How To Start a Business in Alabama (2025)

Thinking about starting a business in Alabama? Our guide will help you get your new Alabama venture going in 9 simple steps.

Alabama boasts a dynamic business climate these days. With various tax incentives, enterprise zone programs, a growing population, and fast-developing metropolitan areas, it can be a rewarding place to start a business. If you’re based in Alabama and have a good business idea, why not go for it? 

Here are 10 steps you can take to start a business in Alabama.

Why start a business in Alabama?

There are currently more than 449,000 businesses in the Yellowhammer State. Why is Alabama such a hot spot for entrepreneurs? Starting a business in Alabama offers several advantages for budding business owners, such as a favorable tax environment with competitive corporate and personal income tax rates. 

Alabama also has the Business Privilege Tax, which is based on net worth and has a cap of $15,000 for most businesses. Alabama even offers various tax incentives and Enterprise Zone Program credits for businesses investing in economically distressed areas, which encourages growth and job creation.

How to start a business in Alabama

1. Choose a business idea
2. Name your business
3. Write a business plan
4. Choose a business structure
5. Apply for a federal employer identification number (EIN)
6. Obtain business licenses and permits
7. Examine business insurance options in Alabama
8. Understand financial considerations
9. Set up a business bank account
10. Market your business

1. Choose a business idea

The first step toward getting your new business up and running in Alabama is identifying your business idea. Will you offer products, services or some combination of both? 

Once you decide on your business idea, ask yourself the following key questions:

• Who is your customer? Who are you selling to? Will you market directly to consumers (B2C) or business to business (B2B)? Will you sell online only, in a traditional brick-and-mortar storefront, or through a combination of the two? Analyze other businesses in the same market and research industry trends to understand what you’re up against.
• What is your projected profitability? Your business needs to make more money than it spends over the long term. Consider your pricing, distribution opportunities, business model, and the costs you’ll incur from building your business and developing your product or service. What’s your break-even point? How much must you sell to cover your expenses?

2. Name your business

Once you have an idea for your Alabama business, the next step is to name it. There are several factors to think about. 

Here are a few considerations when choosing a business name:

• Be unique. For both practical and legal reasons, you can’t have the same name as another business. Check to see if your desired title is different from other businesses in the state by running a search on the Alabama Secretary of State website.
• Include certain words. Your business name must contain words indicating the business entity type. LLCs must contain “Limited Liability Company” or an abbreviation such as “LLC” or “L.L.C.”; corporations must contain “Corporation,” “Incorporation,” “Co.,” or “Inc.” Sole proprietorships operate under the proprietor’s name. Partnerships must contain the partners’ names, plus the abbreviation for either “General Partnership” or “Not For Profit General Partnership.”
• Exclude certain words. Your business name can’t contain words that might lead customers to confuse it with a legitimate government agency, like the FBI or Treasury. Your business name also can’t contain words suggesting you operate in certain professional fields, like law or accounting, unless your business has obtained the proper business license for that field.
• Reserve a business name. You must reserve your business name online or by mail before registering your business with the state. (You can reserve your business name online at the same time that you register your business online.) It costs $28 to reserve a name in Alabama online; $25 by mail.
• Reserve a trade name. Known as DBAs (“doing business as”) in other parts of the country, trade names in Alabama allow you to operate under a name different from your business’s legal name.
• Reserve domain names and social media handles. Your chosen domain name (URL) for your business website and social media handles should correspond to your business name or trade name to make it easy for potential customers to find you and maintain consistency in your brand identity.

3. Write a business plan

Every business should start with a business plan. You can write a business plan from scratch or start with a customizable business plan template. 

A business plan should include these seven core elements:

1. Executive summary
2. Detailed company description
3. Market analysis
4. Outline of organizational and managerial structure
5. List of products or services
6. Customer segmentation report
7. Sub-plans for marketing, logistics, and business finances

You can also write a business plan suited to your goals, such as a lean plan (which keeps things simple and agile, including only information management needs to know) or a plan specific to your legal business entity type or tax status, such as if you were operating as a nonprofit.

4. Choose a business structure

Your business structure determines how your company is taxed and how easily you can secure investments, among other factors. There are four primary business structures: sole proprietorships, partnerships, limited liability companies (LLCs) and corporations. 

