Start an LLC in
South Carolina
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While South Carolina has an income tax for businesses at 5 percent, it is one of the lowest in the southeast. However, a benefit is that South Carolina has green initiative credits available, which cuts up to 50 percent of the income tax. Other benefits of incorporating in South Carolina include sales tax incentives (discounts), property tax exemptions, and no filing minutes requirement.
While those are important in and of themselves, the most important benefit of registering an LLC is having the ability to help protect your personal assets from business creditors. We’ve already mentioned more favorable tax treatment in certain instances, but forming an LLC also has another major benefit: It makes it easier to manage regulatory and compliance matters.
Before starting the formation of a South Carolina LLC, you’ll need to gather information, including a registered agent, the agent’s address and phone number, the members and their contact information, including email addresses, phone numbers, and mailing addresses, and a description of your business.
You will go through six steps to create an LLC in South Carolina:
Keep reading for a detailed explanation of each step.
Step 1: Name your South Carolina LLC
Once you choose a name, you must ensure that it is unique. It cannot be the same or similar to another business’s name in South Carolina or a business that has been trademarked under federal rules.
South Carolina requires you to include one of the following in your business name:
- Limited Liability Company
- LLC
- L.L.C.
If you create a limited liability partnership, you will use “limited liability partnership” or its abbreviations.
Additionally, you must avoid certain words, such as “bank” or “university.” You also cannot choose a name that people associate with government entities.
Reserve a business name (optional)
Before you can reserve a business name, you must search the name to ensure that it is not in use by another company. Reserving a name is not mandatory—if you are not quite ready to register the business name, you can reserve it.
File a DBA (optional)
If you want to use a “doing business as,” or a DBA, you do not register the DBA with the Secretary of State. However, the DBA cannot be the same or similar to another business name. To ensure the DBA name is not in use, search the South Carolina trademark listings. If you want to protect your business’s DBA name so another person cannot use it, you can trademark the name.
Register your name for trademark
You can register your business name as a trademark. In fact, if you use a DBA, because you cannot register a DBA with the South Carolina Secretary of State, you should trademark your name so that another person cannot use it for his or her business.
If you register a trademark with South Carolina, it does not protect your business on a national level. For that, you would have to register it with the United States Patent and Trademark Office.
To register a trademark for South Carolina, complete the Application for Registration of a Trademark or Service Mark. Forward it with the applicable fees to the South Carolina Secretary of State’s Office. The fees are non-refundable; thus, if you have questions, contact an intellectual property attorney to help you complete the application.
The mailing address is:
South Carolina Secretary of State
Attn: Trademarks Division
1205 Pendleton Street, Suite 525
Columbia, SC 28201
Step 2: File articles of organization
The incorporating documents for a limited liability company are articles of organization. These are the barebones of the LLC. The initial members put the details into an operating agreement, which dictates how the LLC is run. The operating agreement includes voting on members and running the company, large purchases and sales, and just about anything else you want in the operating agreement.
However, the articles of organization must include:
- The business name
- Statement of purpose that defines your business goal. Do not get too detailed with this, as you may want the flexibility to add additional business dealings
- The duration of the LLC. If you intend to limit the time, you must include the time frame that the LLC will be active. Otherwise, include a statement that the LLC is perpetual (no ending date)
- The legal address of the business. It may be your home address if you run the business out of your home, but it cannot be a post office box
- The registered agent's name, address, phone number, and email. You must include a registered agent
- Define the LLC's management—is it member-managed or manager-managed?
SC articles of organization fees
During the process of setting up an LLC, you will have some fees to pay to South Carolina. Filing the articles of organization registers the business with the state. As of the second quarter of 2022, the filing fee is $110. If you need to amend the articles of organization, the fee is also $110.
If you are only interested in reserving a name for now, the fee to reserve is $25. If you need to file a statement of change of designated officers or registered agent, the fee is $10.
