Are you looking to form an Alabama professional corporation, but you’re not familiar with the incorporation process?
Professional corporations are those owned and operated by licensed professionals, like doctors, lawyers, and architects. There are quite a few important steps you’ll need to take to create your Alabama professional corporation and maintain it, so this guide will outline the rules and regulations involved with this process.
To get started, please reference our 12-step guide below or hire a professional online incorporation service like LegalZoom.
How to Form an Alabama Professional Corporation (in 12 Steps)
Step One) Determine Whether a Professional Corporation is the Right Choice
A professional corporation ― ― abbreviated as a “P.C.” or a “PC” in Alabama ― ― is a business structure formed by licensed professionals. In Alabama, professional corporations may only be formed for the purpose of providing professional services, which include “any type of service that may be lawfully performed only pursuant to a license issued by a state court, state regulatory licensing board, or other like agency pursuant to state laws.”
Before beginning the process of forming an Alabama professional corporation, it’s very helpful to review your business’ objectives and become familiar with your options as a business owner.
Should you form a professional corporation?
This guide explains how to create an Alabama professional corporation. When starting a new business, forming a professional corporation is just one of several options. Many businesses instead choose to set up a professional limited liability company, or PLLC.
In general, the difference between the PLLC and an Alabama professional service corporation is the same as the difference between a regular LLC and corporation ― namely, that the corporation is a more formal and less flexible business type. Not sure which option is right for you? Read this guide from the SBA.
How will ownership be divided?
A professional corporation issues “shares” to its owners, who are known as its shareholders. Before forming your professional corporation, it’s important to decide how shares of ownership will be divided among the owners.
It’s crucial to note that any shareholders, directors, or officers of a professional corporation must all practice the same profession. In other words, people who are not physicians cannot hold these positions in a professional service corporation for physicians.
How will the professional corporation to be managed?
Corporations have two layers of control. The first layer is the Board of Directors. Directors are elected by the shareholders and meet periodically (as a “Board”) to make key decisions and set the strategic direction of the company.
The Board of Directors appoints “officers” who are responsible for carrying out the Board’s initiatives and managing the corporation’s day-to-day activities. Directors and officers can be (and often are) the same people. Before forming your corporation you should determine who your initial director(s) will be.
Step Two) Choose a Name
One of the most important aspects of the incorporation process is naming your business. There are three major elements to consider when choosing a name:
When naming a professional corporation in the state of Alabama, you will need to include the words “professional service corporation” or the abbreviation “PSC.” Your professional corporation’s name also cannot include any words or abbreviations that indicate other business types, like the phrase “limited liability company” or the initials “LLC.” You also are not allowed to include words that refer to certain types of businesses (like “bank” or “law office”) unless your business fits those descriptions.
In addition to the legal considerations, you might want to identify your line of business or your mission in your company name. For example, you can display any closely held values in your name, like using the word “green” for environmentally friendly businesses.
A Name You’re Proud of
Keep in mind that this is your business, so you should choose a name that you’re proud of, and that you enjoy sharing with potential customers. You should also make sure it sounds good when spoken aloud, and also looks good when written down.
Check Whether Your Preferred Name is Available
Visit the Alabama Secretary of State's Business Entity Records website to check whether it is already in use. If it’s not unique enough, you may need to tweak it or come up with a new name altogether.
Consider reserving a name
For a $28 fee, you can instantly reserve a name online for up to one year. This will ensure that your name is not taken by another company during the incorporation process.
Step Three) Select a Registered Agent
Alabama professional corporations must designate a person or business to receive legal notices on behalf of the company. This important point of contact is known as the registered agent. You will be required to list the registered agent’s name and address when filing the Articles of Incorporation in step four.
Who can be my registered agent?
A registered agent must have a physical address within the state of Alabama where mail and legal notices can be served during regular business hours. You can hire a service to act as your registered agent, serve as your own registered agent, or even use an accountant or other business professional’s address – with their consent, of course.
The Alabama Secretary of State says that,
Each filing entity “designate and continuously maintain in [Alabama] a registered agent and a registered office.” This registered agent “is an agent of the entity on which may be served any process, notice, or demand required or permitted to served on the entity.”
