Forming an Alabama LLC Inexpensively

Forming an Alabama LLC Inexpensively Tripp Watson, The Watson Firm Updated November 12, 2015

Introduction... 3 Big Disclaimer... 3 Who Should Not Use This Form... 4 Get Started... 5 Process... 6 1 - Register the Name... 6 2 - File Certificate of Formation with the County... 6 3 - Adopt an Operating Agreement... 6 4 - Pay Business Privilege Taxes... 6 Closing Thoughts... 7 Appendix A... 8 Certificate of Formation... 8

" Introduction Without a doubt, the single most common question I get is, "how much do you charge to form an LLC?" Rarely are these callers satisfied with my usual response of, "It depends." In truth, it really does depend. To simply set up an LLC, the expenses are minimal. In fact, later in this article I will describe how you can form an LLC on your own. However, I do not recommend this for a number of reasons which I will detail in a minute. As the saying goes, "The devil is in the details." The devil in LLCs is not in getting them formed, it's operating them. Simply setting up an LLC with the state of Alabama covers about 10% of what you should be doing managing an LLC. Getting a Certificate of Formation is only the first step. It's important to have a very thorough Operating Agreement, and not just something that you've pulled off the Internet. Because LLCs are governed by partnership law, whatever is in the Operating Agreement goes. Therefore, if your business partner decides to include in the operating agreement that you have no voting rights, no rights to any distributions, no rights to see the books, and that he will have complete authority to act on behalf of the company, there will probably not be a judge in the state of Alabama that will determine that that is unconscionable. This is the biggest problem with LLCs: if it is in the Operating Agreement, it is enforced. Furthermore, if you do not keep separate bank accounts, do not pay your Business Privilege Tax, or otherwise follow the requirements for operating an LLC, you may lose the protection that an LLC provides through a legal concept called piercing the corporate veil. BIG DISCLAIMER Below, I will walk you through the process of setting up an LLC in the state of Alabama. Let me be very clear, this is solely to set up the LLC in the state of Alabama. This is not legal advice! The document that I am providing you is a fill in the blank form provided by the state of Alabama with instructions on where to file it. I am not telling you

how to fill out the form, or even giving any recommendations on how you should fill out the form. I'm simply educating you on the process. You might be asking yourself, "Why is an attorney giving away free legal advice?" (Again, let me reemphasize that this is not legal advice!) I think it's important for me to communicate to you why this is important. Frankly, a lot of my time is spent drafting thorough Operating Agreements to ensure that future partnership disputes between founders and other owners do not turn into full-blown litigation. Another significant side of my practice is cleaning up disputes that arose because people did not thoroughly think through or act appropriately in managing their legal entities. Therefore, my time is better spent working on deeper issues than simply filling out a form and filing it with the state of Alabama. For many of you reading this, it is probably enough to file a simple LLC with the state, get some basic protections, and hope and pray you don't face bigger problems in the future. If that's the case, I hope that you will keep my contact information on hand. Another reason that I'm providing this information is that I believe some other legal service alternatives are providing a disservice to their customers. Companies such as LegalZoom and Rocket Lawyer claim to be able to set up these legal entities for greatly reduced costs. However, these companies are legally prevented from providing legal advice. That means that they have absolutely no responsibility to help you understand what you're completing or what the terms mean. As well, because they cannot provide legal advice, they usually provide standardized forms that address few of the issues that companies actually face. Therefore, you might have a "properly formed LLC" that actually protects you in no way whatsoever. In many instances, all these companies do is provide forms that many states already have available and mark them up to the tune of hundreds of dollars. In essence, you are often paying for convenience and a false sense of security. I think you deserve better than that. Who Should Not Use This Form If you have not already read my disclaimer, let me be very specific in the instances that you should not use this form below to set up an LLC: 1. you are in business with anybody else who will be the lending money to your company or who will have an ownership stake in your company 2. you ever intend to employ anyone other than yourself 3. you ever plan to bring on a partner in the future 4. you operate in a high risk industry in which legal liability can be a problem 5. you plan to rent space and expect to meet clients at your office or retail location

