Multiple studies have shown that South Carolina firmly occupies the middle ground of business-friendly states, particularly in relation to small businesses. The state’s rankings in various categories are pretty decent in some respects, specifically the relatively low costs for startups and the general business environment.
While it may not be the best place for networking or getting easy access to resources, South Carolina is extremely favorable when it comes to state regulations, tax duties, and business license policies.
If you plan to start a whole new domestic business—or if you determine that the state is the best place for your specific business type—this article will help you understand the basics of LLC formation in South Carolina. Here we will discuss:
- How to prepare and file formation documents;
- State and federal regulations for LLCs;
- How to follow South Carolina compliance laws.
- Step 1: Name your South Carolina LLC
- Step 2: Appoint a Registered Agent for your LLC
- Step 3: File Your South Carolina LLC Articles of Organization
- Step 4: Draft your South Carolina LLC Operating Agreement
- Step 5: Get an EIN (Employer Identification Number) for Your South Carolina LLC
- First Tasks After Registering your South Carolina LLC
- Keep Your South Carolina Company Compliant
Step 1: Name your South Carolina LLC
The LLC formation process always starts with finding a fitting name for your company. While the South Carolina Code of Laws is fairly liberal with naming regulations, there are still some ground rules you have to follow when choosing a name for your South Carolina LLC.
Words You Have to Use
According to the South Carolina Code Section 33-44-105, every LLC that registers to operate in the state must clearly display its designation in its name. This can be any of the following:
- limited liability company;
- limited company;
- Ltd. + Co.
Subsection (b) of the same section also states that an LLC name must be unique, so it can’t match any business name already registered in South Carolina, including:
- Limited partnerships;
- Any other companies authorized to do business in South Carolina;
- Reserved names;
- Fictitious names.
Let’s say you want to form a company called “Springdale Cleaners, LLC” but the state registry shows it already has a business named “Springdale Cleaners, Inc”. In this case, you will need to alter your name to make it sufficiently unique. Usually adding words or changing word order should be enough, for example, changing the name to “Springdale Dry Cleaning & Laundry, LLC”.
Still, there are some exceptions to this rule. You can technically use a non-distinguishable name if you manage to obtain consent from the current user of the name, in which case the holder of the name must officially change theirs.
Another way to do this is to get a final court judgment from the relevant jurisdiction. Non-distinguishable names will also be allowed in the event of a merger, reorganization, or asset acquisition.
Words You Can’t Use
Under South Carolina Code section 34-3-10, no LLC without explicit permission from relevant authorities is allowed to use words like “bank” or “banking” in its name.
The same rule applies to using any words that imply the LLC’s connection to a government agency such as revenue service, tax office, etc.
It’s also forbidden for LLCs to use indicators of other business structures such as “corporation” or “partnership”.
Another factor you need to consider early on is the issue of licenses and how it relates to your naming process. Certain professions and industries are regulated more comprehensively by both state and federal authorities
|If your research shows that your LLC requires permits or licenses to operate in South Carolina, it might have an impact on the naming regulations as well. Always contact the Secretary of State to check if your LLC name is valid.|
Research the LLC Name You Want
Once you have a list of potential LLC names for your company, it’s time to run a check on every option to ensure they are valid. The state website provides a handy business name search tool with filtering options for the exact or partial match.
South Carolina DBA: Using a Fictitious Business Name
If the name you initially wanted isn’t available for registration or maybe you wish to start a new line of products and services, there is actually a way around it that could help you utilize a more fitting trade name for your business.
It’s fairly common for LLCs to use fictitious names also known as DBAs (“doing business as”). However, the DBA registration process somewhat diverges from the familiar route.
In South Carolina, there is no statewide database for trade names, so the only way to inform the authorities of your desire to use a specific DBA is to include it in the business license filing forms that you submit with your local county or municipal government.
The DBA registration procedure will therefore vary based on the jurisdiction. For example, Richland County informs applicants that DBA filings approved in the county or a specific city within the county won’t be valid statewide.
