Getting a business license in Alabama is a simple process. A business license for a Sole Proprietor can be obtained in just a few hours. Check out this step-by-step guide on how to get a business license in Alabama:
1. First you need to determine what type of legal structure, business, or type of organization is being established.
- Sole Proprietor – A sole proprietor is one individual who owns a company that is not incorporated or registered with the state as a limited liability company (LLC). Sole proprietors may or may not have employees. In a sole proprietorship: (1) The business does not exist separately from the owner. (2) The risks of business apply to the individual’s personal assets, including those not used for the business. (3) The sole proprietor reports business income on his or her individual tax return.
- Partnership - An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. However, a joint undertaking merely to share expenses is not a partnership. For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. Partners can be individuals, corporations, trusts, estates, and other partnerships. Each partner contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership does not pay tax on its income, but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax returns. Two common forms of partnerships are general partnership and limited partnership.
- Corporation - A corporation is a legal entity established by a charter granting it certain legal powers, rights, privileges, and liabilities. A corporation can be established by a person or group of people with a charter from the state’s secretary of state. After a corporation is created, it becomes its own entity and generally has an indefinite lifespan.
- Limited Liability Company (LLC) – An LLC is a structure allowed by state statute. An LLC is formed by filing articles of organization with the individual state’s secretary of state. Owners of an LLC are called members. Members may include individuals, corporations, other LLCs, and foreign entities. An LLC can be formed by one or more members, and there is no maximum number of members. There can be no more than one active LLC with the same name in the same state. For federal tax purposes, an LLC may be treated as a partnership or a corporation, or be disregarded as an entity separate from its owner. An LLC can also be organized as a professional limited liability company (PLLC) or a limited company (LC).
- Estate - An estate (or decedent estate) or succession is a legal entity created as a result of a person’s death. The estate consists of the real estate and/or personal property of the deceased person. The estate pays any debts owed by the decedent, and distributes the balance of the estate’s assets to the beneficiaries of the estate.
- Trusts – A trust is a legal entity that is created under state law and is taxed under federal law. The trust can be created to perform one act or a series of acts.
- Other – Visit http://www.IRS.gov if none of the above fit what you are establishing. There are several others to choose from, including tax-exempt and governmental organizations.
This could be the most time consuming step depending on the type of legal structure, business, or type of organization that is being established. I established a business as a sole proprietor without the need of legal counsel or filing additional paperwork. I highly recommend consulting a legal professional for this step.
2. Determine your 5 and 6 digit North American Industry Classification System (NAICS) numbers at http://www.census.gov/eos/www/naics/. The NAICS is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. It’s not required to have these numbers before continuing to the next steps, but you will need them later.
3. Apply for an Employer Identification Number (EIN) Online at https://sa2.www4.irs.gov/modiein/individual/index.jsp, cost $0. You will get your EIN immediately upon completing this application. However, if you are an unauthorized third party completing this application for someone else, although the IRS will issue the EIN immediately, it will only disclose the number, in writing, to the addressee.
4. Register for an Alabama State Sales Tax ID at https://aldor.efile.govconnect.com/web/ALO_CBR/WelcomeRegis.asp, cost $0. You will receive your filing confirmation number and a printable copy of your submitted application upon completing this application. You will also receive an email confirmation and a paper copy within a few business days.
5. Register for a City and County Tax Account Number at https://secure.bizlicenseonline.com/default_rds.aspx, cost $0. You will receive an email confirmation and a paper copy within a few business days.
6. If you are starting a home based business you may be required to complete a Home Occupation Permit Application. Check with your local City Hall for the proper form and guidelines. I was able to obtain the form from the city’s website (http://www.florenceal.org/One_Stop_Shop/Form_Descriptions/index.html).
7. And finally, apply for your business license at the City Clerk’s office. You may be able to get the Business License application from the city’s website and complete it prior to arriving to save time. Be sure bring a copy of your EIN, Alabama State Sales Tax ID, City and County Tax Account Number, and Home Occupation Permit Application. The cost of the business license varies by municipality. Some municipality’s fees are flat fees and some are based on gross receipts.
This is the process that I used to get a business license in the city of Florence located in Lauderdale County, Alabama. This process may be similar for other counties in Alabama, and possibly other states. Contact your local City Clerk’s office for guidance and information on how to get a business license in your city and state.
Also, check out these eHow.com search results on how to get a business license in Alabama.
Disclaimer: This article is provided for informational purposes only and should not be construed as legal advice. If you need legal advice, contact a lawyer.