How to Start an LLC in South Carolina? | In-Depth Guide

To set up an LLC in South Carolina, you will need to follow a few easy steps. South Carolina LLCs offer a number of benefits for business owners since they are relatively simpler to start.

How you decide to set up your limited liability company will be based on the type of business you prefer to operate.

Drawing from my experience as a business consultant and collaborating with LLC experts and legal advisors, I will walk you through the process of starting an LLC in South Carolina.

And, if you favor having an expert facilitate your LLC establishment, we recommend perusing these South Carolina LLC formation services.

Quick Summary:

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How to Start an LLC in South Carolina?

To start an LLC in South Carolina, comply with state business protocol and file the required legal documents.

1. Choose the Type Of Your South Carolina LLC (Mandatory)

South Carolina's business landscape is vibrant and supportive for startups, with 479,314 small businesses making up 99.4% of all businesses in the state, based on U.S. Small Business Administration statistics [1].

According to U.S. Census Bureau data, these SMBs employ 839,283 individuals, which represents 42.2% of the state's labor force, highlighting the significant impact and opportunities for new LLCs in this thriving environment [2].

Guiding clients through the selection of the right LLC structure in South Carolina is a key part of my consulting. Each type, from single-member to multi-member and professional LLCs, serves different business needs and goals.

Single-Member LLC

A single-member LLC in South Carolina is an excellent choice for solo entrepreneurs. It's simple to set up and manage, giving you complete control over your business. However, it may not be ideal for growth as it can face limited funding opportunities. Also, personal liability could be a concern, as your personal assets might be at risk in the case of business liabilities.

Multi-Member LLC

For businesses with more than one owner, a multi-member LLC is a good option. This structure allows for the pooling of expertise and resources, which can be beneficial for decision-making and growth. However, it comes with its challenges. There might be conflicts between members, and managing the business can become more complex. Also, every member's personal assets might be at risk if the LLC faces legal issues.

Professional LLC

A professional LLC is specifically designed for licensed professionals in South Carolina. This type provides a layer of credibility and specific tax benefits. It's particularly suitable for those in professional services like law or medicine. But it requires strict adherence to regulatory standards and professional conduct, which can be more demanding than other LLC types.

2. Choose a Name for Your LLC (Mandatory)

South Carolina has very strict guidelines in order for a limited liability company name to meet state regulations. The LLC name should not have already been taken by someone else who registered first.

Your LLC name will be used for all transactions, including bank account and tax purposes.

In South Carolina, LLC names must meet the following guidelines:

• The word "Limited Liability Company” or “LLC” must appear in the business entity's legal name.
• Words such as “Federal,” “Treasury” or “Bureau” that might denote any government agency cannot be used in an LLC business name.
• LLC business names must not contain the words "bank," "banking," "trust," "cooperative," "credit union," or any variations of these words unless you obtain special permits.

If you found an available name but are not in a position to start the business yet, you have the option to reserve your desired name by filing a special application with the South Carolina Secretary of State's Division of Corporations.

A name reservation is filed by mail for a $25 filing fee.

South Carolina has its own Legislature website containing detailed naming guidelines, so make sure you read all the instructions thoroughly.

Related Articles:

• Looking up an LLC in South Carolina
• How to Cancel a South Carolina LLC
• Best LLC Services in South Carolina

3. Select a Registered Agent (Mandatory)

A registered agent in South Carolina is a crucial appointment for your LLC, tasked with receiving legal documents on behalf of your business. In my experience as a business consultant, working closely with legal experts, I've seen the significant benefits of appointing a dedicated registered agent.

While you have the option to act as your own registered agent, I often advise clients to appoint a separate individual or a company for this role. This approach ensures there is always someone available during regular business hours to accept service of process for the LLC, a critical requirement for maintaining legal compliance.

It also adds a layer of privacy and professionalism, as the registered agent's address is publicly listed instead of your personal or business address.

4. File Articles of Organization (Mandatory)

Filing the Articles of Organization is a pivotal step in the LLC formation process. It's where I ensure my clients' businesses are legally recognized in South Carolina.

When you file LLC Articles of Organization, they should include the following information regarding your business:

• The company's name
• Business address
• Names and addresses of the members
• A registered agent
• Purpose and type of business
• Organizer
• Termination or completion date, if applicable

South Carolina has its own specific guidelines and forms that must be followed when filing with the Secretary of State.

The filing fee for Articles of Organization in South Carolina is $110. Read our article for more information on the cost of forming an LLC in South Carolina.