Step 2: Appoint a Registered Agent for your LLC
Every South Carolina LLC must always maintain an agent for service of process as well as the street address for the agent. An agent for service of process is simply another way of calling a registered agent which is the more familiar term used to define the same job title.
|The term “service of process” refers to the act of serving legal notices and papers to the defendant, in this case the registered agent who represents the LLC.|
According to the South Carolina Code section 33-44-108, an LLC may appoint any of the following to be its registered agent:
- An individual who is a South Carolina resident;
- A domestic LLC or corporation;
- A foreign LLC, corporation, or another company with a permit to operate in South Carolina.
Note that the first item isn’t particularly restrictive, meaning that you can appoint a friend or family member or even yourself as your LLC’s registered agent.
Making yourself your own registered agent might be a tempting solution if you want to reduce initial costs, however it’s not something most experts recommend if you want to run a stable company. But let’s look at both sides of the argument first.
- Cost-effectiveness: There is no need to pay service fees on a yearly basis if you do this job yourself;
- Simplicity: You can use the same address and contact info for the registered office;
- Reliability: All notices and correspondence will be delivered directly to you.
- Privacy issues: All registered agents are required to share their address on the Secretary of State website, meaning you will have to make your personal info public;
- Spam emails: The fact that your email and street address will need to be public means you will likely start receiving multiple spam emails as well as junk mail at your home address;
- Limited free time: Considering that registered agents are required to always be present at their registered office, acting as your own agent means you won’t be able to go any breaks during the day or take vacation days;
- Interference with daily meetings: Having your business or home office address match your registered agent address means that people can deliver service of process directly to you when you are having important meetings with clients or business partners, and that’s never a good look if you want to maintain a good reputation;
- Sole responsibility: If you go on a break during the day or even take a few days off, you can potentially miss an important delivery. If the people who intend to serve you the papers don’t find any way to reach you, your case may be resolved directly by default judgment.
Evidently, there are far more drawbacks to this DIY approach than there are potential benefits. Plus, most professional registered agent services strive to be as affordable as possible, usually charging only about $100 annually.
|If you don’t know where to even start looking for a professional service provider, be sure to consider our Best Registered Agent ranking list for some top tier suggestions.|
What you have to remember about the possibility of acting as your own registered agent are the geographical limitations. If at any point you wish to expand your LLC to other states, you will have to hire a separate registered agent for each new jurisdiction.
Step 3: File Your South Carolina LLC Articles of Organization
According to the South Carolina Code section 33-44-202, the LLC is only considered open after the organizers successfully file the articles of organization with the Secretary of State. No company will be listed as an officially existing entity until the articles of organization have been processed and approved.
|If you don’t want to deal with this filing yourself, you can always outsource it to a professional LLC formation service. You can find more about your options in your Best LLC formation services article.|
What to include in my South Carolina Articles of Organization?
Fortunately, the state’s code of law is fairly detailed on the subject of the articles of organization which can’t be said for how some of the other states handle this step.
According to the South Carolina Code section 33-44-203, an LLC’s articles of organization absolutely must include the following items:
- The LLC name;
- The initial business address;
- The name and address of the registered agent/agent service of process;
- Names and addresses of the LLC organizers;
- The LLC’s management type;
- Names and addresses of all initial managers (if the LLC is to be manager-managed);
- Indication if the company is perpetual or has a set dissolution date;
- Member statements who are able to hold liability for the LLC’s debts and obligations.
The same section also permits other optional provisions that could otherwise be included in the LLC’s operating agreement as long as they are do not go against state law and nonwaivable regulations.
However, using your articles of organization as a stand-in for the actual operating agreement is not a good idea. As the same section states, the main purpose of the operating agreement is to provide detailed regulation for LLC members, managers, and transferees.
