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Editorial 8 MIN READ

Alabama in early 2019: the two-window formation nobody warns you about

A $200 Certificate of Formation at the Secretary of State, a separate $50 filing at the county probate judge, and a Business Privilege Tax that follows you forever

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 6 sections
  1. Why Alabama files twice
  2. What the Certificate actually asks for
  3. The Business Privilege Tax is the maintenance cost
  4. Alabama income tax and the pass-through question
  5. Who Alabama actually makes sense for
  6. Sources

labama LLC formation costs $200 at the Secretary of State and a minimum of $50 at the county probate judge, in that order, and the state will not record your entity until both windows are fed. That dual-filing requirement is the single most important thing to understand before you start.

Most state LLC guides assume one government counter. Alabama has two, and founders who miss the second one spend weeks believing they have a registered entity when the official record still shows nothing.

Why Alabama files twice

Every other state has consolidated LLC filings at a single agency, usually the Secretary of State, sometimes a Division of Corporations. Alabama kept the older structure in which the county probate judge remains a gatekeeper for the formal record. The Alabama Limited Liability Company Law of 2014, codified at Ala. Code Title 10A, Chapter 5A and effective January 1, 2017 for all Alabama LLCs after a two-year transition, preserved the dual system even as it modernized the substantive rules. You file first with the judge of probate in the county where the LLC's initial registered office will sit. That office time-stamps your Certificate of Formation and forwards it to the Secretary of State in Montgomery for entry on the state record.

The Secretary of State's fee is $200. The county probate judge's fee is at minimum $50, and several counties charge more for indexing, copies, and the optional reserve-name step. Jefferson County and Mobile County sit at the higher end; smaller rural counties stay close to the statutory floor. Before you file, call the probate office in your county and ask for the current schedule, because the probate counters post fees on paper boards that are not always mirrored online.

You may reserve a name in advance through the Secretary of State's online portal for $25, which is a separate step from the formation itself. Name reservations last one year. Most filers skip the reservation and simply run a name availability check on the Business Entity Records search before they draft the Certificate. The skip is fine if your name is distinctive. It is a mistake if your name is generic enough to collide with an existing Alabama entity, because probate judges will not file a Certificate with a conflicting name and you will have paid for the trip.

What the Certificate actually asks for

The Certificate of Formation for an Alabama LLC is a short document. It names the LLC, states that it is a limited liability company formed under Title 10A Chapter 5A, lists the registered agent and registered office (which must be a physical Alabama address, not a P.O. box), gives the name and address of each organizer, and is signed. You may optionally designate the LLC as member-managed or manager-managed; if you say nothing, Alabama defaults to member-managed under Ala. Code § 10A-5A-4.07.

The Secretary of State publishes a fill-in PDF. The probate office may have its own coversheet on top of the state form. If the two documents disagree (for instance, on whether to attach the name reservation certificate), the probate office wins for filing purposes. Ask the clerk.

Processing time is the most variable figure in Alabama formations. Jefferson County can same-day a standard filing if you walk it in before noon. Rural counties may take a week because the probate judge signs in person and is not always at the courthouse. The Secretary of State, once it receives the probate office's forwarded packet, posts the entity within a few business days. The practical range for a paper-filed Alabama LLC is one to three weeks end to end. Online filing through the Secretary of State's portal has compressed that for counties where probate cooperates electronically, but coverage is uneven.

The Business Privilege Tax is the maintenance cost

Alabama does not charge an LLC annual report fee in the way most states do. Instead, every Alabama business entity, including LLCs, owes the Alabama Business Privilege Tax every year. The tax is authorized at Ala. Code § 40-14A-22 and is administered by the Department of Revenue, not the Secretary of State. Form BPT-IN is the initial return, due two and a half months after formation. Form PPT (for LLCs and other pass-through entities) or Form CPT (for C-corps) is the annual return that follows.

The tax is computed on the entity's net worth apportioned to Alabama, with a rate that slides based on federal taxable income. The statutory minimum is $100 per year. The maximum, capped by § 40-14A-22, is $15,000 for most entities, with a special $3 million ceiling for financial institutions. For the overwhelming majority of small Alabama LLCs, net worth is modest and the tax bill lands at or near the $100 minimum, plus a $10 annual report filing fee that rides along on the same form. That combined $110 floor is what most single-member Alabama LLCs actually pay each year.

