LLC in South Carolina

Creating a South Carolina limited liability company (LLC) is a wise choice for business owners seeking substantial liability protection and pass-through taxation by default. The LLC's management structure is flexible and uncomplicated.

To start your LLC in South Carolina, you must file Articles of Organization and pay a $110 fee ($125 online) to the South Carolina Secretary of State after naming your business and appointing a registered agent.

Your LLC will be officially formed once the state processes your paperwork, which usually takes 1-2 business days if filed online and a few weeks if filed by mail.

After that, follow a few more steps to prepare your LLC for business, which we'll outline for you here.

Before registering your LLC in South Carolina, you'll need to select a name that complies with the state's naming requirements.

These are the key requirements to keep in mind:

• Your business name must contain the words "Limited Liability Company," "LLC," or "L.L.C."
• The name must be unique and not already in use by another business in the state. You can use the Secretary of State's website to search for existing business names.
• The business name cannot include words used to name a government agency (such as State Department, CIA, FBI, Treasury, etc.).
• Certain restricted words, such as "bank," "lawyer," "attorney," "credit union," and others, may require additional documentation and licensure paperwork.

For a complete list of South Carolina's naming rules, refer to the relevant resources.

In South Carolina, every formal business entity is required to appoint a registered agent, also referred to as an Agent for Service of Process.

The registered agent is responsible for receiving important business and legal correspondence for your company and serves as your point of contact with the state.

When registering your South Carolina LLC, you need to have a registered agent chosen, and their information and signature are required on the formation documents.

What if the state can’t find my South Carolina registered agent?

Your registered agent must be available during all normal business hours. However, if the state is unable to locate your registered agent during regular business hours, negative consequences could occur.

Unsuccessful delivery of important correspondence can lead to a court ordering "substitute service," which can result in the documents being served to the Secretary of State or published. If you are not directly served notice of litigation, your LLC may fail to respond in time, resulting in a default judgment against you.

The registered agent must reside in South Carolina, and if you opt to use a registered agent service, they must be authorized to transact business in the state.

While you can choose an individual within the company to serve as the registered agent, it is recommended to use a separate agent to avoid any difficulties that may arise if the individual is unavailable during normal business hours.

The process of officially forming a South Carolina LLC begins with the filing of the Articles of Organization with the Secretary of State.

While you can submit Articles of Organization by mail, e-filing is a more convenient and efficient option.

The filing fee is $110, and additional costs may apply. South Carolina doesn't offer expedited filings, and the processing time for online filings is one to two business days, while filings by mail can take up to four weeks.

To start an LLC in SC, you need to have the following information ready for your Articles of Organization:

• The official name of your South Carolina LLC
• The designated address of the business
• The name, address, and signature of the LLC’s registered agent
• The name and address of at least one organizer
• The term date (if applicable)
• The names and addresses of initial managers (if applicable)
• Whether the effective date will have a delay
• Any additional provisions deemed necessary
• The signature of each organizer

Member-Managed or Manager-Managed?

It's important to decide whether your South Carolina LLC will be managed by members or managers before submitting your Articles of Organization.

A member-managed LLC is similar to a partnership, where the members have the ability to bind the LLC, which is usually best if there are few or only one member.

On the other hand, a manager-managed LLC is beneficial when there are multiple members, and a designated manager is responsible for running the company.

Although not mandatory in South Carolina, having an LLC operating agreement is strongly recommended.

This is an internal document that outlines how your LLC will be managed and is not required to be filed with the state. By establishing the rights and responsibilities of members and managers, the operating agreement helps ensure that your LLC is treated as a separate business entity, which can be essential in preserving your limited liability protection.

If an operating agreement is not in place, the LLC will be governed by state LLC law. To create an effective operating agreement, be sure to include key provisions such as the members' percentage interests in the LLC, their respective rights and responsibilities, and voting powers.

Additionally, the agreement should address how profits and losses will be allocated, establish rules for holding meetings and taking votes, and include buyout or buy-sell provisions that dictate what happens when a member wishes to sell their interest, dies, or becomes disabled.

It is recommended that every business, even if it is a single-member LLC, obtains an employer identification number (EIN) to identify the business for tax purposes. The EIN is unique to the business and can be used in place of a social security number.

Incorporating as a limited liability C-corporation offers the same level of personal liability protection as regular corporations, which means that the business owner's personal assets are shielded from potential lawsuits.

Having a separate bank account and an EIN for the business can make it more difficult for plaintiffs to argue that the business and the individual owner are one and the same.

You can choose to apply for your own EIN using your social security number, or our partners can assist you in obtaining one.

LLC taxation can be complicated, as the Internal Revenue Service (IRS) has regulations based on how the LLC is set up.

Corporate structure options for LLC members include classifying the LLC as a C-corporation or an S-corporation.

C-corporation taxation

If the LLC is taxed as a C-corporation, the business owner must file Form 8832 with the IRS, and the LLC is subject to the federal corporate tax rate of 21 percent, as of the second quarter of 2022. Taxes would be filed on Form 1120 on the business owner's income tax return.

S-corporation taxation

Opting for S-corporation status requires filing Form 2553 with the IRS, and the business is taxed as a pass-through entity, similar to a sole proprietorship. However, salaries and distributions are taxed differently, and taxes would be filed on Form 1120S on the business owner's income tax return.

It is recommended to consult with a tax attorney to determine the most advantageous option at tax time.

Single-member LLC

For a single-member LLC, the default taxation method is to pass the taxes through to the owner, who will pay the business taxes on their personal tax return, as the IRS considers a single-member LLC a disregarded entity.

Taxes are typically reported on Schedule C. If the LLC owes taxes, the business owner pays based on their personal income tax rate. If the LLC shows a loss, the IRS deducts the loss from the business owner's personal income.

Multi-member LLC

In the case of a multi-member LLC, taxes pass through to the individual members' personal income tax returns. Each member pays taxes on the income based on their percentage of ownership in the LLC. The tax rate is based on each member's personal tax rate.

Therefore, if the LLC has two owners with a 60 percent and 40 percent stake, respectively, the owner with the 60 percent stake will pay 60 percent of the business taxes, while the other owner will pay 40 percent.

Multi-member LLCs must file Form 1065, U.S. Return of Partnership Income, every year and also file Schedule K-1 by March 15 of each year.