The articles of organization, on the other hand, is a document best used solely for the LLC formation. If you treat your articles as your operating agreement, you will have to go through a lengthy amendment process to change any operational clauses, plus each amendment filing comes with additional fees.
You can use the Secretary of State’s downloadable form to complete your articles of organization. The filing can be done online.
South Carolina LLC Filing Fee
According to the Secretary of State’s fee schedule, the filing of the articles of organization for a domestic or foreign LLC costs $110.
South Carolina LLC Processing Time
The Secretary of State’s FAQ page states that online filings will likely be processed within 24 hours of the initial submission. Physical mail filings are typically processed within 2-3 business days but that period could be extended depending on the workload at the time of filing.
Step 4: Draft your South Carolina LLC Operating Agreement
An operating agreement is a contract between the initial LLC owners designed to regulate internal relations and operations. In the South Carolina Code section 33-44-103, an operating agreement is defined as the document that sets regulations for:
- The company itself and it should conduct its business affairs;
- Details about membership, member and manager duties;
- How members and managers relate to each other and the company at large.
Operating agreements can be written or conducted verbally, but note that they are not mandatory. While the state doesn’t make this compulsory, drafting an operating agreement is nevertheless a highly recommended step for your LLC formation process.
There is no state-issued form for the operating agreement as this document is unique to each company and its needs. That said, there are a number of commonly used provisions that most companies outline in their operating agreements, including:
- Duties of LLC members: An unambiguous outline of each member’s rights and responsibilities in the company;
- Responsibilities of LLC managers: The powers and rules of conduct for all LLC managers;
- Capital contributions: The size of the contribution that each member invested to get the LLC formed;
- Percentage interest: The stake that each LLC member holds in the company which could then be used for allocating the assets;
- Profit/loss distribution: How profits and losses are distributed among LLC members;
- Voting/meeting process: Rules related to holding meetings and the voting process including the voting system, i.e. how many votes are needed to pass a ruling;
- Procedures related to membership: How to dismiss members, accept new members, and replace members, including the appropriate ways to qualify and train members/staff/managers;
- Ownership transfer/dissolution: How to transfer the assets and partial/full ownership of the company and the procedure for voluntary LLC dissolution;
- Amendments: How to make changes in the operating agreement and what must be done to get them approved.
Although operations agreements are more or less freeform, namely because you can include almost any provision related to the management of the LLC, these contracts are still required to follow state and general federal laws.
For instance, operating agreements can’t “restrict a right to information or access to records, eliminate the duty of loyalty, unreasonably reduce the duty of care, or eliminate the obligation of good faith and fair dealing”.
Step 5: Get an EIN (Employer Identification Number) for Your South Carolina LLC
The Employer Identification Number, or EIN, is a unique code assigned by the IRS to formal entities to keep track of their business tax duties and related financial activities. This nine-digit number is identical in purpose to the individual SSN, except the EIN is designed specifically for businesses.
While it’s true that not every LLC may need an EIN, it’s still a good idea to apply for one to help keep your company more organized. If you don’t know whether your company actually needs an EIN, any of the following items makes the acquisition of the EIN mandatory:
- You run a multi-member LLC;
- Your LLC employs workers;
- Your LLC adheres to a corporate tax system;
- You want to open a separate business bank account for your LLC.
Remember that the IRS provides this service for free, so be wary of LLC formation companies that overcharge for the EIN acquisition feature.
First Tasks After Registering your South Carolina LLC
Registering your LLC is only half the job done. The next thing you should properly look into is your company’s maintenance. It usually starts with handling the financial angle, but you will need to take care of other aspects of LLC compliance as well. But let’s first look at each step in more detail.
Open a Business Bank Account
Dedicated business bank accounts are imperative for managing your finances smoothly and efficiently while minimizing accounting errors.
Although sole LLC owners sometimes choose to use their personal bank accounts to do business, even they are strongly advised to open a separate account for their companies.
