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, but they also have some drawbacks.
How you decide to set up your company will be based on the type of business you operate and your personal preference.
This article will go through what it takes to form an LLC in SC and why forming an LLC is something that every business should consider.
What is a South Carolina LLC?
A limited liability company in South Carolina represents a business entity that is separate from its owners.
This means that if you are sued or go bankrupt, the creditors can't come after your personal assets like they would with a sole proprietorship business.
A South Carolina LLC offers legal protection for its owners while simultaneously reducing tax liabilities and making it easy to maintain records of transactions between all parties involved in the company.
Setting up an LLC also reduces paperwork required by businesses since you only need one annual report each year instead of ongoing reports on income and expenses throughout the year.
Limited liability companies work by having LLC owners who manage and operate the company. Owners are referred to as "members" in South Carolina LLCs.
This means that if you own an entire business or a majority of it, then you automatically become its sole member and the business owner just by starting up operations for your business with this entity type.
What Are the Benefits of South Carolina LLCs?
LLCs in South Carolina offer the same benefits as LLCs in other states. This means that you can enjoy protection from business debts and lawsuits while also enjoying pass-through taxation a sole proprietorship or partnerships have so that the income passes through to an owner's personal tax returns before being taxed for it there.
This is beneficial because LLC members do not have to pay taxes on their company revenues. Instead, they only report profits (or losses) when filing their own individual income taxes every year around the same time.
Personal liability protection is also a major benefit of LLCs because it minimizes LLC members' risk in personal bankruptcy. LLC members are not held accountable for business debts and other liabilities (including court judgments), which means they will only be required to pay their own company's debt if there is no money left over after liquidating all assets.
Step 1: Pick a Name for Your SC LLC
South Carolina has very strict guidelines for requirements in order for a limited liability company name to meet state regulations – which means it's vital that small business owners seeking to form an LLC meet all necessary legal standards before filing paperwork as well as ensures their new LLC name isn't already taken by someone else who registered first.
Your business name will be business' name is your business' official title for all business transactions, including business bank account and tax purposes.
In South Carolina, LLC names must meet the following guidelines:
The word "Limited," "Ltd." or any other variation of the phrase "limited liability company" must appear in the business entity's legal name.
Words that might denote any government agency cannot be used in an LLC business name.
LLC business names must not contain the word "bank," "banking," "trust," "cooperative," "credit union," or any variations of these words unless you obtain special permits.
If you have an idea about your perfect LLC name but still want to wait until you sort things out, you can reserve your desired name by filing a special application to the Secretary of State's Division of Corporations. Name reservation is filed by mail at a $25 filing fee.
South Carolina has its own Legislature website containing detailed naming guidelines, so make sure you read all the instructions thoroughly.
Step 2: Find a South Carolina Registered Agent
A registered agent is a third party who agrees to receive legal documents on behalf of your LLC.
It can be either an individual with his private address or any type of company that provides registered agent services for establishing different types of corporations and business entities in South Carolina.
Although you have the option to be your own registered agent, it is not a good idea because it is not practical if you have your own business.
A registered agent service must be available to accept service of process on behalf of the LLC at that address during normal business hours and during all hours, including weekends and holidays.
So even though you can have access to a computer 24/365, this can be very inconvenient and pose a risk for some legal liabilities due to missed deadlines.
Step 3: File South Carolina Articles of Organization
An LLC in South Carolina can become officially registered only in case you file Articles of Organization. These articles are obtained by filing them through the South Carolina Secretary of State's website or by mail.
When you file LLC Articles of Organization, they should include at least:
- Your company name
- The physical street address for its business operations in South Carolina
- Type/purpose of South Carolina LLC that will be formed under South Carolina law (for example, whether your LLC is manager-managed or member-managed)
Moreover, it is important to keep in mind that each state has its own specific guidelines and forms which must be followed when submitting your filings for registration with the South Carolina Secretary of State office.
Your LLC Articles of Organization should also include the names and signatures of LLC organizers. Organizers are individuals who will be responsible for filing your South Carolina Articles of Organization with the South Carolina Secretary of State office after completing an online form. The South Carolina LLC articles should include at least one member but can have an unlimited number of members.
The filing fee for Articles of Organization in South Carolina is $110.
Step 4: Draft an LLC Operating Agreement
An LLC in South Caroline isn't required to have an operating agreement. Still, operating agreements provide a clear roadmap for LLC members and managers on how the company is going to operate.
An operating agreement should include:
- Each member's capital contribution
- Each member's percentage of ownership in your LLC
- Voting rights
- When they can sell membership interests
- What happens if one member dies or goes bankrupt
- Other specifications on how you need to conduct business and internal affairs of your LLC
An operating agreement should also include business decisions that only require a majority vote instead of unanimous consent from all members. This will save time during meetings since there won't have to be a discussion about every little decision made by the board.
If you're looking for additional guidance on operating an LLC in South Carolina, consider hiring legal counsel who specializes in small businesses to help ensure you don't violate any state statutes governing limited liability companies while operating your business.
Additional Steps to Forming an LLC
Forming an LLC in South Carolina won't be complete unless you also open a separate business bank account, obtain an EIN from the Internal Revenue Service and potentially obtain business licenses and permits.
Setting up a Business Bank Account
LLC bank account should serve as a deposit for all the money coming into your company in this account.
