How to Start an S-Corp in Alabama


Steve Goldstein
Steve Goldstein
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Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Start an S-corporation in Alabama

Alabama, popularly known as The Yellowhammer State, offers a bunch of benefits for business owners, especially the state capital Montgomery has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in Alabama, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in Alabama. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In Alabama, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.

In this article, you will learn about how to start an s-corporation in Alabama. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in Alabama.

What is an S-Corp in Alabama?

An S corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in Alabama. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.

S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.

LLCBuddy Editorial Team

Limitation and Requirements of S-Corp in Alabama

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

If you are qualified for the limitations and requirements, you can apply for an S-Corp in Alabama.

How to Start an S-Corporation in Alabama?

To create S-Corp in Alabama, you must follow the below guidelines that include forming a business name, hiring a Resident Agent, filing your Certificate of Formation, creating an operating agreement in Alabama, requesting an EIN, filing a form 2553.

Step 1: Register a Business Name in Alabama

After you have decided on the idea to start an S-Corp in Alabama, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an LLC, there is a complete guide on Alabama LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in Alabama.
  • Limit of restricted words that need a license in Alabama, for example, doctors, attorneys, etc.
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hiring the Alabama Resident Agent

The next step in starting an S-corp in Alabama is hiring a 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 (such as subpoenas), all notices of lawsuits, and other official government correspondence in Alabama. Forming an LLC and an S-corp will be easier if you have Resident Agent in Alabama.

Step 3: File Your Alabama Certificate of Formation

The Certificate of Formation is an important document to start your limited liability company (LLC). Alabama Certificate of Formation is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Certificate of Formation” to be filed, you need to pay a filing fee to the state. In Alabama, the filing fee is $200 (by mail and $208 online) .

In California, along with the Certificate of Formation, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.

Step 4: Creating an Operating Agreement in Alabama

After you have filed your Certificate of Formation in Alabama, the next step is to create an LLC operating agreement in Alabama. The Alabama LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.

Step 5: Request for 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 general partnership. 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- You can apply for EIN online, the most desirable and fastest method for users.
  • Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
  • 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.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.

Step 6: File Form 2553 for Your S-Corp Business in Alabama

Once you have obtained your EIN and Certificate of Formation to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Alabama, you can send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

Advantages of Starting an S-Corporation in Alabama

Filing an S-Corp in Alabama has numerous benefits and advantages.

  • Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.
  • Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in Alabama apply for an S-Corp LLC.
  • Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.

