How to Start A Business In Alabama

Key Takeaways

The business's name for registration and the assumed name should be unique.
The Filing fee for an LLC, corporation, or non-profit organization is $200, whether by mail or online submission.
A certificate of incorporation is essential for registering a corporation and a non-profit organization.
A business must apply for an employer identification number if it aims to hire more than five employees.
Insurance policies cover property damage and life and also cover negligence during consultancy.

Critical Points to Starting a Business in Alabama

A business in Alabama has to follow the state regulations and get all the permits before starting operation. For instance, reserving the name is essential before applying for registration. Entrepreneurs should not only have a good idea, but they should also be able to execute it through a dedicated business and marketing plan. Building a brand should attract and retain customers while effectively managing the finances.

Pick a Good Idea

An entrepreneur is responsible for choosing a good idea and executing it per their vision. The core values of each business are determined by the owner's vision, which is why it is essential to be clear about the industry to which one wants to contribute. The idea should work in the industry while also promising profitability for the owner.

Find the Right Name

The primary concern while selecting a name is that it should be unique in the state of Alabama. The uniqueness would prevent any confusion among the clients and copyright infringement. In addition, the Secretary of State website of Alabama would have a list of names from which one can check the availability of specific titles.

The new name should also be unique even if the business is doing business under a trading or an assumed name. The local authorities should also permit it. One has to apply for the same with the town clerk. While searching for a unique name, it is also significant to check for available domain names for a business website. One can check for other options before reserving the domain name if the domain name is taken.

Pick a Legal Structure

The legal structure of a business will decide how it will be registered and how the owners will pay taxes in the future. A sole proprietorship is the most basic form of ownership and only includes one owner who shares their identity with the business. The owner is entitled to the company's profit or loss and all liability in case of a lawsuit. A general partnership is similar to a proprietorship, with the only notable difference being multiple owners instead of just one.

Three types of business structures create separate legal entities beyond the owners. The first is a limited liability company where the owners get to choose the kind of tax-paying method and are also protected from potential suits. A corporation is when an organization has both owners and shareholders. Finally, a non-profit organization created for a social cause is run solely based on donations.

Register the Business in Alabama

A business's registration process depends entirely on the type of legal entity being registered. Therefore, the formation documents and the filing fee for each organization vary, which is why it is vital to know the following details:

For an LLC: The registration process of an LLC begins with reserving a name and getting the process started. The Alabama Secretary of State may ask for an Operating Agreement, while the Articles of Association may not be mandatory. Proof of name registration and a filing fee of $200 must be mailed to the Alabama Secretary of State.
For a Corporation: After a corporation chooses a name and a registered agent, they need to hold an organizational meeting within minutes. One needs to send over the Certificate of Incorporation.
For a Non-profit Organization: A Non-profit organization also requires a name reservation certificate and a Certificate of Reservation. A conflict of interest policy must be in place, as a list of all the board members. A non-profit also needs to apply for its 501(c)(3) Status.

A registered agent is significant for all separate legal entities because they would be the source of all communication between the authorities and the business.

Bank in the Name of your Business

After registration, it is crucial to manage your finances and separate personal and professional matters. The first step is to create a bank account in the business's name. If the business is a separate legal entity like a corporation to a non-profit, it may be necessary to have a different bank account and debit or credit cards. Banking in the business's name can help create credibility in the new entity. It also helps build credit history through the regular use of credit cards. It may come in handy if the company needs funding in the future and approaches a bank for a loan.

Find the Capital

The capital for any business is the foundation on which all the major decisions would be made in the future. The funding comes from multiple methods, which are both internal and external. The internal process of funding is called bootstrapping, where the owners use their own savings and income to finance their daily operations. It keeps up the funding by offering to reinvest the revenue from the business to further the expenditure.

The second method is through loans. The loans can be taken through formal and informal channels. For example, friends and family might help financially with little to no interest; however, it is recommended to put the terms of repayment on paper. The formal channel of lending includes taking the assistance of banks. Here, the business might need a credit history to be eligible for a competitive interest rate.

The last funding method does not require any repayment and is popular among all entrepreneurs. Grants help out entrepreneurs with funding needs in order to contribute to their respective industries. The amount of grants varies and may depend on the grantor's discretion. Entrepreneurs can fill out an application for a grant they are interested in.

