Incorporating your business as a C corp in Alabama offers unique advantages that are hard to ignore. If you’re an entrepreneur or a business owner looking to establish a strong legal foundation, Alabama’s business-friendly environment is the perfect ground to sow the seeds of your corporation.

The state’s competitive tax structure and robust legal framework provide an ideal setting for businesses to thrive. Whether you’re a startup or an established enterprise, incorporating online with MaxFilings in Alabama is a smart move that aligns with modern business demands, offering speed, convenience, and accuracy at your fingertips.

Alabama C corp taxation

Alabama C corp shareholders do not include the business’s income and expenses in their individual tax returns. Instead, the corporation itself files tax returns and pays its income taxes, typically at rates lower than those for individuals. Individual shareholders only report and pay personal income taxes on the money the corporation pays them. However, shareholders must pay personal income taxes on dividends received from a C corp despite the corporation already paying income taxes. This situation commonly results in “double taxation.”

Why form an Alabama C corp?

Alabama C corps best suits owners seeking a formal business structure, opportunities to reduce overall income taxes, asset accumulation within the business, and easier capital-raising methods.

Some points to consider when forming Alabama C corp

• You must file official documents with Alabama to form an Alabama C corp and pay the state filing fees.
• The law considers an Alabama C corp as an individual entity separate from its owners (shareholders).
• An Alabama C corp can have any number of shareholders.
• You are required to hold and document minutes of shareholders’ and board of directors’ meetings.
• Some limitations may apply to the types of business an Alabama C corp is permitted to conduct.

Limited liability

• Alabama C corp shareholders typically enjoy limited liability and risk only the amount they invested in the corporation.
• Legal judgments against the corporation or its debts and obligations cannot hold Alabama C corp shareholders liable.
• Protecting personal assets of Alabama C corp shareholders is a major reason business owners incorporate in Alabama.
• Exceptions exist where shareholders can be held liable, limiting their liability protection.

Raising capital

• An Alabama C corp can more easily raise additional capital than other business types by issuing and selling stock or other financial instruments as evidence of interest in the corporation.
• Alabama and federal securities laws sometimes govern the sale of stock.
• Ownership in the corporation can be easily transferred through the sale of its stock.

Taxation

• Alabama C corps usually undergo audits less frequently than sole proprietorships and partnerships.
• Alabama C corps file tax returns and pay income taxes; due to lower tax rates for C corps, owners can accumulate more profits than pass-through taxation by dividing profits.
• Alabama C corp shareholders experience double taxation, as they must pay personal income taxes on the corporation’s dividends.
• Alabama C corps can lower their owners’ self-employment taxes.

Owners & employees

• Owners working for an Alabama C corp are employees and thus eligible for fringe benefits like group insurance plans, retirement and profit-sharing plans, and tax-favoured stock option and bonus plans.
• Employees often prefer working for a corporation that can offer stock options and stock bonuses.
• An Alabama C corp is, in a sense, immortal and perpetual, as it does not cease to exist with the death of a shareholder, unlike some other business types.

Public perception

• The general public typically considers corporations more substantial than sole proprietorships and partnerships.

How to form an Alabama C corp

Forming an Alabama C Corporation involves a structured process that ensures your business is legally recognized and properly set up. Here’s a guide to help you through the steps:

1. Selecting a business name: Start by choosing a unique and memorable name for your corporation. Ensure it reflects your business and is easy to pronounce. Conduct a thorough search to confirm the availability of your chosen name in Alabama. It’s wise to have one or two alternative names ready. Remember, your business name should include designations like “Corporation,” “Corp.,” or “Inc.”
2. Appointing a registered agent: In Alabama, it’s mandatory to appoint a registered agent for your corporation. This agent, either an individual or a third-party service, will handle all legal and official documents for your corporation. Choose someone available during business hours with a physical address in Alabama. 
3. Filing articles of incorporation: You need to file the Articles of Incorporation with the state of Alabama. This document outlines basic information such as the corporation’s name, address, registered agent details, purpose, stock information, and the names and addresses of the incorporators.
4. Drafting corporate bylaws: Although not submitted to the state, corporate bylaws are crucial. They define the corporation’s internal management structure, including procedures for electing directors, organizing meetings, and managing corporate affairs.
5. Appointing directors: Initially, the incorporator usually appoints the board of directors. These individuals will have significant roles in shaping the corporation, adopting bylaws, setting fiscal policies, and appointing corporate officers.
6. Organizing the initial board meeting: Conduct the first meeting to adopt bylaws, set a fiscal year, appoint corporate officers, and address other foundational matters. Record all decisions in corporate minutes and keep them with your corporate records.
7. Issuing stock: Issue stock to represent ownership in your corporation. The value and terms of stock can be defined in your bylaws. Keep in mind that issuing stock may require compliance with certain legal requirements.
8. Obtaining licenses and permits: Ensure you acquire all necessary business licenses and permits in Alabama. Requirements vary by city and type of business, so check with local authorities for specific needs.
9. Registering for an EIN: Apply for an Employer Identification Number (EIN) from the IRS. This number is essential for tax purposes and is used to identify your business entity. You’ll also need to register with the Alabama Employment Development Department if you pay wages to employees.