Additional fees include:
- Articles of termination: $10
- Application reinstatement after the state administratively dissolves the company: $25
- Any time the state has to serve you: $10
- Copying: $1 for the first page and $0.50 for each additional page
- Certification of a document: $2
SC's requirements
The articles of organization may include anything you want as long as it is not against state or federal laws. Otherwise, the articles must contain:
- The company's name
- The initial designated office's address
- The name and street address of the registered agent
- Each organizer's name and address
- If the company is a term company and the term specified
- Whether the company is manager-managed or member-managed. If manager-managed, the articles of organization must include the name and address of the initial managing members
- The members liable for the company's debts
How to file
The quickest and easiest way to file your new LLC is online. If you wish to file using paper forms, you can only reserve the name of a new business. You will have to register the business online. Return the appropriate fee and the form to: Secretary of State, Corporate Filings, 1205 Pendleton Street, Suite 525, Columbia, SC 29201.
Open an LLC in South Carolina, Hassle-Free
Step 3: Choose a registered agent
Before you can complete the registration process, you need to choose a registered agent. You can search for a registered agent, pick someone you know, or be your own registered agent. The registered agent can be:
- An individual who lives in South Carolina and whose business office and registered office are the same
- A domestic corporation
- A foreign corporation authorized to do business in South Carolina
A registered agent must have a physical office in South Carolina. The office must always be staffed during business hours. Thus, if you want to be your own registered agent, someone must be at the business every day during business hours–preferably the person listed as the registered agent.
Registered agents:
- Serve as a contact person for a business. The registered agent's name and address must be made available to the public through the Secretary of State's office
- Corporate liaison. The registered agent is the liaison between your business and the government. The agent accepts legal documents from the state and ensures the business owner receives them
- Service of process. If someone wants to sue the company, it must serve the lawsuit on the registered agent for the business. A registered agent who is not the business owner or member of the LLC also means that you keep your administrative business separate from the company. For example, you might not want your employees to know that you were served with court documents. When the registered agent is at a different address, you can keep that information from employees and customers
Step 4: Create an operating agreement
All limited liability companies should create an operating agreement. This document dictates how the business is run. Even if two or more friends create the business, you should have an operating agreement. That way, when one of the members questions the actions or inactions of another member, you can fall back on the operating agreement.
The operating agreement might contain:
- The effective date
- Effective place of execution
- Fiscal year definition
- Members
- Drafting entity
- Principal place of business
- Location of records
- Registered agent name and address
- Character of business
- Schedule of members and contributions to capital
- Statement of amounts of cash, property, or services contributed by each member
- Managing member employment agreement
- Confidential exhibits
- Date of annual meeting
- Definition of how contributions are handled
- Allocations and distributions of salaries
- Management and major decisions
- Accounting
- Financial statements
- Banking
- Brokerage account
- Transfer of securities
- Written minutes
- Meetings
- Managing members' powers
- Authority of members
- Term of managing members
- Restrictions
- Dissolution of LLC
- Indemnification
An operating agreement is a complex document that includes more than what is listed. It is a contract between members, whether managing or not.
Is an operating agreement mandatory?
South Carolina does not require an LLC to have an operating agreement. The agreement is not filed with the Secretary of State. However, each LLC should have a detailed operating agreement, and every member and managing member, if the LLC has managing members, should have a copy of the operating agreement.
Step 5: Apply for an EIN
Every business should have an employer identification number, even if the LLC has just one person. You can use the EIN in place of your social security number as the EIN is a unique number for the business.
If you choose to incorporate as a limited liability C-corporation, you will enjoy the same personal liability protection as regular corporations—individual protection from lawsuits.
If the business has a separate bank account and an EIN, it is harder for plaintiffs suing you to claim that you as an individual and the business are one and the same.
We provide this service for you, or you can apply for your own EIN. You will need your social security number to apply for the EIN.