Steps to Take After Forming an LLC in South Carolina

Forming an LLC in South Carolina won't be complete unless you also draft an operating agreement, open a separate bank account, acquire an EIN from the Internal Revenue Service and potentially obtain the business licenses and permits that are applicable to your business.

5. Create an LLC Operating Agreement (Optional, but Recommended)

An LLC in South Carolina isn't required to have an LLC operating agreement. Nevertheless, it is advisable to draft one since it would outline the structure and operations of the company.

An LLC operating agreement should include the following:

• Each member's capital contribution
• Each member's percentage of ownership
• Voting rights and procedures
• Selling or transferring membership interests
• Acceptance and departure of members
• Other specifications on how you need to do business and internal affairs of your LLC

If you're looking for additional guidance on operating an LLC in South Carolina, consider hiring legal counsel who specializes in small businesses.

It helps ensure you don't violate any state statutes governing limited liability companies while operating your business.

Their expertise will cover the operating agreement and other official documents.

6. Apply for an Employer Identification Number (EIN) (Optional, but Recommended)

I guide clients through obtaining an EIN for their LLC, a crucial step for tax reporting and hiring employees.

This is a nine-digit number identifying the business to file taxes, report wages, and make other filings with the Internal Revenue Service.

It is advisable to apply for an EIN once the business entity has been approved by the South Carolina Secretary of State.

You can get your Federal Employer Identification Number online through the IRS website free of charge.

7. Open an LLC Bank Account (Optional, but Recommended)

Opening a separate bank account is a fundamental step I recommend to LLC owners for effective financial management.

It simplifies the process of computing and dividing LLC profits at the end of each fiscal year.

The IRS requires businesses to obtain Employer Identification Numbers (EINs) before opening accounts with banks under their business name.

If you're running multiple companies, make sure each one has its own EIN rather than using a single number across different organizations.

8. File Your South Carolina LLC Annual Report

In the realm of LLC compliance, understanding state-specific requirements is crucial. For South Carolina LLCs, there is some ambiguity regarding the necessity of filing annual or biennial reports. It's important for LLC owners to be aware of this uncertainty.

Typically, an annual or biennial report includes updates on the LLC's registered agent, business address, and management structure. While this might not be a universal requirement in South Carolina, being informed about what such a report generally entails is beneficial.

For LLCs in South Carolina that are taxed as C-Corporations or S-Corporations, there are specific filing requirements. These businesses must file Form CL-1 within 60 days of their LLC’s formation. Additionally, annual tax filings with the South Carolina Department of Revenue are required for these types of LLCs.

Given the complexities and varying interpretations of the requirements, it is strongly recommended that LLC owners consult directly with the South Carolina Secretary of State or a legal professional. This step is vital to confirm the current reporting obligations for your specific LLC and to ensure compliance with state regulations.

For the most up-to-date and detailed information, LLC owners should refer to the South Carolina Secretary of State’s website or other reliable legal resources. Staying informed about the latest requirements is key to maintaining the legal standing of your business.

9. Obtain Business Licenses and Permits

South Carolina does not require a statewide business license, as noted in the South Carolina Business One Stop [3]. However, local business licenses should be obtained from the city or county where the company plans to conduct business.

Requirements vary depending on industry type, but some common examples include a general business license, a general sales license, and a use tax license.

A general business license applies to any type of occupation or profession and is valid across the state.

It's proof that you have registered with both the IRS and the South Carolina DOR (Department of Revenue) as an LLC.

Business licenses are particularly important if you're planning to provide professional services in South Carolina.

A professional limited liability company that plans on providing services such as general contracting, general law, medical services, or legal services will need to apply with the Department of Labor, Licensing, and Regulation.

10. Corporate License Fee (Mandatory)

A South Carolina LLC pays taxes in the same way that limited liability companies in many other states pay taxes.

LLCs are considered "pass-through" entities, which means profits and losses pass through directly onto the members' personal income tax forms.

Sales taxes are applied to sales of goods and services in South Carolina.

The sales tax rate is 6%, and it's payable to the South Carolina Department of Revenue.

An LLC can also choose to be taxed as an S corporation or a C corporation.

Electing to be taxed as a C corporation means the members are subject to double taxation. The company is taxed at the corporate level and the owners are required to file their personal income tax returns.

On the other hand, an S corporation allows you to declare your income as a salary and thus reduce the overall self-employment tax.

South Carolina allows single-member LLCs to operate as sole proprietorships.

Income earned by an LLC is taxed at the owner's individual income rate, much like when you own your own business as a sole proprietor, but if you choose S corporation taxation for your LLC, it will be taxed at corporate rates, which stand currently at 5%.

