How to Start a Sole Proprietorship in South Carolina
Starting a sole proprietorship in South Carolina is a relatively straightforward process that doesn’t require any formal paperwork. You should take some important steps to ensure your business is legally compliant and set up for success. This guide will take you through each step of the process and provide insights to help prospective business owners launch their new businesses in South Carolina.
What is a sole proprietorship?
A sole proprietorship is a straightforward type of business structure. It’s owned and run by a single person responsible for the business and its debts. They are simple to set up and, because of this, are popular with entrepreneurs. Unlike other business structures such as limited liability companies (LLCs) or corporations, there’s no legal divide between the business and the owner.
While a sole proprietorship offers simplicity and flexibility, it has some downsides. The main disadvantage is the lack of asset protection. As a sole proprietor, your belongings, like your car or house, are at risk if your business gets into debt or has any legal duties.
A step-by-step guide to starting your South Carolina sole proprietorship
Choose a business name
By default, sole proprietors must use their legal name as their business name. If they wish to use a different name, they must file a “doing business as” (DBA) or trade name.
Although South Carolina does not require sole proprietors to register DBAs, it can be beneficial for branding and banking purposes.
To file a DBA, you will need to follow these steps:
- Choose a business name: Select a name that describes what your business does and isn’t already in use in the state of South Carolina. A well-thought-out name can be an early marketing tool, so try to think of something engaging and descriptive.
- Check availability: Once you have chosen your name, you should confirm it is unique, as this will help your future customers and clients find you.
Check the following government databases:
- You can check the South Carolina Secretary of State business name search to see if your name is already being used in the state. If your name is being used, we recommend returning to the drawing board and choosing a new name.
- Check the US Patent and Trademark Office’s trademark database (USPTO) to make sure you are not infringing on any other businesses’ intellectual property or trademarks.
- Check online availability: It’s crucial to ensure your business name is available as a .com domain for your website. You should also check that social media handles with your business name are available. Maintaining consistent domains and usernames can create a strong brand identity and make it easier for potential customers and clients to find you.
- Register the business name: Unlike most states, the South Carolina Secretary of State does not recognize DBA names for sole proprietorships. Only corporations and partnerships can register assumed names with the state.
If you wish to register your name, you must register it with the county clerk or city where you do business. There is normally a filing fee associated with registering your DBA. Here is a full list of South Carolina counties. If you want to protect your business name further, we recommend filing for a trademark with the USPTO.
Obtain an (Employer Identification Number) EIN
As a sole proprietor with no employees, getting an EIN might not be necessary. Your Social Security Number (SSN) can be your tax ID.
However, we do recommend getting one as there are many benefits:
- Business banking opportunities: An EIN allows you to open a business bank account separate from your finances, making tracking your business income and expenses easier.
- Establishing business credit: An EIN enables you to establish a credit profile for your business, which would be useful if you apply for business loans or credit cards.
- Eases the hiring process: If you plan to hire employees in the future, having an EIN is necessary for reporting wages and fulfilling other tax obligations.
- Enhances business privacy: Using an EIN instead of your Social Security Number (SSN) on business-related documents can help protect your personal information.
- Prepares for business growth: If you plan to expand your business or change its structure, having an EIN will make the transition smoother.
You can apply for an EIN through the Internal Revenue Service (IRS) website. The process is free, and you will receive your EIN straight away upon completing the application.
You can apply for your EIN here.
Obtain South Carolina business licenses, permits, and zoning clearances
- South Carolina does not have a general business license, but some professions and industries may require state licenses.
- You will likely need additional licenses.
- The Secretary of State’s website has a section about business licenses, permits, and registration with links to the Department of Consumer Affairs Business Licensing and Department of Labor, Licensing, and Regulation (LLR)
- A useful resource is the South Carolina Business One-Stop, which is a useful website that can guide you through many of the intricacies of starting your own business.
- Local licensing requirements can vary depending on the city or county where your business operates. Some municipalities, such as Charleston, Myrtle Beach, and Spartanburg, may have licensing requirements.
- Most businesses do not require federal licenses, but if your business involves activities regulated at the federal level, you may need federal permits or licenses. The US Small Business Administration (SBA) provides a comprehensive list of federal agencies that issue licenses and permits.
