How to start a business in Alabama [Updated 2024]

Alabama, the Heart of Dixie, overflows with charming southern hospitality. It’s welcoming not only to visitors but to entrepreneurs as well. If you’ve got a great business idea and want to make your mark alongside other business owners in Alabama, there’s no better time. With a low cost of living, tax credits, and other incentives, it’s worth considering joining the more than 300,000 small businesses that employ nearly half of the state’s workforce. 

Starting a business in Alabama involves several critical steps. You have to craft your business plan, describe your enterprise, conduct market research, put together a marketing plan, and estimate how much startup will cost. But there’s even more to take care of. You’ll need to pick the right business structure (sole proprietorship, LLC, LLP, corporation?) and register it correctly. And on top of that, you’ve got to navigate state and local filing and tax obligations. 

Overwhelming? Not if you follow our handy guide. Here’s how you can set up a business in Alabama both cost-effectively and compliantly. 

1. Name your business

How do you stand out from the crowd? With a great name, of course. But before printing up business cards and ordering promotional gear, you need to ensure that your business name follows Alabama regulations. How? Follow these steps:

• Use Alabama's business entity search tool to see if your business name is available.
• Make sure the name complies with Alabama’s naming requirements. 
• Check the US Patent and Trademark Office’s database to confirm it hasn’t been trademarked.
• Reserve your name through the Alabama Secretary of State website for $25 ($27.75 online). 

At the same time, you should think about registering a web domain name and social media accounts under that name, too.

There may be situations when you want to use a trade name (also known as a DBA or “doing business as” name) in Alabama. Here are a few scenarios when you’d want to do so:

• To establish a new brand. 
• To expand into a new market but keep a brand name.
• To operate the business under a different name.

You’ll find the form to do this on the Alabama Secretary of State’s website. 

2. Explore your funding options

Whether you're self-funding your new business or seeking financial support from lenders and private investors, it's worthwhile exploring the business grants and small business loans that are available in Alabama. For further information, visit the Alabama Small Business Commission. 

• Alabama state loan programs. There are several state and regional financing programs that offer loans, access to capital, and more. Read more on the Alabama Department of Commerce business development site. 
• Federal loan programs. The Small Business Administration (SBA) provides a mix of services that can help get your business rolling. These include starter loans, disaster relief, and even business coaching. To learn more, visit the SBA’s Alabama page. 
• Local grants and loans. Another business resource is the Alabama Small Business Development Center Network. They can provide guidance on grants, loans, and venture capital.

3. Decide on your business structure 

One of the most important decisions you’ll make, whether you’re opening a small shop or launching a startup with global ambitions, is picking the best structure for your business. In Alabama, there are no less than eight business entity types that you can establish, with sole proprietorships being the most common.

Here’s what you need to know about business entities in Alabama:

4. Register your business in Alabama

If you’re planning to operate as a sole proprietorship, you don’t need to register with the Alabama Secretary of State (ASOS). However, you do need to register all other business types and pay a $200 filing fee. Here are handy links to the registration forms required for the most common business structures. Note that in all cases, you must attach a name registration certificate and submit your application by mail or online. These formation documents are for businesses based in Alabama. Use the ‘foreign’ registration forms for those based outside of the state.

5. Decide on a registered agent

When registering a business (corporation, LLC, LP, LLP, etc.) in Alabama, you’ll need to assign a registered agent. The registered agent (you or a professional) becomes the official point of contact for your business. They accept tax and legal documents from the Alabama Secretary of State and state courts. The registered agent is listed on the Certificate of Formation.

In Alabama, anyone, including the owner, can be a registered agent if they have a physical address in the state and can accept mail during the day. You can also hire the services of a professional registered agent. Pricing runs anywhere from $50 to $300 annually, depending on the service level. Simple mail forwarding is the cheapest, but if you want same-day document forwarding or round-the-clock service, the fees increase. 

6. Apply for an Employer Identification Number

Before hiring and paying any employees, you’ll have to obtain a Federal Employer Identification Number (EIN) from the Internal Revenue Service.

What is it? It’s like a Social Security number for US businesses. An EIN is a unique nine-digit number for your new company. You’ll need it for critical steps in creating your business, like opening bank accounts and applying for loans. You’ll also need one to pay your employees and your taxes. 

EINs are easy to get, and they’re free. To apply for your EIN, download Form SS-4 from the IRS website and submit it. You can also apply online. 

7. Get up to speed with Business Tax Credits

Taxes are a fact of life. At 6.5%, Alabama’s corporate tax rate isn’t the highest in the nation (Minnesota at 9.8%) or the lowest (North Carolina at 2.5%), but it’s still a burden that business owners have to contend with. 

The good news is that there are ways for small businesses to reduce their taxes. Learn about current tax and business credits and incentives on the Alabama Department of Revenue website.