6. you have already incurred some type of legal liability, such as being sued or threatened with being sued 7. you have any questions about how to complete the form, or what any of the terms mean 8. you are unsure what an LLC is, or what it does 9. you are unsure if an LLC is right for your type of business If you fall in to any one of these categories, you should not use the form below. Speak to an attorney before you do anything. Get Started If you do not fall into any one of the categories above, setting up an Alabama limited liability company (LLC) is a very simple process. It typically costs about $300 in filing fees to get everything set up, but that amount will vary based upon what county you are in. If you start to fill out the paperwork and have any questions or have any concerns about filing the LLC, what any of the terms mean, or how to properly operate an LLC, you need to contact our office or any other attorney who focuses on business law matters before proceeding. It is very easy to get into trouble operating a limited liability company if you do not understand what the requirements are. After all, an ounce of prevention is worth a pound of cure.

Process Forming a limited liability company in Alabama is a four-step process. First, the LLC s name must be registered with the Alabama Secretary of State. Second, the Certificate of Formation must be filed in the county where the LLC will have its primary headquarters. Third, the LLC must adopt an Operating Agreement. Last, the LLC will have to file initial and regular Business Privilege Taxes. 1 - Register the Name Go to the following website to register the name of the LLC: https:// www.alabamainteractive.org/sos_namereservation/welcome.action. The name must include LLC or Limited Liability Company. 2 - File Certificate of Formation with the County Complete the Certificate of Formation attached as Appendix A. Sign it and make two copies of the Certificate of Formation and the Name Registration. You can either handdeliver or mail the three copies to your county s Judge of Probate in the Recording Office. You will need to have a check made payable to the county and either pay by check or credit card to the Alabama Secretary of State in order to complete the registration. You should call before mailing or delivering the Certificate of Formation to check on the applicable filing fees. You will need to retain a copy of your Certificate of Formation for future reference. 3 - Adopt an Operating Agreement Draft, sign, and retain an Operating Agreement. A form is NOT being provided because there are number of issues that Members in a limited liability company can face, and they should be discussed with an attorney. A standardized form could actually do more harm than good in this situation. An Operating Agreement is an internal document, and does not need to be filed with the County or State. 4 - Pay Business Privilege Taxes Within two and a half months of of filing the LLC, you will need to pay a minimum $100 Business Privilege Tax to the Alabama Department of Revenue. You can find this information at the following website: http://revenue.alabama.gov/incometax/bus_priv_tx/ itbusprivindex.cfm. You will also need to file an annual minimum $100 Business Privilege Tax to remain in good standing.

Closing Thoughts In closing, it is important to reiterate that you should not complete this form and file an LLC unless you have a thorough understanding what you are doing. I can almost guarantee that you probably do not understand what you are getting yourself into if you have just read a few blog articles on the Internet. Operating an LLC is a very difficult process, and failing to follow basic rules can create serious liabilities for you personally, which means that someone may be able to sue you and go after your personal assets, such as your home, your car, your retirement and other savings. If you have any doubt whatsoever about completing the form, what the terms mean, operating in LLC, or what happens if you need to close the LLC, you should speak to an attorney. If you do have any questions or concerns, I highly recommend that you reach out to us. We would be more than happy to help you. We can be reached at 205-545-7278 or through our website at BirminghamBusinessLaw.com. Good luck!

