In Alabama, the most common structure for real estate enterprises is an LLC. This is due to the ease with which a limited liability corporation (LLC) may be formed and operated.
If your real estate firm is sued, an LLC may safeguard your personal assets (vehicle, home, money). LLCs also provide credibility and tax-saving possibilities.
It Is Simple to Form a Real Estate LLC in Alabama
In Alabama, you may form a real estate LLC by filing the Certificate of Formation with the AL Secretary of State. In Alabama, forming a real estate LLC costs $200.
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Step 1: Give Your Real Estate LLC a Name
The first step in organizing a real estate LLC is to choose a firm name. You must offer your company a distinct name that complies with Alabama naming regulations.
When you submit your Certificate of Formation, you will formally register your name.
Choose a name that complies with Alabama naming guidelines:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC or L.L.C.)
Your LLC’s name cannot include terms that imply it is associated with a government entity (FBI, Treasury, State Department, etc.)
For further information, see the complete list of Alabama name requirements.
Determine if the name is available in Alabama. Make sure the company name you choose isn’t currently in use by doing an online LLC name search.
If you need assistance coming up with real estate company names, use naming resources like our LLC Name Generator and How to Name a Business guide.
You may reserve the name online or by mail. If you file by mail, you must reserve a name at least two weeks before formation. If you file online, you may include your name reservation with your Certificate of Formation.
Step 2: Select a Registered Agent for your LLC.
A registered agent must be included when you submit your Certificate of Formation.
The role of a registered agent is to receive legal papers such as service of process and tax notifications on behalf of your LLC.
A person or a registered agent service might serve as the registered agent for your real estate LLC. Although you may serve as your own registered agent, many company owners choose to employ a registered agent service.
Consider the following while selecting a registered agent:
Availability: You must be accessible during regular business hours (Monday through Friday, 9 a.m. to 5 p.m.) at the address you indicate.
Public Documents: If you conduct your company from home, you must make your home address public.
Privacy: A lawsuit might be served on you in front of your family or workplace.
Step 3: Submit the Certificate of Formation for your LLC.
You must submit the Certificate of Formation with the Alabama Secretary of State to register your Alabama LLC. This may be done online or in the mail.
You must send a copy of your Name Reservation Certificate when submitting the Certificate of Formation by mail. Online filers have the option of reserving their name at the time of creation.
Step 4: Draft an Operating Agreement for a Real Estate LLC.
An LLC operating agreement is a legal document that defines your real estate LLC’s ownership and member responsibilities.
An operating agreement may benefit even single-member LLCs.
Your operating agreement should include the following provisions:
Responsibilities of each member
How will new members be admitted?
How may current members transfer or cancel their membership?
How will earnings and dividends be distributed?
When and how will capital calls be made?
Manager liability for errors made in good faith
Tax and reporting deadlines
Members have first right of refusal and interest transfer if the property is sold.
You may include conditions in your real estate LLC operating agreement as long as they do not violate Alabama law.
Step 5: Obtain an EIN
The US Internal Revenue Service (IRS) uses an Employer Identification Number (EIN) to identify and tax firms. It’s essentially a business’s Social Security number.
Following the Formation of a Real Estate LLC
Following the formation of your real estate LLC, you must perform the following:
Establish a Business Bank Account. Personal and corporate money are legally separated via a business bank account. This separation is essential to keep your LLC’s corporate veil intact (i.e., your limited liability protection).
Transfer Existing Real Estate to Your New LLC If you already possess property that you want to transfer to your new LLC, you must register a deed reflecting this change. This may be done with or without the assistance of a title firm. To begin started, we suggest contacting a title business or your county clerk.
You should update your lease. If you are transferring existing rental property to a new LLC, your residential lease agreement must be updated to reflect the new ownership.