Have you been looking to start a business in South Carolina, but you’re unsure as to how to? Or are you a sole proprietor of a business and is looking to safely expand? Well, an LLC Is the perfect solution for you. Starting an LLC could seem intimidating for someone looking to start one for the first time, not to mention it could be confusing for someone not from South Carolina.
This is because the procedures for starting an LLC varies from state to state and country to country. Although the steps for starting an LLC in South Carolina are rather similar to other countries or states, it should be noted that some key differences should be looked into when starting a South Carolina LLC.
This article is here to assist you in learning the appropriate steps needed to start an LLC here in South Carolina, regardless of where you’re from. We will first be explaining the benefits of starting an LLC here in South Carolina, followed by the steps to starting an LLC in South Carolina, and lastly, some frequently asked questions when it comes to a South Carolina LLC.
Benefits of a Limited Liability Company (LLC) in South Carolina
Starting an LLC in general presents a lot of great benefits for the business. This is no different when it comes to starting an LLC in South Carolina. Below are some of the benefits of starting an LLC here in South Carolina.
Freedom to customize your small business
An LLC offers a degree of flexibility that cannot be matched by most other business models. Regardless of size, an LLC is flexible enough to accommodate businesses of varying sizes. This is because starting an LLC involves the drafting of an operating agreement that can be tailored to the needs of your business.
This quite literally means you can write your own rules to suit the needs of the business.
Raising angel capital for the business
LLCs have become one of the best entities for raising angel capital (start-up investments of up to $500,000). This has made the LLC business structure popular among smaller investors. What about venture capital firms? Well, most venture capital firms prefer to invest in corporations due to familiarity, they are also not allowed to invest in LLCs due to stockholder rules.
Protection of real estate
One of the most notable benefits of an LLC is the ability to hold real estate. An LLC comes with dual liability protection that shields the investments of average joe’s like you and me from lawsuits. This is especially useful for those who tend to get in trouble and is likely to get sued.
The protection from an LLC protects your assets such as real estate from being liquidated. This means that your real estate investments held under the LLC are protected from claim settlements.
Protection of personal assets
Another great benefit of an LLC is the protection it offers to your assets. Personal assets are assets you hold under your name. Some examples of personal assets are your bank account, your car(s), and your mutual funds, stocks, and bonds.
An LLC can protect all these assets from a lawsuit. This gives the LLC owners peace of mind that their personal assets are safe from personal lawsuit claims.
Ability to change profit distributions
This is one of the more unique aspects of this business structure. The profit payouts of an LLC can be disproportionate to the actual ownership percentages. This gives you and your business partners the option of choosing how much profit/loss you will receive. In most cases, people will opt to take more profits and losses.
This might seem a bit counterintuitive, but there is a good reason for this. By taking more profits and losses, you provide incentives for investors to invest in your company. An example of this would be having the investor contribute to all the capital, and varying the profit distribution so that he gets 100% of the profits until his investment has been paid back.
In some cases, you could provide interest as well to further incentivize investors to invest in your South Carolina LLC.
Segregation of Assets
The segregation of assets in a business is crucial. By segregating the business assets into individual LLCs, you protect them from your company’s creditors or other people that wish to sue you. An LLC does not always protect your assets.
Your business may be protected from your personal creditors, but what’s protecting it from its own creditors? If your LLC gets sued, the assets of the LLC can be seized and liquidated. In some cases, the court may put a lien on your company and then freeze your assets so that you have no access to your operating capital, and will lose the ability to write and receive funds from clients.
Steps to Starting an LLC in South Carolina in 2021
Now that we’ve gone through the benefits of forming an LLC in South Carolina, let’s get to the steps. Please keep in mind that this article may be comprehensive but it is by no means an all-encompassing guide to starting South Carolina LLC. We still recommend you do more research, even after reading through this article.
1. Choosing a Name for the South Carolina LLC
As stated under the South Carolina Law, the name of a South Carolina LLC must end with the words “Limited Liability Company” or suitable abbreviations such as “LLC”, or “L.L.C.” with or without punctuation. You are free to use upper or lower-case abbreviations depending on your preference.
Similar to other states, when you form an LLC, The name chosen for the South Carolina LLC must be distinguishable from the names of other business entities that have already registered their name with the South Carolina Secretary of State.
If you are unsure if the intended name of your LLC is in use by another business entity, we recommend you check with the Secretary of State. You can check the names of existing business entities and check the availability of the desired name for your LLC through the business name database of the South Carolina Secretary of State.
Once you have done so, you may begin using the name immediately. If you do not wish to do so, you have the option to reserve the name for 120 days by filing an Application to Reserve a Limited Liability Company Name with the South Carolina Secretary of State Corporations Division. It should be noted that there is a filing fee of $25. The application must be filed by mail.
It should be noted that you do not have to use the official legal name of your LLC that is registered in the Articles of Organization when you do business. Well, then what do you use? You have the option of using a fictitious business name. A fictitious business name is also known as a trading name or DBA (Doing Business As) or an assumed name.
