Articles of Organization

Forming your new Alabama LLC means that you have to file an original and two copies of the LLC's articles of organization with the local county probate judge. Once the judge finds that the articles are in compliance with state law, the judge will issue (publish) one certified copy of the articles, return one to the LLC, and forward the third within 10 days to the Corporate Section of the Alabama Secretary of State's office. Filing requires a $40 fee payable to the Alabama Secretary of State, and another $35 payable to the county probate judge, for a total of $75. The articles must be signed by all the members named in the articles, or alternatively, an organizer.

Your new LLC's articles must list:

• The LLC's name
• The LLC's duration (either perpetual or for a specified time period)
• The LLC's purpose (either specific or "any or all lawful conduct for which a limited liability company may be organized")
• The location and mailing address of the LLC's registered office
• The name of the LLC's registered agent
• Names and addresses of the initial member(s)
• Name and address of the LLC's organizer (if any)
• Whether the LLC will be member-managed or manager-managed
• If manager-managed, names and addresses of the manager(s)
• The rights, if any, of the member(s) to admit additional members
• Terms and conditions for admission of new members
• Any circumstances under which the resignation of one or more members will require dissolution of the LLC
• Any other provisions for the LLC's operation desired to be included by the member(s)

Registered Agent and Office

All Alabama LLCs must have designated a registered agent in the state-someone to receive official state legal and administrative correspondence, including if the organization is served with a lawsuit. An LLC registered agent may be an individual who resides in Alabama or a business entity registered to conduct business in the state. The registered office may be a place of business for the LLC.

Operating Agreement

The LLC's second most important document is its operating agreement, which can be changed by the members as specified in the agreement itself (or by state law if the operating agreement or the articles don't address it). Having an operating agreement is not legally required by the state, but it's a vitally important internal document that sets forth how the LLC will run. The operating agreement needs to list the LLC's members, how much each one has invested, how any profits will be distributed, and how much relative weight each member has when voting.

The operating agreement may also include requirements for meetings (notice, quorum, voting rules, etc.) and similar functions, but it doesn't have to. Often, it can restate or expand upon operating measures already contained in state law. It also may include restrictions on the members' authority to change or repeal the operating agreement or a provision thereof. If there is more than one member, the operating agreement must initially be unanimously approved in writing.

Membership in the LLC

Alabama LLCs must have at least one member. Each member must be an individual person. A member can acquire an interest in the LLC when it is formed, or by some other method laid out in the operating agreement. Becoming a member usually requires a contribution of cash or property to the LLC, or it may take to form of services rendered to the LLC. However, a person may be admitted as a member of the LLC without acquiring a membership interest if the articles of organization or operating agreement allow it and all the members agree.

Unless the operating agreement states otherwise, a member can withdraw from the LLC at any time after giving 30 days' written notice to the other members. If a member's withdrawal is in violation of the operating agreement or is due to wrongful conduct by the member, that member can be held personally liable for any financial damages caused by the withdrawal from the LLC, including the cost of paying another person to perform services promised by the withdrawing member.

Ongoing Requirements

Alabama LLCs must keep the following types of records available for inspection at their office:

• Members' and managers' (if any) names and addresses
• A copy of the articles of organization with any amendments
• A copy of the operating agreement, along with any amendments
• Copies of federal, state, and local income tax returns for the past three years
• Financial statements for the LLC's the three most recent years

It's also a good idea to keep copies of the minutes of the various proceedings and committees meetings of the owners or members.

Dissolution

An LLC is dissolved when any one of the following events occurs:

• Event(s) specified in the articles of organization or operating agreement
• Agreement to dissolve by all members
• Event that makes it illegal for the LLC to continue
• When there is no remaining member, unless (a) the holders of all financial rights agree in writing, or (b) the LLC's legal existence and business is continued and one or more new members are appointed
• Judicial decree ordering dissolution

Taxes

An LLC by its nature offers some tax advantages over a corporate structure, including access to more deductions, since the LLC is not required to be a separate tax entity like a corporation. Instead, an LLC is considered a "pass-through entity" for tax purposes, meaning LLC owners report business profits and losses on their individual tax returns.

