Your new Alabama startup business must formally register with the state in order
to legally do business there—but first, you'll need to decide on the type
of business you'd like to form. Perhaps the simple structure and low startup cost
of a trade name is the right choice. Or perhaps you would be best served by incorporating
in Alabama or starting an LLC, businesses that offer limited liability protection
to the owners. Or, if you plan to benefit the community rather than your owners,
you might decide a nonprofit corporation is the appropriate choice.
Naturally, since all businesses are different, it's important that you discuss your
plans with your accountant or legal advisor. But in the meantime, here are some
basic descriptions of the various Alabama startup businesses that you can form.
Alabama Trade Name
According to the Secretary of State, a
trade name is "used to identify the business, vocation, occupation, or profession."
Trade names are available for most types of businesses, including individuals, LLCs,
corporations, and partnerships.
In order to register a trade name, you must submit the Application to Register Trademark,
Service Mark, or Trade Name in Alabama along with three specimens of something that
verifies your business (a business card, for example, or a newspaper advertisement)
and the required filing fee. Trade names are good for a period of five years, after
which they may be renewed.
Incorporate in Alabama
In order to incorporate
in Alabama, a business must first send in a request for a name reservation;
this is the only way to be sure that your business name will be accepted when you
later submit Articles of Incorporation to the Secretary of State. These Articles
will serve to provide the state with information about your business, including
your registered agent's name and address, the name of your business, and the amount
of shares of stock authorized. The information contained in the Articles of Incorporation
become a matter of public record and can be obtained by the public either by ordering
a copy of the Articles or looking up the business in the Alabama corporation database.
The default type of corporation is called a
C corporation; the "C" designation refers to a specific tax classification
in which corporate income is essentially taxed in two ways: first as corporate income
tax, and then as personal income tax once distributed to the individual shareholders.
This is what is known as "double taxation."
So why would anyone choose to start a business that is taxed so heavily? A C corporation
does provide other benefits, especially to larger corporations: there is no limit
on the amount of shareholders that can have an ownership stake in the business,
and there is no specific citizenship requirement on those shareholders.
However, many corporations that have less than 100 shareholders, provided all o
those shareholders are either US citizens or resident aliens, are eligible to submit
an S Corporation Election form to the IRS and become an
S corporation, thereby avoiding the double taxation of a C corporation.
With an S corporation, there is no corporate tax at all. Instead, there is only
an individual income tax on shareholder distributions, making an S corporation what
is known as a "pass-through" entity (sometimes called a "flow-through" entity).
Alabama Foreign Corporation
Any business registering as an Alabama foreign corporation must also submit a name
reservation prior to sending in registration paperwork (which is called the Application
for Certificate of Authority). This registration must take place prior to beginning
to do business in Alabama.
In addition to the Application for Certificate of Authority and the filing fee,
corporation must send in a certified copy of the formation documents from
the original state, such as Articles of Incorporation.
An Alabama LLC
is another business that provides limited liability protection to its owners (called
members), but it is not a corporation. It is a relatively new type of business that
is now recognized by all 50 states, but it is not considered a business classification
at the federal level; LLCs must decide whether they wish the IRS to treat them as
a corporation, partnership, or sole proprietorship for tax purposes.
An LLC, like an S corporation, can elect to be treated as a pass-through entity,
taking advantage of a tax structure in which the business itself is not taxed; only
the money paid to shareholders is taxed, and this at the individual level.
Alabama Nonprofit Corporation
An Alabama nonprofit corporation is one in which profits are dedicated to the benefit
of the community or to improve the corporation's public good, rather than distributed
to shareholders as personal income. (Of course, employees of a nonprofit corporation
can certainly be paid for their labor.) Specific types of beneficial purposes, such
as educational, scientific, or charitable, make a nonprofit corporation eligible
to be classified as a
501c3 nonprofit corporation., a structure that enjoys certain filing fee,
postal rate, and other financial advantages.