How To Form A Corporation In Alabama

A corporation is an entity that is separate from its owners. Essentially, it safeguards the interests and personal assets of the owners. An Alabama Corporation will offer protection to its owners if the incorporation follows state laws. The formation of a corporation begins with its registration and certificate of incorporation. Here is how you can begin doing business as a corporation in Alabama.

Choose a Corporate Name

As per Alabama’s legal requirement, your corporation should be distinct in its name from all existing corporations. In addition, it means that the name should not resemble another business to mislead the public. Therefore, another necessity before filing for a name is to include the words ``incorporated” or “Corporation'' in the name or their abbreviations.

The filing process of the legal name begins with the Secretary of state, who asks for a Name Reservation Request Form. The applicant can submit their request form online or through the mail. Choosing a unique name can be tiring, so the Alabama Secretary of State provides resources to check for name availability online. After visiting the Alabama Secretary of State website, go to Business Entity Search. It will allow you to choose a new name for your corporation.

Additional guidelines:

If you want a banking corporation, you must get permission for the same form from the Alabama Insurance Commissioner’s Office.
If your corporation claims a professional service, a license of the same is necessary from one member who possesses the qualifications. In place of a Business License, a letter authenticated by a governing agency is mandatory.

Create a Certificate of Formation

To get started with your business in the legal sense, you would have to file a Domestic Business Corporation Certificate of Formation. The Certificate of Formation should include the following information:

Name of the corporation
The business purpose of the corporation
The name and registered address of the registered agent
The authorized number of shares that the corporation intends to issue
The name and contact information of the directors
The name and contact information of the incorporators

The Certificate of Formation can be filed with the Secretary of State in other states. However, it is necessary to file the Certificate of Formation with the Office of the Judge of Probate in Alabama. The Office of the Judge of Probate should be in the exact location as that of the registered office of the corporation.

The filed documents will eventually reach the Secretary of State, but they go through the Judge of Probate, who will provide you with a stamped copy for your reference. The standard fee for filing the Certificate of Formation is 100 USD without including the filing fee in the Office of the Judge of Probate.

Choose a Registered Agent

The agent should be a resident of Alabama. It can also be another business within or outside Alabama as long as it has a registered office in the state.

A registered agent will go through all your correspondence in the name of the corporation. It is an essential designation in the initial process because all the documents sent via mail will come to the registered address of the agent.

The agent must have an actual address in the state. It is helpful to have an agent during the Incorporation Process to make the correspondence easier and to make the filing of documents quicker. Initially, corporations choose one of their directors as an agent, but it can permanently be changed later. The registered agent's address may differ, but their office address should be the same as the corporation's registered address.

For appointing a registered agent for your corporation, you would have to fill out a form for the same. The Business Services Division overlooks the process. You would also have to submit a filing fee along with the form.

Maintain a Corporate Records Book

A corporate records book is where all the essential documents of the corporation are kept. It can be a folder or a binder that includes documents such as the Articles of Incorporation, the minutes of the meetings between shareholders and directors, the certificates related to stock issuing, etc. It is better to have the corporate records book at hand at all the offices of the corporation; however, it should always be present at the principal place of business.

Here is everything you need in a corporate records book:

All documents proving that you comply with federal and state laws should be on record. In case the corporation is sued, the corporate veil may be lifted. It means that the owners can be held liable along with the corporation. Proof of compliance can prevent any adverse judgment from being passed against the business based on following regulations.
Along with the articles of incorporation, it is also essential to have the contact information of all directors and shareholders at hand.
The meeting minutes after every annual shareholders’ meeting and the board of directors meeting should be kept on record for future reference.

Setting up a corporate record book is only complete with defining a time limit. Minutes will eventually get old, and contact information will need updating. Setting a time limit will help reduce bulk and also help with only keeping relevant documents as the business grows.

Prepare the Corporate Bylaws

Corporate bylaws are the rules by which your corporation will function. These are meant for the internal use of the corporation and help with the daily operations of the business. The corporation can decide these rules and does not need to file with any official authority. Therefore, corporate bylaws are not legally mandatory but essential for the following reasons:

Set up basic rules by which the corporation would function.
It will provide a level of legitimacy and order to the organization. It is helpful to prove the legitimacy of the business in front of auditors, the IRS, creditors, and banks.

Corporate bylaws can be set up by following a template via online resources. However, it is also essential that the bylaws correspond with your business and are actually applied in day-to-day activities.

Choose the Initial Corporate Directors

The Certificate of Incorporation states the names and contact information of the directors for the reference of the Secretary of State. The incorporators can choose the initial directors. However, this is not necessarily a permanent arrangement since they will be changed after the first annual shareholders’ meeting post-incorporation. There must be at least one director in a corporation. However, most corporations have more than one.