The Alabama tax rate for income from an LLC varies, based on the amount of Alabama taxable net income per reporting period.

Articles of Incorporation

New Alabama corporations must file an original and two copies of your articles of incorporation with their local county probate judge before they can start conducting business as a corporation. Once the judge finds that the articles are in compliance with state law, he or she will issue (publish) one certified copy of the articles, return one to the LLC, and forward the third within 10 days to the Corporate Section of the Alabama Secretary of State's office. Filing requires a $40 fee payable to the Alabama Secretary of State, and another $35 payable to the county probate judge, for a total of $75.

The articles must be delivered by at least one of the incorporators, who must sign and deliver the articles to the judge. The following information must be included in the articles of incorporation:

• Name and address of incorporator(s)
• Brief statement of corporate purpose, which may be the general statement, "the transaction of any or all lawful business for which corporations may be incorporated under the Alabama Business Corporation Act."
• The address of the corporation's principal office
• The address of the corporation's initial registered office
• The name of the new corporation's initial registered agent at that office
• Whether the corporation will be of perpetual or limited duration
• The share classes of stock that the corporation is authorized to issue, including the number of shares in each class
• The name and address of each alien (out of state) affiliate

Alabama state law also allows (but does not require) optional items to be included in the articles of incorporation for those corporations who wish to formally specify additional information, such as:

• Shareholders' rights to adopt initial bylaws
• Provisions managing the business and regulating the corporation's affairs
• Provisions regulating the powers of the corporation, its board of directors, and shareholders
• A provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages in certain situations

Since Alabama law does not use the concept of par value for stocks, you do not need to state a par value for your shares.

Registered Agent and Office

Every Alabama corporation must have a registered agent in the state-someone designated to receive official state administrative and legal correspondence. The registered agent must be either an adult Alabama resident, or a corporation with a business office identical to the registered office.

The registered office may be at any of the corporation's places of business.

Bylaws

Bylaws describe the corporation's basic managerial and legal operating principles. An Alabama corporation must keep a copy of its bylaws at its main executive office, but is not required to file them with the state. The initial bylaws must be adopted by the board of directors, unless the articles of incorporation specify that shareholders have this right. Bylaws normally address:

• Shareholders and directors meetings
• The authority, number, and tenure of directors
• Voting procedures
• The duties, responsibilities, and tenure of officers
• How stock is issued
• How and when annual financial information is provided to shareholders

Directors and Officers

A director must be a natural person of at least 19 years of age, but they do not have to be an Alabama resident-or even a shareholder-unless so stipulated in the articles of incorporation or the corporate bylaws. Either one of those documents may also specify a minimum and a maximum number of directors, but they are not required to be listed by name in the articles. Directors are elected annually to serve one-year terms.

The bylaws may either describe the corporation's officer positions and duties or authorize that the board of directors make these appointments. These duties must include the responsibility for preparing minutes of meetings and for authenticating corporate records. Unless the bylaws provide otherwise, an officer may simultaneously hold more than one office in a corporation.

Required Reports

The Alabama Secretary of State requires that Alabama corporations file an annual report between January 1 and March 15 each year that specifies:

• The corporation's name and the state or country of original incorporation.
• The address of the corporation's registered office in the state.
• The name of its registered agent at that office.
• The nature of the corporation's business.
• The names and addresses of the corporation's president and secretary.

An Alabama corporation is also required to send annual financial statements to all shareholders within 120 days after the end of each fiscal year.

Taxes

Alabama's corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states with corporate income taxes, Alabama's rate ranks 30th in the nation. Alabama also assesses a business privilege tax, which is an annual tax on corporate shares based on the net worth of the corporation.

The Alabama Secretary of State recognizes subchapter S status for corporations. A "subchapter S" corporation (frequently referred to as an "S corp") is treated as a "pass-through" entity for tax purposes in the same way as a sole proprietorship or partnership. The S corp does not file a tax return on its own behalf; instead, all tax-related data for the S corp is filed as part of the owner's individual income tax.