The standard definition of "algebraic closure of a field $F$" is:
The field $K$ is said to be an algebraic closure of $F$ if and only if $K$ is an algebraic extension of $F$, and $K$ is algebraically closed.
Where
A field $L$ is algebraically closed if and only if every nonconstant polynomial with coefficients in $L$ has a root in $L$.
Your (1) is not stated in a correct way, as "smallest" is not something you can do in this situation. Instead, you may say "minimal", in the sense that if $F\subseteq L\subsetneq K$, then $L$ is not algebraically closed.
Your claim that using (1) and starting from $\mathbb{Q}$ you would get $\mathbb{C}$ is also incorrect, using either your incorrect phrasing or the correct one, since $\overline{\mathbb{Q}}$, the field of algebraic numbers, is algebraically closed, contains $\mathbb{Q}$, and is properly contained in $\mathbb{C}$.
Theorem. Let $F$ be a field. The following are equivalent:
- Every nonconstant polynomial $f(x)\in F[x]$ has a root in $F$.
- Every nonconstant polynomial $g(x)\in F[x]$ splits over $F$.
- Every irreducible polynomial in $F[x]$ has degree one.
- There is no algebraic extension of $F$ except $F$ itself.
- There is a subfield $K$ of $F$ such that $F$ is algebraic over $K$ and every polynomial in $K[x]$ splits in $F[x]$.
Proof. It is straightforward that 4$\implies$3, that 3$\implies$2, and that 2$\implies$1.
That 1$\implies$4 is as follows: let $K$ be an algebraic extension of $F$, and let $a\in K$. Then $a$ is algebraic, so if $f(x)$ is the minimal polynomial of $a$ over $F$, then $f(x)$ is irreducible. By (1), since $f(x)$ has a root $r$, it follows that $x-r\mid f(x)$, hence $f(x)=x-r$. Since $f(a)=0$, then $f(x)=x-a$, hence $a\in F$. Thus, $K\subseteq F$.
4$\implies$5 by taking $K=F$. To see that 5$\implies$4, let $L$ be an algebraic extension of $F$, and let $a\in L$. Since $a$ is algebraic over $F$ and $F$ is algebraic over $K$, then $a$ is algebraic over $K$. Let $f(x)\in K[x]$ be the minimal polynomial of $a$ over $K$. Then $f(x)$ splits in $F[x]$. By unique factorization, since $x-a$ divides $f(x)$ in $L[x]$, $x-a$ must divide of the factors of $f(x)$ in $F[x]$. But all those factors are linear, and since $f(x)$ is monic, we may assume that all the linear factors of $f(x)$ in $F[x]$ are monic. So $x-a$ is one of the factors, hence $a\in F$. Thus, $F=L$, proving 4. $\Box$
Corollary. Let $K$ be an extension of $F$. The following are equivalent:
- $K$ is algebraic over $F$ and $K$ is algebraically closed.
- $K$ is the splitting field over $F$ of the set of all nonconstant polynomials in $F[x]$.
- $K$ is the splitting field over $F$ of the set of all irreducible polynomials in $F[x]$.
Proof. Clearly, 2 and 3 are equivalent. If $K$ is algebraic over $F$ and algebraically closed, then every nonconstant polynomial in $F[x]$ splits in $K$, so if $L$ is the splitting field of the set of all nonconstant polynomials of $F$, then we may take $F\subseteq L\subseteq K$. Then $L$ is algebraically closed by item 5 of theorem, hence $L$ has no proper algebraic extensions. Since $K$ is algebraic over $L$, then $L=K$. This shows that 1 implies 2. Conversely, if $K$ is the splitting field of all nonconstant polynomials in $F[x]$, then $K$ is algebraic over $F$, and $K$ satisfies item 5 of the theorem, hence is algebraically closed. $\Box$