We recommend hiring a professional service to act as your registered agent. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off the public record. For a list of the top 5 registered agent services, check out our guide.
Step Four) Complete Your Articles of Incorporation
This is THE document that formally registers your professional corporation with the state of Alabama. One signed original and two copies of the completed form must be mailed with the appropriate county and state filing fees to the Judge of Probate’s office in the county where the professional corporation’s office will be located. You will need to contact the Judge of Probate’s Office to determine county filing fees. The state filing fee of $100 can be paid by check or money order payable to the Secretary of State or by credit card if permitted by the Judge of Probate’s office in the county in which you are filing. The Judge of Probate’s office will record the Articles of Incorporation and send a certified copy to the Secretary of State with the state filing fee.
Keep in mind that you are acting as the incorporator when you fill out and submit the Articles of Incorporation. You should sign as the incorporator before submitting the document.
|Cost to File||$100 ($200 for expedited processing) plus county filing fees|
|Time to Complete Filing||Varies by county|
|Agency||County Judge of Probate’s Office and Secretary of State|
Varies by county
|Agency contact info for filing questions||334-242-5324 (Secretary of State)|
Step Five) Establish a Corporate Record
Professional corporations are required under Alabama law to document and keep a permanent record of all important company decisions.
The official corporate record may be kept at the professional corporation’s principal place of business, or stored in a safe location elsewhere. You should take the opportunity to set up a secure digital or physical location for storing company records as soon as possible.
Step Six) Designate a Board of Directors
The incorporator is responsible for selecting initial director(s) of the professional corporation. The incorporator should record initial director appointments in a signed document and file it to the corporate record. This document is known as the “incorporator’s statement.” A sample incorporator’s statement can be found here.
The initial directors will serve until new directors are elected at an annual shareholder meeting, or as otherwise indicated in the bylaws. The incorporator may also serve as an initial director. Keep in mind that your directors must all share the same profession as the one the professional corporation was formed for.
Step Seven) Create Corporate Bylaws
Corporate bylaws set out the rules and procedures for how the professional corporation will operate. Some important topics typically covered in the bylaws include:
- How shareholders will conduct votes
- The total number of directors and how each director will be elected
- How often the board of directors will meet
- The types of officer roles that will be appointed
- Procedures for resolving internal disputes
The board of directors of an Alabama professional corporation are required to adopt bylaws unless the Articles of Incorporation give the right to adopt bylaws to the shareholders.
Bylaws help your business run smoothly, and are sometimes required by financial institutions for opening business bank accounts or acquiring loans.
Either the incorporator or the initial directors may prepare the company bylaws. The bylaws should be recorded in an internal company document, signed by the incorporator or a director, and filed to the corporate record. The bylaws are not filed with the state of Alabama.
Popular Strategies for Preparing Bylaws:
- Use a free online template. Northwest Registered Agent has a great free template you can download.
- Hire a lawyer to draft the bylaws. If your business has investors, is already profitable, or has multiple co-owners, we strongly encourage you to hire a lawyer experienced in Alabama corporate law to help you draft suitable bylaws. Look through Avvo’s directory of KY attorneys you can work with.
Step Eight) Hold First Board Meeting
After designating a board of directors and preparing bylaws, the new professional corporation should call for an initial board meeting. The incorporator often arranges and attends this first meeting. During the first board meeting, the initial directors should plan to cover the following topics:
- Review and approve corporate bylaws
- Designate officers to manage day-to-day business affairs
- Choose a bank
- Approve issuance of stock certificates
- Determine whether the company should elect to be taxed as a C corporation or S corporation (see step nine for more details)
Recording Meeting Minutes: a detailed record of all key discussions and decisions during the board meeting should be prepared and distributed to all board members for their review and approval. This record is known as the “minutes.” A copy of the minutes should be sent to each director for review and filed in the company record.
Step Nine) Handle Tax Obligations
You’ll need a federal tax ID number (EIN) to operate a professional corporation in Alabama. You can obtain your EIN from the IRS for free, and it’s a fairly painless and simple process. An EIN enables your professional corporation to hire employees, file corporate taxes, open business bank accounts, and more.
