Alabama Sole Proprietorship

Before you begin, take a moment to confirm your understanding of the sole proprietorship business structure.

• A sole proprietorship is limited to a single owner or to a husband and wife operating as a joint venture.
• You will pay taxes on business profits on your personal income tax return and at your personal income tax rate. The IRS deems a sole proprietorship a 'disregarded entity' for tax purposes.
• The appeal of a sole proprietorship lies in that it is relatively easy to set up and maintain compared to other business structures.
• The main drawback of a sole proprietorship is that it does not provide you with limited liability protection. Your car, home, savings, and other personal assets are at risk if your business gets in debt or is sued.
  • If you do not own assets, debts may be applied against future assets.
  • Business liability insurance is not a substitution for limited liability protection. Liability insurance protects the assets of the business in certain situations and up to certain limits. Limited liability protects your personal assets.

The other major option for a single-owner business is an Alabama limited liability company (LLC). To compare all structures, please see the Business structure comparison chart.

By default, your business name is your legal name. Any other business name is called a "doing business as" (DBA) name.

In Alabama, registering your DBA is optional. If you chose to register, it is actually the same process as filing an Alabama trademark. Your business name will be considered a "trade name" on your Alabama trademark application.

Regardless of whether you will register a trademark for your DBA, you need to check that your desired business name is available.

Because Alabama does not maintain a state-wide registry, taking sufficient time to conduct a name availability search is imperative. Even names that are not registered with the government may be protected as a trademark under common law.

Begin checking availability of your desired name by conducting a name search against LLCs, corporations, and other business entities registered with the Alabama Secretary of State. Your name must be "distinguishable" from all registered business entities.

Name Search:

Alabama Secretary of State records search

Next, check availability of your desired name against trademarks registered with the Alabama Secretary of State and the USPTO.

Alabama Trademark:

Alabama Secretary of State trademark search

Federal Trademark:

USPTO trademark search

Finally, use your common sense to search use of your desired business name in the public domain. Common law rights to a name arise from actual use, not registration. Search the internet, telephone directories, trade magazines, business or professional license records, and so on.

Filing an Alabama "trade name" for your DBA is optional.

Understand before you file:

Vocabulary:

Alabama state law refers to a "trade name" which is a word, symbol, logo, slogan or combination thereof adopted and used by the applicant to identify the business, vocation, occupation, or profession.

Rights:

"Rights of ownership of a particular mark are achieved through the common laws of adoption and usage, not registration." - Instructions for Application to Register a Trade Name in Alabama. Separately, filing a trademark with the Alabama Secretary of State prevents other businesses in Alabama from filing an LLC, corporation, or other business entity with the same name. This is because the Alabama Secretary of State requires each business name in its register to be "distinguishable".

Notes:

• Filing an Alabama trademark provides more protection than a common law trademark, but less protection than filing a federal trademark with the U.S. Patent and Trademark Office (USPTO).

To file your Alabama trade name:

Submit to:

Alabama Secretary of State
http://www.sos.alabama.gov/

Form:

Form LAT-1: Application to Register Trademark, Service Mark, or Trade Name in Alabama

Filing Method:

Mail

Fee:

$30 filing fee

Notes:

• A completed application includes the notarized form, the schedule of classifications, three specimens, the filing fee, and a copy of federal trademark registration (if applicable).
• The application is for a single classification. Submit multiple applications if you wish to apply for multiple classifications.

If your sole proprietorship will hire employees, it must obtain an Employer Identification Number (EIN). This is a nine digit number issued by the IRS for tax reporting purposes. Your bank may require you to have an EIN to open a business account. In addition, obtaining an EIN avoids using your social security number on various government forms and during business transactions.

Submit to:

Internal Revenue Service
http://www.irs.gov/

Form:

IRS Form SS-4

Guidance:

IRS Pub 1635: Understanding Your EIN

Filing Method:

Mail, phone, fax, or apply online with the IRS

Fee:

$0

Turnaround:

Immediately online

Notes:

The IRS website is only available during certain hours. Print your EIN before closing your session.

Alabama offers a consolidated state tax registration application.

Submit to:

Alabama Department of Revenue
http://revenue.alabama.gov/

Form:

Form COM-101: Alabama Department of Revenue Combined Registration/Application

Filing Method:

Mail or online

Fee:

$0

Turnaround:

~3-5 business days online

To run your business legally, you must obtain applicable licenses and permits. The easiest way to navigate the wide range of federal, state, and local requirements is to search by your business type and locality using the Small Business Administration Business License & Permit look-up tool.

In Alabama, a privilege license is required in every county where you conduct business. Apply in each county where the business is located:

Submit to:

County Probate Judge or License Commissioner. See County Probate Office Contact Information.

Guidance:

Alabama Department of Revenue - Business & License Tax FAQs

Law:

Title 40, Chapter 12, Code of Alabama 1975

To finish setting up your sole proprietorship:

• Open a business bank account. Keep your personal finances and business finances separate.
• Obtain general business liability insurance. Because a sole proprietorship does not have limited liability, an insurance policy may be the only protection against unforseen events.
• Comply with employment laws as you hire help.
• Report and pay taxes.