FAQs

How do I start an S-Corp in Alabama?
You can start an S-Corp in Alabama by filing a Certificate of Formation with the Alabama Secretary of State.
Are there any fees to start an S-Corp in Alabama?
Yes, there is a $100 filing fee to start an S-Corp in Alabama.
What are the requirements to form an S-Corp in Alabama?
To form an S-Corp in Alabama, you must have at least one incorporator, a registered agent in Alabama, and a name that is distinguishable from other business entities on record with the Alabama Secretary of State.
What is the deadline to file for an S-Corp in Alabama?
You must file for an S-Corp in Alabama within 91 days of incorporation.
What is the minimum number of shareholders required to form an S-Corp in Alabama?
An S-Corp in Alabama must have at least one shareholder.
How long does it take for an S-Corp to be formed in Alabama?
The process of forming an S-Corp in Alabama typically takes 1-5 business days.
Do I need to file a separate business license if I want to start an S-Corp in Alabama?
Yes, you will need to file a separate business license if you want to form an S-Corp in Alabama.
Can I use a PO Box as my registered address for an S-Corp in Alabama?
No, you cannot use a PO Box as your registered address for an S-Corp in Alabama.
Do I need to obtain a tax ID number if I want to start an S-Corp in Alabama?
Yes, you will need to obtain a tax ID number if you want to form an S-Corp in Alabama.
What are the benefits of forming an S-Corp in Alabama?
The benefits of forming an S-Corp in Alabama include limited liability protection, tax savings, and easier access to capital.
What taxes do I need to pay if I form an S-Corp in Alabama?
You will need to pay federal and Alabama state income taxes if you form an S-Corp in Alabama.
Is it possible to convert an LLC to an S-Corp in Alabama?
Yes, it is possible to convert an LLC to an S-Corp in Alabama by filing a Certificate of Conversion with the Alabama Secretary of State.
Are there any specific rules for electing S-Corp status in Alabama?
Yes, there are specific rules for electing S-Corp status in Alabama. You must file Form 2553 with the IRS, and your Alabama S-Corp must have at least one shareholder and less than 75 shareholders.
Does Alabama offer an expedited process for filing an S-Corp?
Yes, Alabama does offer an expedited process for filing an S-Corp. You can file an expedited S-Corp filing with the Alabama Secretary of State for an additional fee.
How do I dissolve an S-Corp in Alabama?
You can dissolve an S-Corp in Alabama by filing a Certificate of Dissolution with the Alabama Secretary of State.
Are there any restrictions on an S-Corp in Alabama?
Yes, there are restrictions on an S-Corp in Alabama. An S-Corp in Alabama must have no more than 75 shareholders and must not engage in activities that are prohibited by Alabama state law.
Does Alabama require S-Corps to hold annual meetings?
Yes, Alabama does require S-Corps to hold annual meetings to review and approve the company’s financial statements and other business matters.
What information do I need to provide when filing an S-Corp in Alabama?
When filing an S-Corp in Alabama, you will need to provide information such as the name of the corporation, the address of the registered office, the name and address of the registered agent, and the name and address of the incorporator.
Do I need to publish a notice of formation for an S-Corp in Alabama?
Yes, you will need to publish a notice of formation for an S-Corp in Alabama in a newspaper of general circulation in the state of Alabama.
What are the penalties for failing to comply with the requirements for forming an S-Corp in Alabama?
The penalties for failing to comply with the requirements for forming an S-Corp in Alabama include fines, jail time, and/or revocation of the corporation’s certificate of formation.
Do I need to keep records for an S-Corp in Alabama?
Yes, you will need to keep records for an S-Corp in Alabama such as minutes of meetings, shareholder lists, and financial statements.
How do I amend the articles of incorporation for an S-Corp in Alabama?
You can amend the articles of incorporation for an S-Corp in Alabama by filing an amended Certificate of Formation with the Alabama Secretary of State.
How do I make changes to my S-Corp in Alabama?
You can make changes to your S-Corp in Alabama by filing an amendment with the Alabama Secretary of State that includes the changes that you want to make.
How do I transfer ownership of an S-Corp in Alabama?
You can transfer ownership of an S-Corp in Alabama by filing the appropriate documents with the Alabama Secretary of State.
Does Alabama require S-Corps to file annual reports?
Yes, Alabama does require S-Corps to file annual reports with the Alabama Secretary of State.
What happens if an S-Corp in Alabama fails to file its annual report?
If an S-Corp in Alabama fails to file its annual report, it may be subject to late fees and/or administrative dissolution.
Is it necessary to hold shareholder meetings for an S-Corp in Alabama?
Yes, it is necessary to hold shareholder meetings for an S-Corp in Alabama in order to review the company’s financial statements and other important business matters.
What is the process for electing a Board of Directors for an S-Corp in Alabama?
The process for electing a Board of Directors for an S-Corp in Alabama includes filing a Certificate of Incorporation with the Alabama Secretary of State and holding an organizational meeting of the incorporators to elect the Board of Directors.
What is the best way to keep records for an S-Corp in Alabama?
The best way to keep records for an S-Corp in Alabama is to use an electronic record-keeping system that stores the company’s documents in a secure and accessible way.
What are the requirements to start an S-Corp in Alabama?
To start an S-Corp in Alabama, you must register with the Alabama Secretary of State and create a Certificate of Formation. You must also obtain a federal tax ID number and pay associated fees.
What are the legal advantages of forming an S-Corp in Alabama?
Forming an S-Corp in Alabama offers several advantages, including limited personal liability, pass-through taxation, and potential tax savings.
Do I need to hire a lawyer to form an S-Corp in Alabama?
While it is not required, it is generally recommended to hire an experienced lawyer to form an S-Corp in Alabama to ensure that your business is in compliance with all applicable laws and regulations.
How long does it take to form an S-Corp in Alabama?
It typically takes approximately 2-3 weeks to form an S-Corp in Alabama, provided all documentation is filed correctly and all fees are paid in a timely manner.

Also Read

Why Alabama S Corporation is So Important

One of the primary reasons why the Alabama S Corporation is so important is because it provides limited liability protection to its owners. This means that the personal assets of the shareholders are protected from the debts and liabilities of the business. In the event that the company is sued or faces financial difficulties, the shareholders’ personal assets are shielded from being used to settle the business’s obligations. This extra layer of protection is invaluable, giving entrepreneurs peace of mind to pursue their business endeavors without worrying about risking their personal assets.

Additionally, the Alabama S Corporation offers tax benefits to its shareholders. Unlike a traditional C Corporation, where the business is taxed at the corporate level and the dividends distributed to shareholders are taxed again on their personal tax returns, an S Corporation allows for pass-through taxation. This means that the business itself does not pay federal income tax, and instead, the profits and losses are passed through to the shareholders, who report them on their individual tax returns. This can result in significant tax savings for business owners, making the S Corporation an attractive option for those looking to minimize their tax burden.

Furthermore, the Alabama S Corporation provides flexibility in terms of ownership and management structure. Unlike a traditional corporation, which can have an unlimited number of shareholders and a more rigid management hierarchy, an S Corporation is limited to 100 shareholders and can be managed by the shareholders themselves. This allows for greater control and decision-making power among the owners, making it easier to run the business in a way that aligns with their vision and values.

Another key benefit of the Alabama S Corporation is the potential for raising capital. With the ability to issue stock to investors, an S Corporation can attract outside funding to fuel growth and expansion. This can be crucial for businesses looking to scale their operations quickly and take advantage of new opportunities in the market. By offering an equity stake in the company, S Corporations can attract investors who believe in the business’s potential and are willing to provide the capital needed to support its growth.

In conclusion, the Alabama S Corporation is an essential legal structure for entrepreneurs looking to establish a business with limited liability protection, tax benefits, flexibility in ownership and management, and the potential for raising capital. Whether starting a new venture or transitioning an existing business, the S Corporation offers a range of advantages that can help owners achieve their goals and build a successful enterprise. Alabama entrepreneurs should carefully consider the benefits of the S Corporation when choosing a legal structure for their business to maximize their chances of success in the competitive market.

Conclusion

In conclusion, starting an S-corp in Alabama is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Certificate of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in Alabama.

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