This ensures that you can keep track of any funds going out for expenses or taxes, and it separates these expenditures from personal ones should there be disputes between members of the LLC regarding how the profits are divided up at year's end.
The Internal Revenue Service 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.
Acquiring an EIN
LLCs in South Caroline that are planning to open business bank accounts or hire employees must have a federal EIN.
This is a nine-digit number identifying the business to file taxes, report wages, and make other filings with the Internal Revenue Service. It's also known as the federal employer identification number or federal tax identification number.
An LLC can apply for an EIN as soon as it files Articles of Organization with the South Carolina Department of State (DOS).
However, applying before receiving legal status may lead to delays in processing your application, which could result in bank accounts being opened without proper documentation on file at the financial institution holding them. You can get your Federal Employer Identification Number online through the IRS website free of charge.
Obtaining Business Licenses and Permits
Business licenses are generally required to operate a business on both federal and state levels.
You can find general information about licensing requirements by visiting the U.S. Small Business Administration website or checking with the South Carolina Department of Revenue to obtain information about state licenses.
In addition to state-required permits and licensing requirements for businesses operating within South Carolina, local business licenses are generally obtained by filling out an application directly with 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, general sales and use tax license, etc.
A general business license applies to any type of occupation or profession and is valid across the state; it's your proof that you have registered with both the IRS as well as South Carolina DOR (Department of Revenue) as an LLC.
Business licenses are particularly important if you're planning to provide professional services in SC. 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 South Carolina Department of Labor, Licensing and Regulation.
Obtaining Business Insurance
Business insurance is a type of insurance that many small business owners overlook when starting up. It is especially important for entrepreneurs who plan on running their businesses as limited liability companies.
Business insurance protects against lawsuits and claims from customers resulting in financial losses to your company due to injuries, property damage, or other unforeseen circumstances.
Businesses such as manufacturers will need commercial general liability insurance while those providing professional services like contractors may opt instead for errors and omissions policies depending on the industry they work within and the size of their organization, so they'll need professional liability insurance.
South Carolina LLC Taxes
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 they do not have to file their own tax returns. Instead, all of the profits and losses pass through directly onto its members' personal income tax forms.
South Carolina treats LLC earnings as self-employment revenue, so you must pay state income taxes on your share of your South Carolina business's net profit after it has been passed through from the company.
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 a C corporation means you will be held accountable for paying federal income taxes or self-employment taxes and still be responsible for filing your own personal income tax returns with both state and federal authorities.
On the other hand, S corporation allows you to declare your income as 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.
South Carolina LLC FAQs
How to Change an Address of an LLC in South Carolina?
You can't update the LLC's initial designated office by amending your Articles of Organization. You must submit a Notice of Change of Designated Office or Agent for Service of Process to the South Carolina Secretary of State.
How Much Does an LLC Cost in South Carolina?
South Carolina state filing fees for Articles of Organization are $110. Additional costs are applied if you opt for other services, such as name reservation or business license.
Does South Carolina Have an Annual LLC Fee?
You don't need to pay an annual fee if you are taxed as a traditional LLC (sole proprietorship by default). However, if you choose corporate taxation, you will need to pay a $25 fee to the South Carolina Secretary of State.
Who Is Exempt from Sales Tax in South Carolina?
Machinery, manufacturing, medical devices and services, and digital products don't have to collect sales tax. The detailed list of sales tax exemptions can be found on the South Carolina Department of Commerce website.
How Long Does It Take for an LLC to Be Approved in South Carolina?
The approval of your South Carolina LLC depends on whether you choose to file online or by mail. Filing online will shorten the process to 1 or 2 days. Filing by mail takes longer (up to a month).
Do You Need a Registered Agent for an LLC in SC?
Every LLC in South Carolina is required to appoint a registered agent or hire a registered agent service in the state. The registered office must have a business address somewhere within the geographical limits of South Carolina.
Does SC Allow Domestication of LLC?
South Carolina permits domestication of LLCs, provided that you file Articles of Domestication with the South Carolina Secretary of State and dissolve your limited company in its home state.
Does a Foreign LLC Have to Register in South Carolina?
Yes. A foreign LLC that wishes to conduct business in South Carolina must file a Certificate of Authority and other documents with the South Carolina Secretary of State. It must also have a South Carolina registered agent and the business street address in the state.
Does South Carolina Recognize Single-Member LLC?
South Carolina allows a single-member LLC business structure. These LLCs are taxed similarly to sole proprietorships, and they report income on Schedule C of their individual 1040 tax return. Multi-member LLCs, on the other hand, usually choose to be treated as partnerships and split up the profits among the owners of a South Carolina LLC based on its operating agreement.
What Is the SC Certificate of Good Standing?
A South Carolina certificate of good standing is a document that guarantees that a South Carolina LLC has been lawfully established and is in good standing with the state, i.e., it has been formed in accordance with the state's LLC laws.
It is important to note that South Carolina does not require companies to apply for certificates of good standing upon formation or renewal, which means that a certificate will only be issued once your company has filed all annual reports and paid its taxes on time.
Setting up an LLC in South Carolina is a fairly straightforward process.
The money spent on forming your new corporation will be well worth it as you'll no longer have to worry about personal assets being at risk if something goes wrong with the company.
If you want to do everything by the books, it would be best if you seek professional help for setting up your new business entity so there are no mistakes made on paper and all necessary filings have been completed properly before beginning operations.