Source: Unsplash Alt text: Board of directors meeting

Hold Your First Board of Directors Meeting

After the first annual shareholders’ meeting, the new board of directors will be appointed. The first board of directors meeting is essential for your corporation. The board of directors is responsible for choosing corporate officers for the business and a bank to carry out official monetary transactions. Adopting corporate bylaws would also be under the board of directors' authority.

The meeting will also decide the beginning of the fiscal year. Issuance of stock and taking the necessary steps to obtain a stock certificate form and official seal of the corporation is also initiated with the first board of directors’ meeting. It is a possibility that the initial directors may not match the directors in the meeting.

Suppose the corporation intends to represent itself as an S corporation (to be filed under subchapter S of the Internal Revenue Code) to avail of tax benefits. In that case, it is in the hands of the board of directors to initiate the process. Additionally, keeping the meeting minutes on record is necessary as this meeting will likely be referred to in future business decisions. Therefore, the minutes should have the signatures of all the directors. It is best to get the minutes signed within a couple of weeks from the first board of directors’ meeting.

Issue Stock

Issuing stocks is not necessary for paper format; however, many small corporations still adopt the practice. The corporation's stock transfer ledger is an important document that notes every stock issuance process. The name and contact information of each shareholder should always be on records duly noted in the corporation's stock transfer ledger. Here are the steps in which you can issue the stock for your corporation:

Decide how much capital you require and how many stocks it would be divided into as per authorized capital.
For a new corporation, lending can lead to paying a higher interest rate. Issuing stock keeps cash, which can be applied to the business.
Choose whether you would issue preference shares (without voting rights) or common shares (with voting rights), both of which are different classes.
Have an attorney draft your Stock Subscription Agreement and provide the same to your shareholders.

The state laws apply to the stock issuance, which is why you should visit the Alabama Secretary of State website for the same. There are both federal and state laws that govern the transfer of securities. These laws are stringent since they consider corporate stocks as securities. Regulation of the sale and transfer of stocks is under these laws; however, almost all small corporations are exempt from the conditions of these laws.

Follow Alabama Tax Requirements

Every business in Alabama must file an annual Business Privilege Tax Return. The Department of Revenue governs the tax filings of corporations. After the incorporation of the business is complete, the corporation becomes due for the privilege tax return. It should be filed within 2-3 months after the date of incorporation. Each corporation is required by law to pay at least 100 USD of tax annually. The Department of Revenue website explains the tax return details for each business.

Comply With All Tax and Regulatory Requirements

Other than the state’s mandatory tax returns, you are also entitled to follow and comply with other regulatory requirements. Some additional mandates include the following:

Each corporation that intends to hire employees should obtain an employer identification number (EIN). There is no fee for obtaining an EIN. It is necessary for each employer to have this number to be recognized by the IRS.
Business licenses are necessary for specialized services. They depend on locations and local laws.
If the corporation decides to incorporate as an S corporation, it must file the same separately. Form 2553 is important for decorating an S corporation. All the shareholders should sign the Election by a Small Business Corporation form.

For Foreign Corporations Doing Business in Alabama

Foreign corporations can also do business in the state of Alabama. But for the same, they would need to be registered with the Secretary of State. Like all new corporations, a foreign entity also needs a registered agent in Alabama who complies with the abovementioned regulations. In addition, the corporation should also have a physical registered office in Alabama for doing business.

A foreign corporation needs to file a Foreign Corporation Application for Registration with the Secretary of State. The business Services Division will be in charge of the filing process. This form can be submitted through the post. The incorporation documents are also necessary with the same and should also be kept on record.

Conclusion

To form a corporation in Alabama, you can begin by filing a Certificate of Formation with a unique name for your business. For the legitimacy and smooth operation of the business, it is also advised to set up corporate bylaws. Maintaining a corporate records ledger and complying with the tax and regulatory requirements of business in Alabama is just necessary. Holding regular meetings and issuing stock will help with promoting business. Even a foreign corporation can establish its offices in Alabama with a registered agent who follows the state laws.

Frequently Asked Questions

Can a corporation run without an EIN?

The Certificate of Incorporation is not related to getting an employer Identification number. However, a corporation would require employees for daily operations. Therefore, a business needs to apply for an EIN to hire employees.

Is there a maximum number of directors for a corporation in Alabama?

Alabama does not have a ceiling for the number of directors a corporation can have. Any corporation must have at least one director. All the directors should be listed in the Certificate of Incorporation.

What should corporate bylaws include?

Corporate Bylaws should include the management structure of the corporation. In addition, it will have directions for the daily operations of the business. Apart from the basic information about the corporation and its purpose, they should also have details about the board of directors and shareholders.

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