There are a few reasons to get a separate business bank account for your LLC:
- Account management: There are few things more important to managing a company than maintaining accurate financial records. The way you keep your books determines how efficient it will be to calculate profits, losses, and report taxes when the time comes. So by mixing your personal and business transactions all in one account, you doom yourself to more unnecessary work like sorting out each single transaction individually for the entire year or specific fiscal period;
- Reliable credit: When an LLC already has an established account with a specific bank, it automatically gains access to potential future fundraising options through credit lines;
- Protecting personal assets: You can only properly shield your personal assets if you have solid proof that you and your LLC are two separate entities with separate bank accounts.
The third item on the list will likely be the most crucial for many new LLC owners. A huge number of entrepreneurs choose the LLC structure for their business precisely because of these liability guarantees, namely protecting the owners’ personal securities from creditors that target the company itself.
This concept of limited liability is made possible by something called the corporate veil. Essentially, the veil acts as a protective layer between the individuals who own a business and the formal entity in question. So if the LLC is sued, it’s extremely difficult for the court to order seizure of personal funds and property to pay off any company debt.
However, you may lose this liability protection typically granted by the LLC structure if the corporate veil is “pierced,” in other words if you fail to create a clear financial division between yourself and the LLC.
Get Business Insurance For Your South Carolina LLC
Although this step is technically optional in some cases, you will still likely need one or several insurance policies to keep your business, customers, and staff safe. Some of the more common policies in South Carolina include:
- General business liability insurance: This policy is designed to cover common risks of more general nature but it’s fairly broad so it applies to a wide range of accidents and cases of property damage;
- Commercial auto policy: If your LLC operates one or several cars/trucks/vans to conduct its business, this policy is vital for protecting your vehicles and drivers;
- Workers compensation insurance: This is one insurance that may become compulsory for your LLC depending on your hiring practices. If your company employs one or more workers, South Carolina law states you need to have workers compensation insurance coverage;
- Professional liability insurance: For LLCs in certain industries, there may be a need to have insurance coverage against lawsuits related to your occupation such as malpractice or professional negligence lawsuits;
- Business income coverage: This policy might be needed if you need to temporarily close down your business or if your industry is experiencing a critical slowdown;
Business property insurance: Unlike the general insurance, this policy goes more in depth when it comes to protecting the property belonging or rented by your business such as offices, manufacturing facilities, equipment, inventory, and more.
Keep Your South Carolina Company Compliant
Compliance is a huge determining factor for your LLC’s stability. In many ways, South Carolina is a bit more relaxed in some of its compliance regulations compared to other states, but there are still certain rules you have to follow to make sure your LLC keeps its good standing. More on that below.
South Carolina Business Permits and Licenses
There is no general business license imposed by South Carolina statewide, but each county and municipality has its own set of regulations when it comes to business licenses and permits.
One thing that South Carolina’s online business portal does really well is that it provides clearly structured information in regards to local license requirements. You can find more information about professional licenses on South Carolina’s Business One Stop website.
South Carolina Tax Requirements
South Carolina’s state tax regulations apply to LLCs in a similar way that federal duties do. In short, if you retain your LLC’s default tax classification as a pass-through entity, you won’t need to pay any income tax on behalf of the company. Instead each LLC member will report on their portion of profits and losses when filing their individual tax returns.
The situation changes if you elect a corporate tax system for your LLC. Companies that sell goods and services are also subject to sales and use tax.
Another significant tax duty you may need to follow is the payroll tax which all employers have to pay along with withholding taxes. You can find more about it on the Department of Revenue’s website.
Federal LLC Tax Filing Requirements
Unless you elect another tax system for your LLC, your pass-through company won’t need to pay income tax to the federal government. The income tax applies to LLC members individually, meaning that each member reports profits and losses on their portion of assets on Schedule C, Form 1040.
Annual Report and Other Filing Requirements
Once again South Carolina proves to be more accommodating when it comes to reporting. In this state you don’t need to file annual reports or pay for those filings. The only exception are LLCs that elected a different tax system.
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.
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