Here’s how they differ:

• Sole proprietorships. Sole proprietorship is the default designation for businesses that don’t formally incorporate and have no partnership agreement. Sole proprietorships are owned and operated by a single person and are taxed at the business owner’s personal-income rate. However, a sole proprietor’s personal assets are not protected against creditors or legal damages.
• Partnerships. A partnership has two or more owners. Partners are taxed at their personal-income rates. However, they do not get protection for personal assets if the company is sued.
• LLCs. Limited liability companies (LLCs) are popular in Alabama and across the US. Much like with a sole proprietorship, an LLC is considered a “pass-through entity.” That means the business income of LLCs can be taxed at the business owner’s personal-income levels. However, LLCs do get certain legal insulations of corporate entities, such as personal asset protection for owners.
• Corporations. Owners of corporations enjoy the protection of their personal assets and the ability to raise capital through the issuance of stock. They can be formed as C corporations or S corporations. S corporations are more limited in the number and kind of shares they can issue, but they enjoy the benefits of pass-through taxation status.

5. Apply for a federal employer identification number (EIN)

Once you choose a formal business structure for your Alabama business, you must register for a federal employer identification number (EIN). These nine-digit numbers are issued and administered by the Internal Revenue Service (IRS), and both federal and state tax authorities use them to identify businesses for tax purposes. Having an EIN can also help business owners secure lines of credit and obtain business credit cards. 

Business owners can apply for an EIN online through the IRS website, free of charge. With your EIN, you’ll be able to register your business through the Alabama Secretary of State’s office. For LLCs, you must file a Certificate of Formation online or by mail, along with a $200 filing fee. For corporations, you must file a Certificate of Incorporation online or by mail for $200.

6. Obtain business licenses and permits

While there’s no general business license in Alabama, almost every business entity operating in the state must obtain a business privilege license from the county or municipality in which it’s based. The cost of these fees vary. The state Department of Revenue provides instructions and local contact information for obtaining this permit. Companies that sell products ordinarily subject to sales tax also need a business tax registration, known in other states as a seller’s permit.

7. Examine business insurance options in Alabama

Purchasing business insurance is essential for managing risk and attaining a degree of liability protection for your new Alabama business. 

Standard insurance packages available for purchase in Alabama include:

• General liability insurance. A general liability insurance policy protects you from lawsuits, financial losses due to property damage and injuries on business property (such as customer slip-and-falls). General liability insurance is not mandatory for Alabama businesses, though many commercial leases require it.
• Workers’ compensation insurance. Known as workers’ comp, this insurance policy covers injuries and illnesses that employees might sustain on the job (including death). If you plan to hire employees, know you’re required by law to purchase workers’ comp if you have five or more employees.
• Professional liability insurance. Sometimes called errors and omissions coverage (E&O), professional liability insurance is meant for businesses that offer expert advice or special professional services—like lawyers, accountants, real estate agents, and doctors. It covers financial losses resulting from mistakes like actions taken based on poor advice.

8. Understand financial considerations

Aside from purchasing insurance, you may need to make other investments in your Alabama business. These might include hiring certain professionals or contractors, like a lawyer, accountant, or web designer. You’ll also want to pay for web hosting services and possibly professional social media management.

9. Set up a business bank account

In the early days of running a business, it’s tempting to push off some tasks like opening a business bank account in favor of more pressing matters. That being said, this isn’t a task Alabama business owners want to put off for long. Opening a bank account for your business is the best way to keep your business and personal finances separate so you can stay organized.

Here’s how to set up your business bank account in seven steps: 

1. Choose the right bank. Selecting the right bank is crucial for your business’s financial success. Look for a bank that offers low fees, business-friendly features like merchant services, and easy access to customer support. 
2. Gather required documentation. Before applying, ensure you have all necessary documents, such as your EIN, business license, and formation documents (like an LLC operating agreement). Having everything ready speeds up the process and prevents delays.
3. Complete the application. Most banks allow you to apply online or in person. Be prepared to provide your business details, ownership structure, and any required personal identification. Some banks may require an in-person visit to finalize the account setup, but you can go with an online-only bank if you want to keep things digital. 
4. Make an initial deposit. Many banks require a minimum deposit to activate your account. Even if not mandatory, starting with a balance helps establish your financial habits and ensures you’re ready to cover early business expenses. Double-check what the ongoing balance requirements are so you don’t let your balance slip too low on accident and run into a penalty fee. 
5. Set up online banking. Online banking gives you 24/7 access to your account, making it easier to manage transactions, pay vendors, and monitor cash flow. Set up alerts and integrate with accounting software to simplify your bookkeeping efforts. 
6. Order checks and debit cards. Business checks and debit cards make transactions more professional and organized. They also help separate personal and business expenses, making tax season much more straightforward.
7. Maintain accurate records. Keeping clear records of your business transactions is essential for tax reporting and financial management. Regularly reconcile your bank statements and use accounting software to track income and expenses carefully. 