Step 6: Comply with SC's tax requirements
All businesses must pay taxes at the local, state, and federal levels. Whether a business pays a certain tax depends on the locality of the business. Usually, if a tax is at the state level, everyone pays it. Counties and cities might have extra taxes for businesses within those jurisdictions.
How your LLC will be taxed
LLC taxation is complex. The Internal Revenue Service has rules based on how you set up the LLC.
Single-member or multi-member LLC
The default taxation method for a single-member LLC is to pass the taxes through to the owner, who then pays the business taxes on his or her personal tax return, as the IRS considers a single-member LLC a disregarded entity. Most individuals will report the taxes on Schedule C.
If the business owes taxes, the taxpayer pays based on his or her personal income tax rate. If the business shows a loss, the IRS deducts the loss from the taxpayer’s personal income.
If the LLC is a multi-member LLC, the taxes pass through to the individual taxpayers’ personal income tax returns. Each member pays taxes on the income pursuant to the percentage of ownership in the LLC. The tax rate is based on each individual’s personal tax rate. Thus, if the LLC has two owners and one has a 60 percent stake while the other has a 40 percent stake, the owner with the 60 percent stake pays 60 percent of the business taxes. The other owner pays 40 percent.
Multi-member LLCs must file Form 1065, U.S. Return of Partnership Income, every year. They must also file Schedule K-1 by March 15 of every year.
Corporate structure
The LLC members can choose to classify the LLC as a C-corporation or an S-corporation. If taxed as a C-corporation, you must file Form 8832 with the IRS. The LLC is then subject to the federal corporate tax rate, which is 21 percent as of the second quarter of 2022. You would file taxes on Form 1120 on your income tax return.
If you wish to opt for S-corporation status, you must file Form 2553 with the IRS. The IRS taxes an S-corporation as if it were a pass-through entity, much like a sole proprietorship. However, salary and distributions are taxed differently. If you elect for the S-corporation status, you will file Form 1120S on your income tax return.
Always check with a tax attorney to determine whether electing C-corp or S-corp status will benefit you at tax time. While you might pay taxes twice on the same dollar, corporations are eligible for deductions and credits that individuals are not.
Income tax
Corporations, including LLCs that opt for the C-corp designation, must file a corporate tax return. You must also file Form CL-1 with the South Carolina Department of Revenue. Estimated tax payments are made using Form SC1120-CDP or online via MyDORWAY. If an LLC has employees, withholds taxes, or makes retail sales, it must also file SCDOR-111 Business Tax Application.
C-corp taxes are currently 5 percent on taxable income. Some businesses, such as doctors, service businesses, contractors, architects, and installation and repair businesses, pay income tax based on gross receipts. Other companies, such as telephone companies, railroads, airlines, and others, use special apportionment methods.
Additionally, C-corporations pay a yearly license fee of 0.1 percent of capital and surplus plus $15.
S-corporations must file SC1120S and are subject to a yearly license fee of 0.1 percent of capital and paid-in surplus. They also have a $15 fee. They are subject to the same tax rate as C-corporations.
In 2021, South Carolina added new rules that allow an S-corp, including an LLC taxed as an S-corp, to have business income taxed at the entity level instead of the shareholder level. The owners must be individuals, trusts, estates, or certain entities not included in SC Code Sections 12-6-530 through 12-6-540 or 12-6-550.
Sales tax
Any business, including an LLC that sells goods and services, must collect and pay South Carolina’s sales tax of 6 percent. In addition to the state’s sales tax, several municipalities also charge sales tax. The local sales tax is in addition to the state sales tax.
Self-employment tax
All LLC members and managers who take profits out of the LLC must pay self-employment tax to the Internal Revenue Service. This tax covers Social Security, Medicare, and other benefits. Currently, as of 2022, the tax rate is 15.3 percent.
Payroll tax
If an LLC has employees, it must deduct payroll taxes. The withholding tax laws in South Carolina state that employers must remove withholding on wages, royalties, prizes, winnings, nonresident contractors with contracts exceeding $10,000, and certain rental and real estate transactions.