If you have little to no experience with taxing options, talk to your registered agent or business attorney, who can help you complete the paperwork needed for LLC formation and give you legal or tax advice.

Benefits and Drawbacks of an LLC in South Carolina

Benefits:

1. Tax Flexibility: One of the significant benefits of forming an LLC in South Carolina is the tax flexibility it offers. South Carolina's corporate income tax has a flat rate of 5%, and personal income is taxed at marginal rates ranging from 0% to 7%, allowing for a favorable tax environment for businesses, according to the Tax Foundation [4]. As a pass-through entity, an LLC allows profits to pass directly to members without being subjected to corporate tax rates.
2. Ease of Formation and Compliance: South Carolina is known for its streamlined process for LLC formation. The state's requirements are straightforward, and the absence of the need for an annual or biennial report simplifies ongoing compliance.
3. Limited Liability Protection: Like in other states, South Carolina LLCs provide members with limited liability protection, shielding personal assets from business debts and legal actions.
4. No Minimum Capital Requirement: South Carolina does not impose a minimum capital requirement for starting an LLC, making it accessible for entrepreneurs with limited startup funds.

"South Carolina's distinctive location enables it to provide businesses with robust infrastructure, facilitating smooth operations across various industries. Additionally, the state's industrial power rates are 9% below the national average. Coupled with a variety of incentive programs, these factors create a highly advantageous environment for start-up companies in South Carolina."

• Jon Morgan, Co-Editor & Co-Founder of Venture Smarter

Drawbacks:

1. Annual Corporate License Fee for Certain LLCs: While South Carolina does not have a traditional franchise tax, LLCs taxed as corporations are subject to an annual corporate license fee. This fee is based on the total value of the business, starting at $25, and needs to be factored into the budget.
2. Personal Property Tax: South Carolina imposes a personal property tax on business assets, which can increase the operating costs for businesses with significant physical assets.
3. Limited Public Contracts Opportunities: Small businesses in South Carolina, particularly newer LLCs, might face challenges in acquiring public contracts, as these often go to established companies with a proven track record.

DIY vs. Professional LLC Formation

DIY LLC Formation:

Pros:

1. Cost-Effective: DIY LLC formation is generally less expensive than hiring a professional. This can be a significant advantage for entrepreneurs on a tight budget.
2. Control and Understanding: Handling the formation process yourself provides a deeper understanding of your business's legal structure and compliance requirements.
3. Learning Experience: It's an educational opportunity, allowing you to become more familiar with business laws and regulations in South Carolina.

Cons:

1. Time-Consuming: DIY formation requires a significant time investment to research and understand all the legalities and paperwork involved.
2. Risk of Errors: Without professional guidance, there's a higher risk of making mistakes in the filing process, which can lead to delays or legal complications.
3. Limited Legal and Compliance Knowledge: You might miss important legal nuances or compliance requirements specific to South Carolina, potentially leading to future legal issues.

Professional LLC Formation Services:

Pros:

1. Expertise and Reliability: Professionals are knowledgeable about state-specific laws and can navigate the legal complexities efficiently.
2. Time-Saving: Delegating the formation process saves you time, allowing you to focus on other aspects of your business.
3. Compliance Assistance: Professionals can help ensure that your LLC meets all the legal requirements, reducing the risk of non-compliance.
4. Peace of Mind: Having an expert handle the formation provides reassurance that the process is being managed correctly.

Cons:

1. Higher Cost: Professional services come with a fee, which can be a significant expense compared to the DIY approach.
2. Less Hands-On Involvement: You may have less involvement in the process, which could mean less understanding of the intricate details of your LLC's setup.
3. Dependence on Service Providers: Relying on professionals might lead to a dependency on them for future legal or compliance needs.

When choosing between DIY and professional LLC formation, consider factors like your budget, the complexity of your business structure, your legal knowledge, and the time you can dedicate to the process.

For straightforward structures and those with legal expertise, DIY might be suitable. However, if your situation is more complex or if you prefer the reassurance of expert guidance, professional services might be the better choice.

Ultimately, the decision should align with your individual needs and circumstances as a business owner in South Carolina.

FAQs

References:

1. https://advocacy.sba.gov/wp-content/uploads/2023/11/2023-Small-Business-Economic-Profile-SC.pdf
2. https://www.census.gov/programs-surveys/susb.html
3. https://scbos.sc.gov/starting/step2
4. https://taxfoundation.org/location/south-carolina/