How to Start an LLC in South Carolina
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For those forming an LLC or limited liability company in the state, you need to understand how to establish a new business in South Carolina. This step-by-step guide will help you work through the process and also provide some tips to get started in The Palmetto State.
If you’ve decided that an LLC is the correct business structure for your startup, you’re not alone. An LLC is a common choice for entrepreneurs because it’s easy to establish, provides personal liability protection, which means your personal assets are safeguarded from things like a business bankruptcy, and does not involve double taxation like other types of businesses do.
Name your LLC
How unique is the business name you want? See if it’s listed in the state’s business directory. Names that aren’t listed are yours to claim.
The first task of creating an LLC is to pick a name. This can be the trickiest part because a business name must be unique from every other business name in the state of South Carolina. More than that, it can’t be confused with another business name in the state. That means it can’t sound or resemble another name.
Protecting your brand name
Something to bear in mind is that although the State of South Carolina won’t allow another business to use the same name, registering it with the state doesn’t give you exclusive rights to the name. Someone else somewhere could use the same name without registering with the state or by using the business name in another state.
To protect the name you choose, you must also register it with the state as a trademark.
Pick a unique name
Research is needed to make sure the name you choose for your business is available to be registered in the state. There is a free name search tool on the South Carolina Secretary of State’s website you can use to check into name availability.
This can be incredibly helpful since the state will reject a name that is too similar to that of another business.
It would be best to search both for exact matches and for names that contain some of the same words you want to include. That way, you will know how many businesses are similar to the one you are starting as well as those who may have similar names.
Reserve a name
Those who find a name they like that is different from those already registered with the state may want to reserve it if they aren’t ready to file registration paperwork to start their entity. You can do that by filing online to reserve a name for 120 days and paying a $25 fee.
Be sure to get the form specifically for LLCs, as there are several forms listed on the site. Name reservations can only be done once. After that, you must either register it or it goes back into the pool of availability.
Social media adds a new challenge to picking a business name. Someone could be doing business without registering with the state using the same name you want. A way to check is to see if your desired name is registered on different social media platforms.
A general web search will reveal if anyone in the country, or the world for that matter, is using the name you want. It’s important to know if any websites are set up with your name as a domain name.
Select a registered agent
South Carolina is like other states in requiring that all businesses have a registered agent listed with the state when they register. A registered agent is someone who can legally accept documents and paperwork on behalf of the business.
The primary reason why a registered agent is required is to accept legal documents, including service of process documents, which are served during a lawsuit. However, they also serve to take notices from different government agencies regarding licensing deadlines, certificates, legal notices, and things like taxes.
South Carolina has a few specific rules for those seeking to be registered agents:
- A registered agent must be at least 18 years old.
- A registered agent must have a physical street address within the state, not a P.O. box.
- A registered agent must be available to accept documents during normal business hours.
South Carolina allows an LLC owner or an employee to be a registered agent as long as they meet the qualifications. You can also have a friend or family member do it.
Another option is to hire a professional company for registered agent services. This has some benefits for business owners including:
- Reduced stress
- A certainty the job is done professionally and correctly within state guidelines
- A certainty you will be informed of all activity and documents
- An assurance of privacy
Professional business services have different rates for registered agent services. The average cost is between $150 to $300 annually.
File Articles of Organization
South Carolina makes it easy to register your business with the state and file Articles of Organization. It offers both paper forms and online filing but encourages filing online as that lessens the chances of rejection, shortens the time for review and approval, and gives you immediate confirmation of receipt.
You will need to set up an online account to work through the process. That includes creating a username and password before going through registering your business.
The form you want for an LLC is Articles of Organization §33-44-202 and §33-44-203. The online system will help guide you to the right form. South Carolina requires some business entities to also file a CL-1 with their registration application to ensure the entity files with the State Department of Revenue but it isn’t required for new LLCs.
Articles of Organization, also called a Certificate of Organization in South Carolina, are basic forms stating the simplest information about a business. State law requires the following information be provided:
- The business name
- The business mailing address
- The name and address of the registered agent
- The name and address of each organizer
- Names and addresses of managers
- Management structure (member-managed, manager-managed, single-member LLCs)
- An optional provision of whether members are accepting financial liability
You can fill out and submit your LLC formation documents here.
South Carolina charges a $110 filing fee to register an LLC within the state with Articles of Organization.
South Carolina processing time
South Carolina is incredibly fast in reviewing and approving new business registrations. Online registrations can be approved within 24 hours. Those mailed are typically reviewed and approved within three days of the state receiving the request.
Create an LLC operating agreement
The State of South Carolina is similar to other states in that it doesn’t require a business to have an operating agreement. However, it is a good practice to have one to protect the business and yourself legally in many different situations.
Operating agreements state the exact process for a variety of practices from daily bookkeeping methods to what happens to profits or losses. Creating one helps LLC members think through the process of how they want the business to function so it creates a good foundation for operations.
It also helps all LLC members discuss these issues so there are no unrealistic expectations or miscommunications, especially regarding things like compensation.