Other state taxes
Other taxes South Carolina charges to certain industries include:
- Alcohol and beverage licensing. The type of business determines the tax rate, e.g., retailer, wholesaler, or manufacturer/distributor
- Accommodations. Any business or individual who rents out accommodations to travelers must pay an additional 2 percent tax in addition to the state and local sales taxes
- Bingo
- Coin-operated devices. The state requires owners of coin-operated devices to renew a license every two years. The tax is the renewal fee, which varies based on the type of machines, e.g., Class 1, Class 2, or Class 3
- Motor fuel taxes. South Carolina has several motor fuel taxes on gasoline, blended fuels containing gasoline, gasohol, diesel fuels, alternative fuels, substitute fuels, and blended fuels containing diesel fuels. The state also charges an environmental impact fee of $0.0050 per gallon, except on LP gas, and an inspection fee of $0.0025 per gallon, except on LP gas
- Partnership taxes. South Carolina also charges partnership taxes similar to federal partnership taxes
- Property. The state also taxes property owned by individuals and businesses. While the South Carolina Department of Revenue administers these taxes, they are based on local jurisdictions. Businesses that are subject to property taxes include but are not limited to airlines, carlines, manufacturing, motor carriers, and utilities. The state also charges a business personal property tax on furniture, fixtures, and equipment
- Registration. All retailers must purchase a registration license
- Miscellaneous. The state also charges some miscellaneous taxes, including:
Admissions
Beer
Cigarettes and other tobacco products
Deed recording fees
Electric power
Forest renewal fees
Indigent Care Assessment (hospital)
Liquor
Liquor by the drink
PSC Utility Assessment
Wine
What to Do After Forming an LLC in SC
Open a separate business bank account
Once you form an LLC, you have several additional steps to take, including opening a separate bank account. While this is not mandatory, opening a separate bank account serves several purposes, including:
- The business looks more professional
- Some creditors might require a separate account
- our business accounting is more accurate
- You do not comingle funds, which means that it is more difficult for someone to sue you personally. If you comingle funds, a potential plaintiff could argue that you are just as liable for damages as the business
Deposit any income the business makes into the account. Pay all business expenses from the account, including paying yourself. Other items you should pay from the business account include:
- Taxes
- Filing fees
- Legal consulting fees
- Inventory
- Office supplies
- Registered agent payments
- Utility payments
- Mortgage or rent payments
- Payroll
- Anything else you purchase for the business
Understand ongoing annual LLC fees
South Carolina currently does not require LLCs to file an annual report unless it elects to be taxed as a C/S Corporation.
So, we recommend staying in good standing with the state and maintaining annual compliance in case any requirement changes will arise from the state.
Furthermore, you may have to pay an annual corporate franchise tax and/or non-official annual fees, such as the registered agent service fee.
Set up finances
An LLC requires you to pay for certain licenses and fees each year. The easiest way to stay on top of the different dues dates—if the due dates are not your incorporation date—is to retain a business law attorney to help you.
Obtain relevant business licenses and permits
South Carolina does not have state requirements for licenses and permits. However, several counties and other local jurisdictions require licenses and permits. South Carolina makes it easy to determine which licenses and permits you need by providing a chart based on what county your business is in.
Be sure to verify all licensing and permit requirements with the appropriate local government, including home businesses. If you have a business that requires you to store inventory, verify that you can store that type of inventory at the business. For example, if you have a home business and need to store fertilizer or chemicals, verify that you can store them on residential property.
Verify whether the state or your local jurisdiction requires you to have insurance for the type of business you own. In many cases, the county or state does not require insurance, but it would be prudent to have business insurance coverage, especially for businesses that could pose a danger to customers. For example, an auto repair shop should have garage keepers’ insurance in the event that an employee is injured test driving a vehicle or a customer who wanders into the shop suffers injuries.
Finally, if you have employees, South Carolina requires that you carry workers’ compensation insurance.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