To do this in South Carolina, you first contact the County Clerk’s office in the county where you wish to do business and is located to request a Certificate of Assumed Name Form. Bare in mind that the filing fee for each county in South Carolina varies from county to county.
Most counties have the form available online, while there are still some which require you to pick up the form in person. Following receiving the Certificate of Assumed Name Form, you’ll want to fill up the form. The fictitious name that you want to use as well as the name and addresses of the owner(s) must be included in the form. Following that, you’ll have to get the form notarized.
It is crucial that you have a notary to witness the signing of the documents. If you’re unsure about where to find a notary, fret not as most County Clerk’s offices offer notary services. The best part about the County Clerk’s notary services is, it comes at no cost at all! Once you’ve gotten the form notarized, you may submit the form to the County Clerk for filing and pay the filing fee.
2. Appointing a Registered agent
Most commonly called a registered agent, it is also known as a resident agent in some states, we will be using these terms interchangeably in this article. Though it should be noted that in South Carolina, the appropriate name is a registered agent. All LLCs in South Carolina must have a registered agent for service of process in the state of South Carolina.
The registered agent in South Carolina is simply an individual or business entity that has agreed to accept legal papers on behalf of the South Carolina LLC in the event it is sued. The registered agent in South Carolina must be a resident of South Carolina or a business entity that is authorized to do business in South Carolina.
The registered agent in South Carolina can be any person who is at least 18 years old. The registered agent must have a physical street address in South Carolina. Not only that, but the registered agent must be available during normal business hours to accept the service of process.
It should be noted that P.O. Boxes or shipping/ postal company addresses do not meet the requirements of a registered agent and therefore should not be used as the LLC’s registered agent.
An LLC that is not able to maintain a registered agent may be fined and face a possibility of losing its status as an LLC. Failure to name a reliable registered agent could result in the LLC not receiving notifications of lawsuits that are filed against the company. LLCs have 2 options when it comes to appointing a registered agent.
They could appoint a suitable individual to act as the registered agent. They could also appoint a commercial registered agent. Appointing a commercial registered agent does have some added benefits as well as some additional cost.
Some of the aforementioned added benefits include reducing the risk of default judgement and administrative dissolution, protecting your privacy and being able to maintain a flexible schedule and location.
3. File the Limited Liability Company Articles of Organization
A South Carolina LLC is created by filing Articles of Organization with the South Carolina Secretary of State. Among things that must be included in the Articles of Organization would be the name of the South Carolina LLC.
Secondly, you must also include the name and address of the appointed registered agent for your South Carolina LLC. Third, the address of the South Carolina LLC office. This does not have to be an actual office address but if you do have an actual office for the South Carolina LLC you may use that.
The office address must simply be a South Carolina street address where the LLC is located. This address could be your home address or the address of a friend or family member. Furthermore, you will have to include how the LLC in South Carolina will be managed. This can be done by checking boxes available on the Articles of Organization.
Depending on which option you choose, either member-managed or manager-managed, the following steps will apply. If the LLC in South Carolina is to be managed by a manager or a group of managers, you will have to list their names and respective addresses if known.
Moving on, you will also have to state the date that the LLC Articles of Organization will become effective, be it upon the date of filing or a later date. In the event you choose for the article to come in effect on a later date, it should be noted that the later date must not exceed 90 days of filing. Lastly, you’ll need to get the signature of each listed organizer.
When it comes to filing the Articles of Organization, there are 2 options, online and by mail. If you opt to submit the Articles of Organization online, there will be an LLC filing fee of $125 and your LLC will typically be approved in 1 to 2 business days.
It should be noted that most filings are approved within the same business day. If you opt to submit the Articles of Organization by mail, there will be an LLC filing fee of $110. If you choose to do it by mail, your LLC will probably be approved in about 2 weeks.
You will receive confirmation if your LLC has been successfully formed, if not you will receive feedback on proper filing procedures to form an LLC.
4. Prepare an Operating Agreement
Though an LLC Operating Agreement is not required in the state of South Carolina, it is still highly advisable that an Operating Agreement be created. You may be wondering, if an operating agreement is not required by the state, why should an LLC draft one?
Well here are some of the reasons and benefits as to why an LLC Operating Agreement is a must-have for any South Carolina LLC.
As the business grows, the LLC might start looking into hiring managerial staff to take care of the day-to-day business operations, giving more time for the members of the LLC to look at more business development opportunities.
The LLC operating agreement can help define the role of the managerial staff and designate the authority and compensation for when and if the managerial staff wants to leave the company.
Avoiding default state-imposed rules
An LLC that does not have an LLC Operating Agreement will be bound by the default rules of the state that it is bound to, in this case, South Carolina.
Separating professional and personal identities
In the event of a lawsuit, having an operating agreement could help the court determine if the LLC is an entity separate from you, hence maintaining the liability protection offered by the LLC.
The LLC Operating Agreement should include when the LLC was officially formed and who the members are. It should also include how the ownership of the LLC is divided. Multi-member LLCs could use an equal ownership structure or alternatively, assign units of ownership to each individual member in the operating agreement.