Register for taxes
In South Carolina, sole proprietors must declare all business income and losses on their personal tax return, Form 1040, using an attached Schedule C. Your net business income will be taxed at individual income tax rates.
As you are deemed self-employed, you must also pay Social Security and Medicare taxes, calculated using Schedule SE.
Additional state and local taxes
- You may need to register with the South Carolina Department of Revenue (DOR) for various business taxes, such as sales tax, use tax, and employer withholding taxes.
- The DOR website provides resources and information on registering and filing taxes for your business.
- The South Carolina MyDORWAY portal allows you to pay taxes online after you have registered.
After securing your EIN, signing up for federal taxes, and getting the necessary licenses, you’ve crossed off all the big tasks required to launch your sole proprietorship.
Next, we’ll share some additional steps to help keep your small business aligned with rules and organized.
Open business bank accounts
Keeping your personal assets safe and creating segregation with your business finances is vital. Opening a dedicated business bank account will help you move towards this:
Setting up a business bank account comes with a host of benefits, such as:
- Simplified bookkeeping and record-keeping: When your personal and business finances don’t mix, keeping track of what you earn and spend is much simpler.
- Facilitates accurate tax reporting: If you have a bank account just for your business, spotting and reporting business transactions on your tax filings becomes much easier.
- Demonstrates professionalism: A business-only bank account gives your business a professional look and feel, boosting your credibility with customers, suppliers, and banks.
Get liability insurance
Being a sole proprietor means that you alone are responsible for any business debts, which makes insurance a key piece of your business strategy. This can help guard you against unexpected claims or incidents. Here’s what we suggest you consider:
- General business liability insurance: This policy takes care of claims related to damage to property, physical injury, or personal harm that might be connected to your business.
- Professional liability insurance: This type of insurance is vital if your business provides services. It helps protect you from alleged supposed negligence, errors, or oversights in your services.
Maintain business records
South Carolina requires new businesses to maintain complete and accurate accounting records. Detailed record-keeping helps maximize tax deductions and organize your finances.
We recommend keeping records of the following:
- Income earned
We recommend using bookkeeping software, spreadsheets, or an organized filing system to stay on top of your record-keeping. This will ensure you have all the necessary documentation come tax time.
Sole proprietorship vs. LLC
For some small businesses or startups, forming an LLC may be preferable to a sole proprietorship.
Here are some key advantages an LLC holds:
- Liability protection: LLCs legally separate your personal and business assets. Sole proprietorships do not.
- Credibility: An LLC’s structure appears more professional with customers.
- Growth potential: LLCs are better suited if you plan to expand your business.
- Tax flexibility: LLCs allow you to choose how your business is taxed. Sole proprietorships do not.
However, there are tradeoffs to consider:
- Complexity: LLCs filing articles of organization and annual reports. Sole proprietorships have less paperwork.
- Cost: LLC formation and maintenance fees are higher than a sole proprietorship.
- Consult a tax professional to decide which structure best fits your business.
- Weigh liability protection vs. simplicity based on your goals and risk factors.
Do I need to register my sole proprietorship with the state of South Carolina?
No, South Carolina does not require sole proprietors to register their businesses with the state. You may still need to obtain license permits and register for taxes, depending on the nature of your business activities.
Can I use a DBA (doing business as) name for my sole proprietorship in South Carolina?
While there is no formal registration process for DBAs, you may still want to consider trademarking your business name or registering it with your county for branding and banking purposes.
What taxes must I pay as a sole proprietor in South Carolina?
As a sole proprietor in South Carolina, you may need to pay various taxes, such as sales, use, and employer withholding taxes. Register with the South Carolina Department of Revenue to determine your specific tax obligations.
Do I need a registered agent?
No, sole proprietors do not need registered agents. However, all South Carolina LLCs must have registered agents. This adds another layer of complexity to forming an LLC.
What is the difference between a general partnership and a limited partnership?
A general partnership involves all partners sharing equal responsibility for the business, including liabilities and management duties. In a limited partnership, some general partners manage the business and assume full liability and limited partners contribute capital but have limited liability and no management role.
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