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If you’re in the process of starting a business in the states, you are probably considering which type of business entity is best for you and which state should you choose.
You might come to the conclusion that a limited liability company (LLC) is the better alternative for you as there are some significant advantages to it: most importantly, making an LLC provides the ability to help protect your personal assets from business creditors. Another major benefit of forming an LLC is that it makes it easier to manage regulatory and compliance matters.
If you choose to start an LLC, then South Carolina is definitely one of the states you should consider. SC has a 5% income tax for businesses, which is one of the lowest in the southeast, in addition to having green initiative credits available, which cuts up to 50% of the income tax. Other benefits of incorporating in South Carolina include sales tax incentives (discounts), property tax exemptions, and no filing minutes requirement.
In order to start an LLC in South Carolina, you’ll need to gather information and follow the following steps:
Keep reading this post for a detailed explanation of each step.
The first thing is to choose a name you like for your business, which is also a crucial part of establishing and launching a new business. You will need to make sure that it follows the specific requirements in SC, and there are additional actions to consider if they’re relevant to the state your business is in, such as reserving the name to buy some time before filing your LLC, protecting it with a trademark, securing a domain, and more.
The following are the main requirements when choosing your LLC name in South Carolina:
Reserving a business name in South Carolina is not mandatory or necessarily required. If you came up with a name in accordance with the state’s requirement, but you’re not quite ready to register your LLC name for any reason, you can reserve it for up to 120 days. You’ll need to fill out the relevant form (F0083, which you can find on the SC Secretary of State platform) and pay a $25 fee. Note that the 120-day reservation period is non-renewable.
If you want to use a different name when you conduct business (and not your LLC name), you’ll need a “doing business as,” also known as a DBA. You don’t need to register the DBA with the Secretary of State in SC, it is done in the county in which your business operates.
However, note that your DBA cannot be the same or similar to another business name that is already listed as a trademark in the state. 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.
Another layer of protection to consider in that aspect is to register your business name as a trademark. In fact, if you use a DBA you should trademark your name so that another person cannot use it for his or her business, because you cannot register a DBA with the South Carolina Secretary of State.
To register a trademark in 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 (see address below). The fees are non-refundable, so if you have questions, it’s best to contact an intellectual property attorney before applying.
Mailing address for trademark application:
South Carolina Secretary of State
Attn: Trademarks Division
1205 Pendleton Street, Suite 525
Columbia, SC 28201
Note that if you choose to register a trademark in South Carolina, it still 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.
Before you can file the documents for your LLC registration, you must choose a registered agent, as it is one of the requirements to register an LLC in SC. You can be your own registered agent or pick someone you know as long as you meet the state requirements (see below), or you can hire a registered agent service.
Either of the following can serve as a registered agent for an LLC in SC:
Open an LLC in South Carolina, Hassle-Free
The incorporating documents for an SC LLC are articles of organization, and their filing registers the business with the state. The articles need to be filed with the Secretary of State and include a $110 filing fee. If you’ll need to amend the articles of organization, there’ll be an additional $110 fee.
The articles of organization for LLC’s in South Carolina must include the following details:
The quickest and easiest way to file your new LLC articles of organization is online. If you wish to file using paper forms, return 2 copies of the completed articles the $110 filing fee and the form to the following address:
Secretary of State
Corporate Filings
1205 Pendleton Street, Suite 525
Columbia, SC 29201
A recommendation for all limited liability companies is to create an operating agreement. This document dictates how the business is run, and serves as a contract between members, whether managing or not.
Even if it’s friends or family that 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.
Is an operating agreement mandatory?
South Carolina does not require LLC’s to have an operating agreement. The agreement is also not filed with the Secretary of State. However, it is best practice for each LLC to 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.
Every business should have an employer identification number, known as EIN, and so does your LLC (even if it’s a single-member LLC). You can use the EIN instead of your social security number (SSN), as the EIN is a unique number for the business, which helps to protect your privacy and separate your business and personal finances. This way, 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.
You can apply for your own EIN online, or hire a service to do that (we can provide it as well). You will need your social security number to apply for the EIN. If you want to make sure that you need an EIN before you apply for it, you can read more on the IRS website.
In general, businesses must pay taxes at the local, state, and federal levels, and some taxes depend on the locality of the business. Usually, if a tax is at the state level everyone pays it, and in addition to that counties and cities might have extra taxes for businesses within their jurisdiction.
LLC taxation is complex. The Internal Revenue Service has rules based on how you set up the LLC, and in general, LLCs are not taxed at the federal level. Therefore, you’ll need to further understand the possibilities and determine which is best for your LLC structure and needs.
These are your alternatives:
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. 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. Most individuals will report the taxes on Schedule C.
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 according to the percentage of their ownership in the LLC. The tax rate is based on each individual’s tax rate. Thus, if the LLC has two owners and one has a 60% stake while the other has a 40% stake, the owner with the 60% stake pays 60% of the business taxes. The other owner pays 40%.
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.
The LLC members can choose to classify the LLC as a C-corporation or an S-corporation. If taxed as a C-corporation, you’ll file Form 8832 with the IRS. The LLC is then subject to the federal corporate tax rate, which is 21% as of the second quarter of 2022. You would file taxes on Form 1120 on your income tax return.
If you wish to file as an S-corporation instead, you’ll need to 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, but salary and distributions are taxed differently. If you go with the S-corporation status, you will file Form 1120S on your income tax return.
Regardless, 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.
In addition to deciding on how your LLC will be taxed, it’s important to educate yourself on the different types of taxes your business may be liable for, as detailed below.
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.
Any business, including an LLC that sells goods and services, must collect and pay South Carolina’s sales tax of 6%. 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.
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.
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 taxes South Carolina charges to certain industries include:
After your LLC is officially registered there are still some actions to take, either because it is legally required or just best practice. For instance, an LLC requires you to pay for certain licenses and fees each year, as well as non-official annual fees such as the registered agent service fee (if you’re using one).
It is generally recommended to consult with and maybe retain a business law attorney. This is the easiest way to understand the requirements, stay in good standing with the state and maintain annual compliance in case any requirement changes, and stay on top of the different dues dates.
A couple of the things you’ll want to take care of immediately after you open your LLC in SC are understanding if and which licenses and permits you need and obtaining them, and opening a separate bank account for your business.
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.
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:
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, and anything else you purchase for the business.
The filing fee for the articles of organization in South Carolina is $110.
Note that unless you specify a delayed effective date, your LLC is registered as of the day you file the articles of organization, so keep that in mind if for any reason it’s better for you to delay it.
South Carolina currently does not require LLCs to file an annual report unless it elects to be taxed as a C/S Corporation.
In general, there’s no annual registration fee for LLC in SC (they’re not required to submit an annual report). However, you may have to pay an annual corporate franchise tax and/or non-official annual fees, such as the registered agent service fee in the case that you hired a registered agent service.
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.
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