A major decision for any professional corporation is determining whether to be taxed as a C corporation or an S corporation. Take a look at how these two formats differ:
- C Corp: The majority of professional corporations are C corporations, as they are subject to far fewer restrictions than S corps. With a C corp, profits are taxed at the corporate level, and again on the personal tax returns of the shareholders, resulting in what’s commonly referred to as double taxation.
- S Corp: This is only an option if your professional corporation has fewer than 100 shareholders, only issues one class of stock, is not owned by another business entity, and does not have any foreign shareholders. If your corporation meets these requirements, you can select the S corp’s pass-through taxation which eliminates the double taxation issue of C corps. S corp dividends are not taxable.
In Alabama, each professional corporation is subject to the corporation income tax and Alabama business privilege tax. Depending on the nature of your business, your business may also be subject to a variety of other taxes, such as sales, use, and business taxes.
The Alabama Department of Revenue maintains a web application called “My Alabama Taxes,” or “MAT,” where corporations can file returns, pay taxes and view balances, and communicate with the Alabama Department of Revenue.
City and/or county taxes may also apply to your professional corporation. You should check with the appropriate city and county departments to determine any taxation requirements. Business and taxation resources for the four largest cities in Alabama can be found below:
Step Ten) Obtain Business Licenses and Permits
Most types of businesses in Alabama are required to have one or more business privilege licenses. Both state and county licenses are issued by local probate offices and must be renewed annually. You should review the Alabama Department of Revenue’s Quick Reference Guide to determine which kinds of licenses may be required for your professional corporation.
Due to the nature of professional corporations, you will certainly need at least one of these licenses to operate in compliant fashion. Additional information and resources on business licenses in Alabama are available on the Alabama Department of Revenue’s website.
Step Eleven) Acquire Insurance
Workers’ compensation insurance coverage is required for a professional corporation in Alabama, unless you regularly employ fewer than five full- or part-time employees (including officers of the corporation). More information about the workers compensation insurance requirement can be found on the Alabama Department of Labor’s website.
In addition, you should also pursue general liability insurance and other more industry-specific types of insurance. Because professional corporations are specialized businesses, you will most likely require insurance policies based on your occupation.
Step Twelve) Open a Business Bank Account
To operate a professional corporation and receive the limited liability protection that comes with it, you have to keep your personal assets entirely separate from your business assets. Due to this requirement, it’s strongly advised that you acquire a business bank account for your corporation.
Get Help Forming a Professional Corporation
The process of forming a professional corporation in any state can be a lengthy one. If you run into any trouble along the way, remember that there are plenty of organizations that can help you navigate the incorporation process.
Online Incorporation Services
If you would like to hire an affordable business incorporation service to create your professional corporation for you, services like LegalZoom and MyCorporation can help you out. These service providers can handle most of the formation process, while still charging much lower rates than a business attorney’s fees.
There isn’t the same level of personalization that a lawyer can provide, but online incorporation services can still be a tremendous help. The only major issue with these service providers is the fact that they can’t provide any actual legal advice, so you need to know what you want ahead of time.
Alabama Business Attorney
There are some situations where hiring a business lawyer is a preferable route to using an online incorporation service. The professional corporation as a business structure can be highly complicated and specialized, and if you want to have the peace of mind that every single step was taken care of by a true expert, hiring a business attorney to form your Alabama professional corporation is the way to go.
If you would like to pursue this route, there are some convenient services that can help you choose the right lawyer for your business. We like to use Avvo, which has extensive reviews and ratings for hundreds of Alabama business lawyers, which can make it much easier to select an attorney who has your best interests in mind, and also has the expertise to get the job done right.
If you need further assistance, the Alabama Small Business Development Center Network provides management and technical assistance to small businesses. Ten Small Business Development Centers are located at member university partners across the state. Professional Business Advisors are available at each of these locations to advise and train small business owners free of charge.
The Alabama District Office of the U.S. Small Business Administration is another great resource. Business resources, news, and information on small business events can all be found on their website.