An operating agreement should include:
- Identification of LLC activities
- Identities of major decision-makers
- Voter rights
- Management of member interest transfers
- Identifying Initial contributions
- Management of profits, losses, and distributions
- Management methods, structure
- LLC members’ compensation
- Bookkeeping methods
- Dissolution procedures
It can be challenging to run a business. There is always a lot to do and many details to manage. However, following these steps will help in the initial stages.
Get your EIN
An employer identification number (EIN) is an identification number the Internal Revenue Service assigns to a business once it registers with it. It is akin to a Social Security number that people use and your business will use this number for almost everything including hiring people, setting up a checking account, getting a loan, and even applying for certain grants or federal monies.
You will need to go to the IRS website to apply for an EIN. It isn’t a difficult task and the agency will usually assign one immediately after you request it.
Not all businesses need an EIN. Sole proprietors, for instance, don’t need an EIN. However, you do need an EIN, if your business:
- Hires employees
- Files business taxes
- Is a multi-member LLC
- Is bought by you from someone else or you inherited it
- Offers a Keogh plan or solo 401(k) retirement plan
- If it ever files for bankruptcy
Open business bank accounts
Something that needs to be done before you start doing business is opening a business bank account. In South Carolina, you will need your EIN and likely your state tax identification number from the Department of Revenue, along with your Certificate of Organization from the state, to open most business checking accounts.
While many businesses have their payment system or merchant services connected to their primary bank account, it functionally works better to have those go into either a savings account or a separate checking account. Transfer those over to the primary account at the end of the month. The reason is that some merchant services pull fees out of the connected account. You don’t want surprise fees coming out of an operations account.
Many banks and credit unions could provide business accounts but it may serve you best to choose one that is connected to the U.S. Small Business Administration (SBA). The SBA offers small business loans that only connected banks have and that could prove advantageous.
The SBA has a list of approved banks in South Carolina. The four top banks listed by the SBA for South Carolina are TD Bank, U.S. Midwest Savings Bank, Wells Fargo, and Live Oak.
A business credit card could be helpful too.
Review LLC tax rules in South Carolina
The South is noted for its low tax rates and South Carolina is no exception. It has a flat corporate tax rate of 5% and personal income taxes are taxed marginally with rates starting at zero and going up to 7%.
South Carolina has a sales tax rate of 6% imposed on all retail sales. Local cities and counties can impose another 1% sales tax for local use if approved by voters.
For tax purposes, LLCs are typically set up as pass-through entities, which means profits are taxed on the owner’s personal tax returns. The company itself doesn’t file LLC tax returns. Federal taxes and state taxes are paid on the profits but are all done through personal returns.
File annual return
Once you become a registered business with the State of South Carolina, you will need to fill out an annual return.
The Secretary of State in South Carolina doesn’t require annual reports as other states do. An annual report updates the state on any organizational changes the business made over the past year.
While there is no annual report (or Statement of Information) required from the Secretary of State’s office, the Department of Revenue does require annual returns. Failing to file it with the state taxing authority could mean the Secretary of State could dissolve your business.
An annual return, which is a tax return to pay state taxes due, is due whenever the business taxes are due. South Carolina bases that on when you close out your fiscal year. Businesses that close out their books according to the calendar year will have an April 15 due date.
You can find out more about filing annual returns in South Carolina here. Filing these documents on time keeps your business in good standing.
Get insurance for your LLC
One of the most important things you can do as a business is getting insurance. There are several types you will need including liability, worker’s compensation, motor vehicle insurance for company cars, and property insurance.
The state doesn’t require liability insurance but it becomes a crucial element if a customer or anyone else sues you over something like damage to property or an injury related to your product or service. Liability insurance companies would provide attorneys in that situation and initiate any claims so you aren’t personally responsible.
South Carolina does require worker’s compensation insurance for any business that regularly works four or more workers either full or part-time. Worker’s compensation represents you when an employee files a claim for an injury occurring on the job. It would pay out any claims so you can’t be personally held responsible.
The state also requires businesses that own company cars to have auto insurance to protect against liability in case of a wreck.
Property insurance isn’t required by the state but could be a stipulation of a landlord if you are renting business space. Property insurance protects your assets of property and equipment in case of fire, theft, or natural disaster.
Additional resources to help you set up a business in South Carolina
South Carolina has some excellent resources to help you get started in the business. Those include:
Is it easy to start a business in South Carolina?
The state online system makes it easy and South Carolina’s low cost of starting a business makes it simple. Its lower cost of living and low taxes are beneficial to new businesses and it’s considered one of the friendliest states to small businesses in the country.
Can I run a business out of my home in South Carolina?
Yes, but it depends on the city or county you live in. Depending on your business, you may need to get a business license and register your business with local entities as well as the state.
Do I have to have a professional license in South Carolina?
It depends on your industry. Professional licenses are managed by the South Carolina Department of Labor, License and Regulation. A list of required professional licenses can be found on the South Carolina Division of Professional and Occupational Licensing Board website.
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