To form a professional LLC in Alabama, file a Certificate of Formation designating the entity as a Professional Limited Liability Company with the Secretary of State, pay the $200 filing fee, and make sure every member holds the state license for the service the company will provide. From there you reserve a name if you want to lock it in first, obtain an EIN from the IRS, and file an initial Business Privilege Tax return with the Alabama Department of Revenue within two and a half months of formation.
Who Has to Use a PLLC Instead of a Regular LLC
Alabama’s Limited Liability Company Law of 2014 contains a dedicated set of rules, in Article 8 of Chapter 5A, for LLCs that provide services requiring a state-issued professional license. Physicians, attorneys, certified public accountants, engineers, and similar licensed practitioners fall into this category. If your profession requires a license and you want the LLC form, Alabama directs you to a PLLC.
The liability shield is the same one any LLC offers, with one important limit. Your personal assets are generally protected from the company’s business debts, but each member remains personally liable for their own negligent or wrongful acts, including malpractice. The PLLC shields you from a partner’s professional mistakes. It does not shield you from your own.
Step 1: Pick and Optionally Reserve a Name
Every Alabama LLC name must contain the words “Limited Liability Company” or the abbreviation “L.L.C.” or “LLC.”1Alabama Legislature. Alabama Code 10A-1-5.06 – Name of Limited Liability Company For a professional entity, you add “Professional” in front, producing a “Professional Limited Liability Company” or “PLLC.” The Alabama Certificate of Formation form recognizes this format directly.2Alabama Secretary of State. Alabama Certificate of Formation for Domestic Limited Liability Company
The name has to be distinguishable from every other entity already on file with the Secretary of State, so search the business entity database before you commit. Check your licensing board’s rules too. Some professions restrict how firm names can be styled for advertising or ethics reasons.
If you want to hold the name while you prepare the Certificate of Formation, submit a Name Reservation Request. It costs $25 by mail or $28 online.3Alabama Secretary of State. State of Alabama Name Reservation Request Form for Domestic Entities The online option processes in real time. A mailed reservation comes back by return mail.
Step 2: File the Certificate of Formation
The Certificate of Formation is the document that legally creates the PLLC. Under Alabama Code Section 10A-5A-2.01, it must include:
- The entity’s name, following the rules above.
- A registered office at a street address in Alabama, including the county. P.O. boxes do not qualify.
- A registered agent, individual or entity, at that Alabama address who will accept legal documents for the PLLC.
- A statement confirming the PLLC has at least one member.
- A checkbox indicating the entity is a Professional LLC operating under Article 8 of Chapter 5A.
The statute does not require you to list member names and addresses in the certificate or describe the specific professional services you plan to provide.4Alabama Legislature. Alabama Code 10A-5A-2.01 – Formation of Limited Liability Company You may add any provisions the members want. Your licensing board may separately ask for documentation confirming the entity’s purpose or membership.
File by mail or through the online filing portal. The fee is $200.5Alabama Secretary of State. Business Entities Division Fees Once the Secretary of State accepts the document, the PLLC exists. Keep the filing confirmation. You will need it for the next steps.
Step 3: Get an EIN from the IRS
Once the state confirms formation, apply for a federal Employer Identification Number. You need the EIN to open a business bank account, hire employees, and file tax returns. The application is free, and the IRS specifically warns against third-party websites that charge for it.6Internal Revenue Service. Get an Employer Identification Number
The IRS online application is the fastest route and issues the number at the end of the session. Have the responsible party’s Social Security number or individual taxpayer ID ready before you start. The session cannot be saved and times out after 15 minutes of inactivity. The IRS limits applications to one EIN per responsible party per day.
Step 4: Choose How the PLLC Will Be Taxed
The IRS has no separate tax category for PLLCs. Your PLLC defaults to one of two treatments based on how many members it has. A single-member PLLC is treated as a disregarded entity, and income flows through to your personal return on Schedule C. A multi-member PLLC defaults to partnership taxation, filing Form 1065 and issuing a Schedule K-1 to each member.
Either type can elect to be taxed as an S corporation by filing IRS Form 2553. The election must generally be made within two months and 15 days of the beginning of the tax year to take effect for that year. S corporation status can lower self-employment taxes for a profitable practice, because owners pay themselves a reasonable salary and take the rest as distributions that are not subject to self-employment tax. The tradeoff is payroll: you must run it, withhold taxes, and file quarterly returns. Eligibility requires all members to be U.S. citizens or residents, no more than 100 shareholders, and one class of ownership interest. A C corporation election, made on Form 8832, is available but less common for professional practices because of double taxation on profits.
Understand the Ownership Rules Before You Bring In Partners
This is where a PLLC diverges sharply from a regular LLC. Every member and owner must be licensed to perform the professional service the entity provides. You cannot bring in an unlicensed investor, and you cannot give an ownership stake to a family member who does not hold the relevant license.
The restriction extends to transfers. A voluntary transfer of a member’s interest is only valid if the recipient holds the same professional license. When a member dies or loses their license, the PLLC has to deal with that interest promptly. Alabama Code Section 10A-5A-8.02 governs the situation and generally requires the interest to be redeemed or transferred to a qualified licensee within a reasonable period. Building the mechanics into your operating agreement in advance saves substantial trouble later.
Put an Operating Agreement in Place
Alabama does not require a written operating agreement, but a PLLC without one is exposed. The agreement is the internal contract among members and governs how the business actually runs. For a professional practice, a few provisions carry extra weight.
Cover profit-sharing, how decisions get made, what happens when a member retires or loses their license, and how buyouts are valued and funded. An indemnification clause matters here because each member carries personal liability for their own professional acts. Spell out whether the PLLC will cover defense costs for claims arising from work done on the company’s behalf and under what conditions. Most indemnification provisions limit coverage to actions taken in good faith and within the scope of the member’s authority.
Use the agreement to set the management structure too. A PLLC can be member-managed, with all licensed owners participating in decisions, or manager-managed, with designated members handling day-to-day operations. Larger practices tend to lean manager-managed so routine decisions do not require every partner.
File the Initial Business Privilege Tax Return
Formation is not the finish line. Alabama requires every LLC, including PLLCs, to file a Business Privilege Tax Return and Annual Report with the Alabama Department of Revenue. The obligation begins shortly after formation and continues every year until the entity is formally dissolved through the Secretary of State, even if the business stops operating.7Alabama Department of Revenue. What Taxpayers Must File an Alabama Business Privilege Tax Return
The initial return is Form BPT-IN and is due within two and a half months after the PLLC is organized. There is no extension for that first filing. After the first year, the return is due on the same date as the corresponding federal income tax return. The tax is calculated on the entity’s net worth, with a minimum of $100. For taxable years beginning after December 31, 2023, entities whose calculated tax is $100 or less are fully exempt and do not need to file a return.8Alabama Department of Revenue. Alabama Business Privilege Tax Many newly formed PLLCs with modest net worth fall under this exemption early on, though the obligation scales up as the practice grows.
If you eventually wind down the business, dissolve the entity with the Secretary of State. Otherwise, the annual filing requirement continues, and so do the penalties for missing it.