10. Market your business

Once your Alabama business is up and running, you can publicize your products or services. This is where your marketing plan comes in. You can raise your business’s profile both in Alabama and across the country by investing in paid advertising, establishing a robust presence on social media platforms popular with your target audience, and building relationships with the press locally and afar.

Building a marketing campaign for your company means you can build out slogans and taglines, design logos, and develop a unified brand voice, color schemes, and fonts. 

All of these elements can end up in different types of marketing campaigns, including:

• TV and radio ads. Broadcast media ads are a more traditional form of advertising that expose your company to a broad but non-targeted audience.
• Pay-per-click web ads. Your customers interact with pay-per-click (PPC) web ads on web pages, social media feeds, and streaming videos. Compared to TV and radio commercials, web ads can be more focused. You can target specific customers based on demographics, interests, search histories, and geographic location.
• Social media influencer campaigns. Leveraging influencer marketing campaigns, you can pay influencers to promote your products, give reviews, and offer discount codes, which in turn gives you exposure to their followers.

This small business marketing guide provides more information on marketing fundamentals, including how to build an online audience, convert customers, and sustain existing customer relationships.

Tips for starting a business in Alabama

Starting a business can seem easy once you’ve done your market research and have funding in place. But Phala Mire, president and CEO of Women’s Business Enterprise Council (WBEC) South (which includes Alabama), emphasizes, “Don’t forget that there are steps every business owner needs to take before starting a business to ensure that the company is operating in compliance with state and local laws.”

Here, Phala shares her top three startup tips for how to start a business in Alabama:

Research startup requirements on the state and local levels

Startup requirements can vary by state, geographic location, and business type. Make sure to check in with Alabama’s Office of Economic Development to find out exactly what steps Alabama business owners need to take and what resources the state provides to business owners. 

This guide to starting a new business in Alabama from Alabama.gov is a great place to start your research.

Obtain licenses, permits, and registration

Register your business with the Secretary of State and obtain any business licenses and permits necessary for your business structure and industry requirements. 

Having the necessary licenses and permits ensures that you run the company legally—and avoid potential fines and penalties. The Alabama Secretary of State provides a comprehensive bank of forms for all business types. This is also a great time to research possible business certifications—national, state, and local—that can help your business access opportunities for certified small businesses, as well as minority-, veteran-, and women-owned businesses.

Take advantage of any tax breaks and business startup incentives

Check out what is offered by your state or city government. The Alabama Department of Revenue website lists tax incentives such as the Enterprise ZoneCredit or Exemption that incentivizes economic growth in economically depressed areas of the state. Used effectively, tax incentives can provide considerable financial benefits to entrepreneurs in Alabama.

How to start a business in Alabama FAQ

How can I find funding for my business in Alabama?

Small business loans and grants are a great way to get the funding you need to take your Alabama business to the next level. You can also borrow money from loved ones, host a Kickstarter campaign, or self-fund your business. Some entrepreneurs use a business credit card as a borrowing tool if they have minimal startup costs.

What taxes do I need to be aware of when starting a business in Alabama?

When starting a business in Alabama, be aware of the Business Privilege Tax, which is based on your company’s net worth in the state. Rates range from 25¢ to $1.75 per $1,000, with a minimum of $50 and a maximum of $15,000 for most businesses. Financial institutions and insurance companies may owe up to $3 million.

Other taxes may include sales tax, employment tax, and income tax, depending on your business type. Certain deductions and Enterprise Zone incentives may reduce tax liability for businesses investing in pollution control or air carrier equipment, or operating in economically distressed areas.

What is required to open a business in Alabama?

You must register your business with the Alabama Secretary of State’s office by filing either a Certificate of Formation (for LLCs) or a Certificate of Incorporation (for corporations). You also need to apply for certain county or municipal business licenses.

Do I need a business license in Alabama?

You need a business privilege license to operate in Alabama, which costs between 25¢ and $1.75 for every $1,000 of your business’s net worth, with a minimum fee of $100. You must also complete a business tax registration online for free.

Is Alabama a good place to start a business?

Alabama is an excellent place to start a business. It’s home to a diverse business landscape, from rich agricultural areas to growing urban regions and college towns. Alabama also offers several favorable tax programs, including those for businesses operating in economically disadvantaged areas and a state investment credit for job creators.