It is also useful to include how management and voting procedures should be in the LLC Operating Agreement. This will help determine if the LLC is going to be managed by a member or an appointed manager.
This will also help members determine how voting on business matters should proceed. Some examples of voting procedures that you should include are deciding what to do when a member is unable to vote, or how you would quantify abstained votes.
Some LLCs have also included capital contributions in their LLC operating Agreement. This will help keep track of the amount of money invested into the business by each member. Following that, the operating agreement should also have a section to decide the business’ distributions. This is an important one that helps settle how profits and losses will be divided among each member.
These are just some of our recommendations for the LLC operating agreement and you should feel free to add whatever you deem necessary for your business.
5. Obtaining an EIN
Provided the LLC in South Carolina has more than a single member, the South Carolina LLC must then obtain its own IRS Employer Identification Number (EIN). If the South Carolina LLC does not have any employees, it is still required to obtain an employer identification number.
On the other hand, if the LLC does not have more than one member, the single member of the LLC must acquire an employer identification number if they have employees. Furthermore, if the owner(s) of the LLC have decided to be taxed as a corporation, and not a sole proprietorship, they will also have to file for an employer identification number.
How much does it cost to form a South Carolina LLC?
The Secretary of State charges a $110 fee to file the Articles of Organization. Additionally, if you wish to reserve the name of your South Carolina LLC, there will be a fee of $25. Though filing all the relevant forms by yourself is the cheapest option to form an LLC, the filing process itself could be complicated if you’re not one of the appropriate amounts of research.
As a result, you may end up missing some important forms that may lead to complications with your South Carolina LLC. If you’re looking for other options, you could opt to hire a lawyer to assist you in forming your LLC in South Carolina.
Though this may not be the most wallet-friendly option, it will no doubt ensure a smooth process. Lastly, another option that you could consider is looking at LLC formation services available online. These options are generally cheaper and could come with some added benefits.
Is a Business License Necessary in South Carolina?
Well, this question is subject to the type of business you intend to operate in South Carolina. Your South Carolina LLC may need to obtain other local and state business licenses depending on your type of business.
If you are unsure about the types of business licenses you need, you could check with the clerk of the city where your LLC’s primary place of business is located. In regards to the state license, it is advised that you consult the Licenses, Regulations, Permits, and Forms section on the South Carolina government website.
Can a Foreign LLC do Business in South Carolina?
For a foreign LLC to do business in South Carolina, it must register itself with the Secretary of State in South Carolina. Before doing business in South Carolina, you should ensure that the name of your LLC is available in South Carolina by checking in the South Carolina business name database.
A foreign LLC must also appoint a resident agent in South Carolina that has a physical address in South Carolina for service of process. Once again, the resident agent can be either a resident of South Carolina over the age of 18 or a business entity authorized to do business in South Carolina.
To register your foreign LLC, you must file an Application for a Certificate of Authority to Transact Business. This file unlike the other forms in this article must be filed by postal mail.
Accompanying the completed application should be a certificate of good standing or legal existence from the home state of the LLC and a filing fee of $100. It should be noted that the certificate of good standing or legal existence must not be more than 30 days old.
How Do I Get a Certificate of Existence in South Carolina?
You might be wondering, what is a certificate of existence? Do I need one? A certificate of existence or certificate of good standing in some states is a state document that verifies that your business was legally formed and has been sufficiently maintained.
Well you do not necessarily need a Certificate of Existence to run your business in South Carolina, there are some instances where having a Certificate of Existence may be beneficial (e.g. registering to do a business in other states, opening a business checking account, etc.). Below is a more detailed breakdown of how to get a Certificate of Existence.
You can make a request for a certificate of existence by submitting a Business Filing Document Request Form. Once you have completed this form, you will have to submit it with a $10 filing fee to the Secretary of State’s office. This can be done by mail or in person. The processing time is about 3 days, not including mailing time.
After you have obtained your Certificate of Existence, it will not expire. However, most entities that request to see your Certificate of Existence will have their own guidelines for the validity of your Certificate of Existence / Certificate of Good Standing.
Can I form a single-member LLC in South Carolina?
When it comes to forming an LLC in South Carolina, the single-member LLC is no different from the multi-member LLC. The steps needed to form an LLC are the same as listed above. Single-member LLCs do have additional flexibility when it comes to filing a tax return.
How Do I Dissolve my LLC when I am Done?
When you wish to close your business and cease all operations, you will want to properly dissolve your LLC to limit the chances of lawsuits and government fees. Similar to forming an LLC, some steps must be considered when you intend to dissolve your LLC.
Among the important steps would include voting to dissolve the LLC, filing the proper dissolution forms, cancelling out-of-state registrations, and possibly getting a tax clearance. It is advised that you do further research about dissolving LLCs as it could become a complex task for someone inexperienced.
Once again, we would recommend you contact your lawyer regarding this matter or seek an LLC Formation service. By following these steps you are guaranteed to limit your liabilities.