How to Form a Professional Corporation in Alabama


Steve Goldstein
Steve Goldstein
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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.
  1. 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.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a professional corporation in Alabama?
A professional corporation in Alabama, also known as a professional service corporation, is a business entity formed by one or more professionals to provide services to clients in a specific field.
What type of services can be provided under a professional corporation in Alabama?
Professional corporations in Alabama can provide services such as accounting, architecture, engineering, law, medicine, osteopathy, optometry, chiropractic, psychology, podiatry, or veterinary medicine.
How do I form a professional corporation in Alabama?
To form a professional corporation in Alabama, you must file an Articles of Incorporation with the Secretary of State and obtain a Certificate of Incorporation.
What information is required in the Articles of Incorporation for a professional corporation in Alabama?
The Articles of Incorporation for a professional corporation in Alabama must include the name of the corporation, the name and address of its registered agent, the purpose of the corporation, the type of board of directors, the number of shares the corporation is authorized to issue, and any other information required by the Secretary of State.
Are there any special laws governing professional corporations in Alabama?
Yes, there are special laws governing professional corporations in Alabama, including the Alabama Professional Corporation Act.
What is required to form a Professional Corporation in Alabama?
To form a Professional Corporation in Alabama, you need to file Articles of Incorporation with the Alabama Secretary of State’s office. The articles must include the name of the corporation, the purpose of the corporation, the names of the initial directors, the address of the corporation’s registered office, and the name and address of the registered agent.
Is there a fee to form a Professional Corporation in Alabama?
Yes, there is a $70 filing fee to form a Professional Corporation in Alabama.
How long does it take for the Articles of Incorporation to be approved by the Alabama Secretary of State?
The Articles of Incorporation will usually be approved by the Alabama Secretary of State within two business days.
Does a Professional Corporation in Alabama need to have a registered agent?
Yes, a Professional Corporation in Alabama must have a registered agent. The registered agent must be an individual or business entity located in Alabama and must have a physical street address.
What documents must be filed with the Alabama Secretary of State after the Articles of Incorporation are approved?
Within 90 days after the Articles of Incorporation are approved, the Professional Corporation must file a Statement of Information with the Alabama Secretary of State. This document must include the names of the directors, the address of the corporation, and the address of the registered agent.
Does a Professional Corporation in Alabama need to have an organizational meeting?
Yes, a Professional Corporation in Alabama must have an organizational meeting. At this meeting, the directors will approve the bylaws, elect officers, and take other actions to organize the corporation.
Does a Professional Corporation in Alabama need to obtain a certificate of authority to do business in the state?
Yes, a Professional Corporation in Alabama must obtain a certificate of authority to do business in the state. This can be done by filing an Application for Certificate of Authority with the Alabama Secretary of State.
What is a Professional Corporation in Alabama?
A Professional Corporation in Alabama is a for-profit entity that is created to provide professional services, such as law, accounting, engineering, and architecture.
What are the advantages of forming a Professional Corporation in Alabama?
The advantages of forming a Professional Corporation in Alabama include limited liability protection, a simplified filing process, and tax benefits.
What are the requirements for forming a Professional Corporation in Alabama?
In order to form a Professional Corporation in Alabama, the incorporator must submit articles of incorporation with the Alabama Secretary of State, appoint officers, and create corporate bylaws.
How much does it cost to form a Professional Corporation in Alabama?
The fee to form a Professional Corporation in Alabama is $100, plus a $15 filing fee.
How long does it take to form a Professional Corporation in Alabama?
The process of forming a Professional Corporation in Alabama usually takes two to three weeks.
Does a Professional Corporation in Alabama need to be registered with the state?
Yes, a Professional Corporation in Alabama must be registered with the Alabama Secretary of State.
What is the annual filing requirement for a Professional Corporation in Alabama?
A Professional Corporation in Alabama must file an annual report with the Alabama Secretary of State every year.
Does a Professional Corporation in Alabama need to have a board of directors?
Yes, a Professional Corporation in Alabama must have a board of directors.
Does a Professional Corporation in Alabama need to have shareholders?
Yes, a Professional Corporation in Alabama must have at least one shareholder.
Can a Professional Corporation in Alabama offer stock to the public?
No, a Professional Corporation in Alabama cannot offer stock to the public.
Does a Professional Corporation in Alabama need to hold annual meetings?
Yes, a Professional Corporation in Alabama must hold annual meetings.
Does a Professional Corporation in Alabama need to keep corporate records?
Yes, a Professional Corporation in Alabama must keep corporate records, such as minutes of meetings, stock records, and financial statements.
Does a Professional Corporation in Alabama need to pay taxes?
Yes, a Professional Corporation in Alabama must pay taxes on its profits.
Does a Professional Corporation in Alabama need to have a corporate seal?
No, a Professional Corporation in Alabama does not need to have a corporate seal.
Does a Professional Corporation in Alabama need to file a DBA?
No, a Professional Corporation in Alabama does not need to file a DBA.
Can a Professional Corporation in Alabama be dissolved?
Yes, a Professional Corporation in Alabama can be dissolved if the shareholders vote to do so.
Can a Professional Corporation in Alabama be sued?
Yes, a Professional Corporation in Alabama can be sued.
Does a Professional Corporation in Alabama need to have insurance?
Yes, a Professional Corporation in Alabama should have insurance to protect against potential liability.
Does a Professional Corporation in Alabama need to have an operating agreement?
Yes, a Professional Corporation in Alabama should have an operating agreement that outlines the rights and responsibilities of the corporation and its shareholders.

Also Read

Why Alabama Professional Corporation is So Important

One of the main reasons why professional corporations are so important in Alabama is the liability protection they offer. In these professions, mistakes can have serious consequences, and having a professional corporation can shield the individual professionals from personal liability in the event of a lawsuit or other legal issue. This is vital for professionals who have spent years building their reputation and expertise, as it allows them to continue practicing their profession without fear of losing everything in a single lawsuit.

Furthermore, professional corporations in Alabama also offer tax benefits that can help professionals save money on their business income. By electing S Corporation tax status, professional corporations can pass profits and losses through to their individual shareholders, avoiding the double taxation that can come with being taxed as a regular corporation. This can provide significant savings for professionals who are looking to grow their business while also minimizing their tax liability.

In addition to liability protection and tax benefits, professional corporations in Alabama also offer professionals the opportunity to work together with other like-minded individuals in their field. By forming a PC, professionals can pool their resources and knowledge to provide better services to their clients or patients. This can lead to increased collaboration, innovation, and ultimately better outcomes for everyone involved.

Another important aspect of professional corporations in Alabama is the requirement for professionals to adhere to strict ethical standards and guidelines set forth by their respective licensing boards. By forming a PC, professionals are held to a higher standard of conduct and professionalism, which in turn can help build trust with clients and patients. This not only benefits the individual professionals, but also protects the public by ensuring that they receive quality services from qualified individuals.

Overall, professional corporations in Alabama play a vital role in the state’s economy and the well-being of its residents. By providing liability protection, tax benefits, opportunities for collaboration, and a commitment to ethical standards, professional corporations help support and protect professionals in a wide range of industries. Whether you are a doctor, lawyer, accountant, architect, or any other professional, forming a professional corporation in Alabama is a wise decision that can have far-reaching benefits for both you and your clients or patients.

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.

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