Appendix A Certificate of Formation

STATE OF ALABAMA DOMESTIC LIMITED LIABILITY COMPANY (LLC) CERTIFICATE OF FORMATION PURPOSE: In order to form a limited liability company (LLC) under Section 10A-5A-2.01 of the Code of Alabama 1975 this Certificate Of Formation and the appropriate filing fees must be filed with the Office of the Judge of Probate in the county where the entity s initial registered office is located. The information required in this form is required by Title 10A. INSTRUCTIONS: Mail one (1) signed original and two (2) copies of this completed form and the appropriate filing fees to the Office of the Judge of Probate in the county where the (For County Probate Office Use Only) limited liability company s (LLC) registered office is/will be located. Contact the Judge of Probate s Office to determine the county filing fees. Make a separate check or money order payable to the Secretary of State for the state filing fee of $100.00 for standard filing (based on date of receipt and volume) or $200.00 for expedited service (processed within approximately 3 business days after date of receipt from the County Probate Office) and the Judge of Probate s Office will transmit the fee along with a certified copy of the Certificate to the Office of the Secretary of State within 10 days after the Certificate is filed. Once the Secretary of State s Office has indexed the filing the information will appear at www.sos.alabama.gov under the Government Records tab and the Business Entity Records link you may search by entity name. Your notification of filing was provided by the Probate Judge s Office via a stamped copy which is evidence of existence (if it is certified by the Probate Office) according to 10A-1-4.04(c) and the Secretary of State s Office does not send out a copy. You may pay the Secretary of State fees by credit card if the county you are filing in will accept that method of payment. Your entity will not be indexed if the credit card does not authorize and will be removed from the index if the check is dishonored. The information completing this form must be typed (for your convenience the information is fill-able on this computer form on the website above). 1. The name of the limited liability company (must contain the words Limited Liability Company or the abbreviation L.L.C. or LLC, and comply with Code of Alabama, Title 10A-1-5.06. You may use Professional or Series before Limited Liability Company if they apply or you may use those abbreviations): 2. A copy of the Name Reservation certificate from the Office of the Secretary of State must be attached and the name reserved must agree with item 1 above [proves name reservation under 10A-1-4.02(f)]. This form was prepared by: (type name and full address) (For SOS Office Use Only) LLC Cert of Formation - 3/2015 Page 1 of 2

DOMESTIC LIMITED LIABILITY COMPANY (LLC) CERTIFICATE OF FORMATION 3. The name of the Registered Agent located at the Registered Office (only one agent): Street (No PO Boxes) address of Registered Office (must be located in Alabama): Mailing address in Alabama of Registered Office (if different from street address): 4. The undersigned certify that there is at least one member of the limited liability company. 5. Check only if the type applies to the Limited Liability Company being formed: Series LLC complying with Title 10A, Chapter 5A, Article 11 Professional LLC complying with Title 10A, Chapter 5A, Article 8 6. The filing of the limited liability company is effective immediately on the date filed by the Judge of Probate or at the delayed filing date (cannot be prior to the filing date) specified in this filing. 10A-1-4.12 The undersigned specify / / as the effective date (must be on or after the date filed in the office of the county Judge of Probate, but no later than the 90th day after the date this instrument was signed) and the time of filing to be : (cannot be noon or midnight 12:00) Attached are any other matters the members determine to include herein ( if this item is checked there must be attachments with the filing). Date (MM/DD/YYYY) Signature as required by 10A-5A-2.04 Typed Name of Above Signature Typed Title (Organizer or Attorney-in-fact) Additional Organizers/Attorney-in-facts may sign (add additional sheets if necessary). LLC Cert of Formation - 3/2015 Page 2 of 2

NOTE: You will not receive a credit card receipt from the Secretary of State s Office and the office personnel will not be able to search credit card transactions to help you balance your accounts. Please do not use this option if you need a receipt. Secretary of State Credit Card Payment Option Sheet: Check with the County Probate Judge s Office in which you will be filing prior to filing to make sure that the credit card payment and/or expedite payment will be accepted. If the County Probate Office does not accept either option, the options are not available for this filing. This information must be typed or the filing will be returned to the filer without indexing so that the information may be typed. (for your convenience the form is fill-able as part of the computer form @ www.sos.alabama.gov) Name of Limited Liability Company: Service Requested: $100.00 Certificate of Formation filing fee $100.00 Expedited Processing fee * Notice: When a credit card is used for payment of fees a convenience fee is charged by the credit card company (usually between 3% and 5%) and is a part of the total amount charged. Card Type: (Visa, MC, Discover & AmEx) Card Number: Expiration Mo/Yr: / (MM/YY) Card Holder Name: Complete Billing Address: Street or PO City State Zip Signature of Card Holder: MUST be Signature of Card Holder *Expedited Processing is available at the Secretary of State s (SOS) Office for an additional $100.00 fee. The SOS Office will index a filing within approximately three (3) business days after the date of receipt from the Office of the County Probate Judge. The fee must accompany the filing when it is submitted to the County Probate Judge s Office we will not be able to search for filings to match with expedite fees sent separately once they are in the workflow. LLC Cert of Formation 3/2015