?
Yes, if you have an Alabama street address and are available during business hours. Understand that the address becomes public and that a process server may turn up there. Most small businesses are better served by a commercial agent.
Member-managed or manager-managed — which should I pick?
Member-managed suits a small company where everyone works in it. Manager-managed suits passive investors or one operator with silent partners. It is changeable, but changing it means amending the agreement and notifying the people who relied on the old structure.
Does registering my LLC name protect it?
Only against another Alabama entity registering a name that is not distinguishable. It is not a trademark and it does not protect you against a business that holds one. Those are separate systems.
Can two people own an LLC 50/50?
Yes, and it works fine until they disagree. If you do it, put in a deadlock mechanism — a buy-sell trigger, a tie-breaking third party, or a defined process. Equal shares with no tie-breaker is the most common way these companies stall.
What if I want to add a partner later?
Straightforward if the operating agreement anticipates it — admission of new members, what they pay, and how existing interests dilute. Much less straightforward if it does not.
How long does formation take in Alabama?
The filing itself is quick. What takes time is the thinking on this page, and that is time well spent.
The six decisions are the work
Entity formation, operating agreements and contracts across Limestone, Madison, Morgan and the surrounding counties.
Daniel Shawn Pickens
Attorney at Daniel S. Pickens Law in Athens, Alabama. The firm handles business formation and contracts, real estate closings and title work, deeds, estate planning and probate, and DUI and traffic defence for clients across Limestone, Madison, Morgan, Lauderdale, Colbert, Franklin and Lawrence Counties.
Questions about forming a business? Email business@dsp.law or call 256-434-1678.
Daniel S. Pickens Law · 300 West Green Street, Athens, Alabama 35611
