How to Form a Professional Corporation in Alabama

Are you considering starting a professional corporation in Alabama? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Alabama can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Alabama, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Alabama!

What is a Professional Corporation in Alabama?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Alabama. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Alabama.

– LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Alabama if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Alabama

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Resident Agent, filing the Certificate of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Alabama, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

• Doctors
• Architects
• Engineers
• Accountants
• Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Alabama

After you have decided on the idea to form a professional corporation in Alabama, deciding the name for your corporation is significant. There is a complete guide on Alabama LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

• The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
• No confusion with a government entity name.
• A unique name is needed with no match
• Limit of restricted words that need a license.

In Alabama, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 1 Year. To keep the name, you must file a name reservation application with Alabama Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Alabama Resident Agent

The next step in forming a professional corporation is hiring the Alabama Resident Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Alabama. Forming a professional corporation for your service will be easier if you have Resident Agent in Alabama.

Alternatively, you can serve as your own Alabama Resident Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Alabama.

Step 4: File the Certificate of Incorporation in Alabama

After you hire a Alabama Resident Agent to form a professional corporation, the next step is to file the Alabama Certificate of Incorporation. In writing the Certificate of Incorporation, the business name, owner’s contact information, corporation address, and Resident Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Certificate of Incorporation in Alabama may be done with one method that is filing by mail. The Certificate of Incorporation fee may vary from different states. However, in Alabama, it costs $200 for filing by mail.. There’s no online filing available.. For offline filing, Send the form to the Secretary of State, P.O. Box 5616, Montgomery, AL 36103.

Step 5: Write an Operating Agreement in Alabama

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Alabama operating agreement includes information like-

1. About Business
2. Members and management
3. Capital contribution
4. Profit Distribution
5. Change of membership
6. Dissolution

Step 6: Designate the PC Board of Directors in Alabama

The next step is to appoint the initial board of directors in your PC in Alabama. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Alabama SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

• The responsibilities are given to each officer.
• How will judgments in business be made?
• Where and when are the annual shareholder meetings?
• The minimum number of shareholders required for decision-making.
• Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Alabama

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Alabama can be through the following:

• Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
• Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Alabama might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Alabama

Before your professional corporation operates in Alabama, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Alabama, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Alabama

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Alabama classification of taxes for the taxes an LLC in Alabama has to pay.

Important Information

Maintaining Professional and Business License in Alabama

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Alabama

In Alabama, you will be required to submit a report each year. The owners’ and Resident Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Alabama, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Alabama

A professional corporation takes a lot of time to process and pursue. However, with the help of the Alabama Resident Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Alabama.

1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.

2. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.

3. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

Also Read

• Form a Professional Corporation in Alabama
• Form a Professional Corporation in Alaska
• Form a Professional Corporation in Arizona
• Form a Professional Corporation in Arkansas
• Form a Professional Corporation in California
• Form a Professional Corporation in Colorado
• Form a Professional Corporation in Connecticut
• Form a Professional Corporation in DC
• Form a Professional Corporation in Delaware
• Form a Professional Corporation in Florida
• Form a Professional Corporation in Georgia
• Form a Professional Corporation in Hawaii
• Form a Professional Corporation in Idaho
• Form a Professional Corporation in Illinois
• Form a Professional Corporation in Indiana
• Form a Professional Corporation in Iowa
• Form a Professional Corporation in Kansas
• Form a Professional Corporation in Kentucky
• Form a Professional Corporation in Louisiana
• Form a Professional Corporation in Maine
• Form a Professional Corporation in Maryland
• Form a Professional Corporation in Massachusetts
• Form a Professional Corporation in Michigan
• Form a Professional Corporation in Minnesota
• Form a Professional Corporation in Mississippi
• Form a Professional Corporation in Missouri
• Form a Professional Corporation in Montana
• Form a Professional Corporation in Nebraska
• Form a Professional Corporation in Nevada
• Form a Professional Corporation in New Hampshire
• Form a Professional Corporation in New Jersey
• Form a Professional Corporation in New Mexico
• Form a Professional Corporation in New York
• Form a Professional Corporation in North Carolina
• Form a Professional Corporation in North Dakota
• Form a Professional Corporation in Ohio
• Form a Professional Corporation in Oklahoma
• Form a Professional Corporation in Oregon
• Form a Professional Corporation in Pennsylvania
• Form a Professional Corporation in Rhode Island
• Form a Professional Corporation in South Carolina
• Form a Professional Corporation in South Dakota
• Form a Professional Corporation in Tennessee
• Form a Professional Corporation in Texas
• Form a Professional Corporation in Utah
• Form a Professional Corporation in Vermont
• Form a Professional Corporation in Virginia
• Form a Professional Corporation in Washington
• Form a Professional Corporation in West Virginia
• Form a Professional Corporation in Wisconsin
• Form a Professional Corporation in Wyoming

Why Alabama Professional Corporation is So Important

One of the key reasons why APC is so important is its ability to provide a legal structure specifically designed for licensed professionals. Professionals such as doctors, lawyers, accountants, and engineers are required to adhere to strict regulations and guidelines in their practice. By forming an APC, these professionals can protect their personal assets and limit their individual liability for any claims or lawsuits related to their professional services. This not only provides peace of mind for the professionals, but also makes it easier for them to conduct business without the fear of losing their personal assets.

Moreover, APC allows professionals to collaborate with other like-minded professionals in the same field. By forming a corporation, professionals can pool resources, expertise, and experience to create a more efficient and competitive business. This collaborative effort often leads to better outcomes for clients, as professionals can draw on each other’s strengths and offer a wider range of services. In addition, APC provides professionals with a platform to expand their business and take on larger projects that may not have been possible as individual practitioners.

Another reason why APC is crucial for professionals in Alabama is its tax advantages. By operating as a corporation, professionals can avail themselves of various tax incentives and deductions that are not available to sole proprietors or partnerships. This can result in significant savings for the professionals and allow them to reinvest the saved funds back into their business for growth and development. Additionally, APC provides professionals with retirement and pension benefits that are not available to individual practitioners, giving them financial security and stability for their future.

Furthermore, APC plays a significant role in promoting professionalism and ethical conduct among licensed professionals in Alabama. By requiring professionals to adhere to strict rules and regulations, APC helps maintain high standards of integrity, competence, and accountability in the business community. This not only benefits the professionals themselves but also instills confidence in clients and consumers who rely on their services. In a world where trust and credibility are paramount, APC serves as a beacon of professionalism and excellence in the Alabama business landscape.

In conclusion, Alabama Professional Corporation is a pivotal entity that provides a multitude of benefits and advantages for professionals and businesses in the state. From offering a legal structure for liability protection to fostering collaboration and innovation, APC plays a crucial role in shaping the business environment and promoting economic growth. Without a doubt, APC is a vital component of the business ecosystem in Alabama and continues to be a driving force behind the success of professionals in the state.

Conclusion

In forming a professional corporation in Alabama, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.