Three things to note about the BPT that first-time filers get wrong. First, the initial return is due quickly: two and a half months after the entity was formed, not the following April. A January formation has an April 15 initial deadline. Second, the calculation uses the prior year's net worth, which for a brand-new entity is zero, but the $100 minimum still applies. Third, the BPT continues to accrue even if the entity is dormant. An Alabama LLC that did no business still owes $100 plus the filing fee every year until it is formally dissolved through the Secretary of State. This is the single largest source of back-tax surprises in Alabama practice. People form an LLC, never use it, and four years later receive a demand for $440 plus penalties when they try to form a new entity and the Revenue Department flags the old one.

Dissolution itself is two-step and mirrors formation: you file a Statement of Dissolution with the Secretary of State ($100), and you close out the BPT account with the Department of Revenue. Skipping either step leaves you liable.

Alabama income tax and the pass-through question

Alabama's individual income tax runs on a progressive schedule that tops out at 5% under Ala. Code § 40-18-5, with brackets that reach the top rate quickly (at $3,000 of taxable income for single filers). The corporate income tax is 6.5% under § 40-18-31. An Alabama LLC that is taxed as a disregarded entity or partnership for federal purposes flows its income to members, who pay the individual rate. An LLC that has elected C-corp treatment pays the 6.5% corporate rate at the entity level and its members pay again on distributions, with the usual federal double-tax layered on top.

The pass-through election is almost always correct for small Alabama LLCs. The exception is a business that plans to retain earnings aggressively at the entity level and is already inside the post-TCJA federal 21% C-corp regime for strategic reasons. That is a narrow case. For consulting practices, single-member holding LLCs, and rental-property LLCs, the default pass-through treatment keeps the Alabama tax at 5% (or less) rather than stacking 6.5% on top of member-level tax.

Alabama also participates in federal conformity in ways that matter for 2019 filings. The state has selectively conformed to portions of the Tax Cuts and Jobs Act. The Section 199A deduction flows through for federal purposes but does not reduce Alabama taxable income, because Alabama bases its individual tax on federal AGI rather than federal taxable income. This is a boring-looking point with real dollar consequences for a profitable pass-through LLC: the federal 20% pass-through deduction does not help you at the Alabama line.

Who Alabama actually makes sense for

The state is built for Alabama-operating businesses, and not much else. Alabama has no case-law reputation comparable to Delaware's Chancery and does not market itself as a domicile for out-of-state founders. If your business is in Alabama, you form in Alabama; if your business is not in Alabama, you almost never form in Alabama.

Within that frame, the state is workable. A $200 Secretary of State fee is mid-pack nationally, the $50 county floor is trivial, and the $100 minimum BPT is lower than, say, California's $800 franchise tax or Massachusetts's $500 LLC annual fee. The dual-filing friction is real but one-time. What bites repeat offenders is the quiet BPT accrual on dormant entities, which is an operational-discipline problem rather than a tax-policy one.

Two specific patterns show up in Alabama formation advice this year. The first is the rental-property LLC in Baldwin County, where Gulf Coast vacation rentals generate enough income and liability exposure to justify separate entities per property. Those LLCs should form in Baldwin probate, use a Baldwin address for the registered office, and file PPTs that correctly apportion the Alabama-source income.

The second is the Huntsville technology founder with aerospace or defense contracts. For that founder, the right answer is usually a Delaware C-corp operating in Alabama as a foreign entity registered through a separate Application for Registration filing ($150 at the Alabama Secretary of State, plus the same BPT exposure on the Alabama-apportioned base). The Delaware domicile matters for the eventual acquirer or VC round; the Alabama registration matters for the reality of doing business in Madison County. Both filings are necessary.

For a single-member Alabama LLC that runs a local service business and will never raise money, forming in Alabama, member-managed, disregarded for federal tax, and paying the $110 BPT floor each year is the boring correct answer. You will spend roughly $250 to form (state plus probate plus a modest registered-agent subscription) and a bit over $100 a year to maintain. Budget for a tax preparer who has actually filed a PPT before; the form is short but unforgiving, and the Revenue Department is quicker to assess penalties than to return phone calls.

The practical Alabama checklist is this. Confirm the name on the Secretary of State's Business Entity Records search. File the Certificate of Formation at the probate judge in your county, pay the probate fee and the $200 state fee in the order the clerk tells you to, and wait for the Secretary of State to post the entity. Obtain an EIN from the IRS the same afternoon. Calendar the initial BPT return for the date two and a half months after formation. If you ever stop using the LLC, dissolve it properly rather than ignoring it. That last step is the one that saves you money you will otherwise not realize you are spending.

Sources

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