Pick Insurance Policies

A company invests heavily in inventory, property, and inventory. Therefore, asset management and protection are of primary importance, which is why insurance premiums for assets and workers are equally essential. Workers' Compensation Insurance is federally mandated for all businesses irrespective of the type of legal entity and business industry. It provides coverage to the workers from suffering any injury during the ordinary course of business. This policy covers injuries, amputation, and death in the workplace.

General liability insurance is for covering any property damage which is sustained by the business. It also covers legal protection in the case of a lawsuit. This insurance also covers any financial losses due to negligence. Alabama does not require this insurance policy. However, many commercial businesses nevertheless take it for additional coverage. It is also perfect for small businesses or any business operating from home.

Professional liability insurance is for any business providing consultancy or advisory services. For example, it is helpful for law firms, real estate agencies, and IT consultancy firms. The coverage in this insurance type is against any wrong or negligent advice. In addition, the protection is against claims where one may claim that the advice needed to be completed as per the agreement.

Get All Licenses and Permits

There are three significant licenses and permits that new business requires. The licensing and permits depend entirely on the type of business, the kind of legal entity, and the locality of the establishment. Federal licenses are available on the US small business administration guide.

The permissions have to be taken from respective authorities for federal, state, and local licenses. The most common types of permits are health, building, and signage permits. For the state level of permits, one can visit the Business Licensing web page on the Alabama Department of Revenue. The county clerk is in charge of all licensing and permits in a specific area or locality.

Get the Employer Identification Number

If your business has only one employee, there is no need to apply for an employer identification number. However, an LLC corporation or non-profit would need to register for an employer identification number. Hiring recruits is not an internal process, and the internal revenue service will determine the eligibility of the business for the same. An employer identification number brings your business to the notice of the tax authorities. Any company has to report they are new employees to the state of Alabama, which is only possible after the business is registered with the internal revenue service.

Create a Marketing Plan

A marketing plan is concerned with advocating the promotion and advertising of the products and services of a business. A good marketing plan will include effective promotional strategies to build and retain a customer base. For example, one can use press releases, broadcasting, and social media to attract customers. The primary reason to employ a marketing strategy is for publicity and to save time and money.

A good marketing plan will work well in the long term and allow the establishment of a business presence in a competitive market. The primary reason for marketing is to communicate with the customers. Creating a company in a new locality is important, which is why promotional strategies showcase the products and services. To improve visibility, one should also employ different social media platforms with trending hashtags. Using reliable sites for promotion will also add to the credibility of the business.

Factor in the Finances

When a business is new, there are a lot of financial considerations that come with investments, inventory, and consultancy. Establishing business contacts to avail services would require adequate capital expenditure regularly. The initial expenditure may or may not be regular. For instance, any business using computer systems would have initial spending on entire systems and related furniture with occasional expenses in the future for repairs and updates.

If the business utilizes a web hosting service, it will be an additional expenditure that must be included in the accounts. If the marketing strategy and team are working full-time, one might have to hire experts in new positions, such as social media managers and content creators. Lawyers to offer legal advice and protection from lawsuits also account for an item of regular expenditure. Business, IT, or any other time of consultancy is also a significant expenditure for a new business.

Build the Brand

After creating a marketing strategy, one has to build a unique brand in a competitive industry. The first step is to design a unique logo that aligns with the business's core values. A trademark will help your brand become distinguishable from others and help clients recognize your outlet from others. It is also helpful if your business has a similar name to an existing one. Having a logo or trademark registered and displayed on the official website is also essential to create a brand image that portrays the vision of the business owner.

Summary

A business in Alabama requires following all legal regulations outlined by the Internal Revenue Service (IRS) and the Alabama Secretary of State. After picking the right idea, one has to reserve their name and get their organization registered. The rules of incorporation are different as per the legal entity. After creating an effective business plan, one has to raise capital either from bootstrapping or other sources. The licenses and permits are essential according to the industry and locale of the business. If the business wants to hire employees, it is necessary to be legally eligible to be an employer. A marketing strategy will help increase customer engagement and client base to improve profitability. Building the business's image and brand value is also necessary and hence needs a dedicated effort.

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