8. Stay on top of filing requirements and taxes

If you’re running a business, you’re dealing with paperwork. You’ve got to file documents on a regular basis with the state of Alabama. What you need to file and when depends on the type of business structure you have. 

These are some of the requirements for common business structures: 

• Sole Proprietorship: One owner. File income on individual tax return—learn more from the IRS.
• Partnerships: Two or more owners/partners, income/loss passes through to owners/partners. Partnership income reported on Form 65, with the required attachments. Partner’s share of income/loss reported on Schedule K-1, amount from K-1 is reported on Form 40 Schedule E. 
• C Corporation: Taxed at entity level, income reported on Form 20C, with the required attachments. 
• S Corporation: No tax at entity level (see Form 20S for exceptions); income/loss passes through to owners/shareholders. Income reported on Form 20S, with the required attachments, partner’s share of income/loss reported on Schedule K-1, amount from K-1 is reported on Form 40 Schedule E. 

Additionally, every corporation and limited liability entity doing business in Alabama is required to file an Alabama Business Privilege Tax Return and annual report.

9. Find a payroll solution

Hiring employees and contractors in Alabama can be a challenge. Apart from finding the right people, you have to make sure that you classify them correctly. Failure to do so can result in fines and paying back taxes. You also need to be aware of overtime regulations and entitlements in Alabama. Employees are entitled to 1.5 times their hourly wage if they work more than 40 hours per week. As Alabama doesn’t have a state minimum wage law, most employers are subject to the Fair Labor Standards Act and must pay the Federal minimum wage of $7.25 per hour.

Powerful payroll software is a necessity if you want to ensure your employees and contractors are paid correctly and on time. Rippling’s payroll solutions can automate the time-consuming task of processing payroll while ensuring compliance with overtime regulations. With Rippling Time & Attendance, you can automatically track employees’ hours and set up alerts for when an employee is nearing overtime. Authorized hours will sync seamlessly to payroll: All you have to do is click “Submit” once, and Rippling determines net pay and taxes in seconds.

Hiring globally? Rippling has you covered: 

• Easily pay your team, regardless of varying tax jurisdictions or currencies, in a single pay run. 
• Include both hourly and salaried staff, along with contractors.
• Oversee all your global personnel, systems, and data from a centralized platform.

10. Support and scale your growing business with Rippling

An HRIS (Human Resource Information System) provides indispensable support as your business expands. An HRIS software solution optimizes recruitment, employee onboarding, payroll management, benefits administration, and more.

The earlier you implement an HRIS, the easier it is to scale, especially if you have ambitions for global business expansion. Once you've reached that point, Rippling provides a comprehensive solution to manage your worldwide workforce with a single system.

• Recruit, pay, and manage your employees—whether they’re located in Birmingham or across the globe.
• Maintain proactive compliance with local, state, and federal regulations—with a dedicated action plan for each.
• Consolidate all benefits—health insurance, 401(k), commuter, and more—within a single system and automate the busy work, like registering new hires, adjusting deductions, and managing COBRA (Consolidated Omnibus Budget Reconciliation Act).
• Easily keep all your recruiting data current—from open headcount to new employees—and automate each phase of the hiring process.
• Have one authoritative source for HR analytics, policies, and more.

FAQs about setting up a business in Alabama

Do I need a business license in Alabama?

Yes, most businesses in Alabama require a privilege license (same as a business license). You’ll also need to check with each city and county office where you plan to operate to verify what licenses are required before conducting business. The Alabama League of Municipalities website has contact information. 

Do I need a business bank account when launching a business in Alabama?

No, Alabama has no legal requirement to have a business bank account. However, it’s a good idea to set up a separate business bank account and credit card. This will help you organize and manage your personal and business finances and safeguard your personal assets.

Do I need to get business insurance?

In most cases, there is no legal obligation to have business insurance in Alabama. However, any business with five or more employees (which includes full- and part-time employees, officers of a corporation, or members of an LLC) has to provide workers’ compensation insurance. Workers’ compensation covers your employees if they’re injured on the job. Some businesses are required to carry liability insurance for company-owned or associated vehicles.

It’s still wise to carry liability insurance, even if you’re a sole proprietor. For example, general liability insurance can prove invaluable if you encounter personal injury claims linked to your business activities. If your business experiences unexpected interruptions, the right coverage can assist in managing expenses during downtime. And if your business offers professional advice or services, professional liability insurance can protect you in the event of negligence claims.

What are Alabama’s state payroll taxes?

There are several state taxes in Alabama:

• State Unemployment Tax (SUI) — employer contributions
• Workers’ Compensation — employer contributions for businesses with five or more employees
• State Withholding Tax — state income tax withheld from employee wages

Read more on state withholding taxes in this Alabama Department of Revenue brochure.

Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.