I assist startup and on-going businesses with their limited liability company (LLC) formation and governance needs. Where required, I provide LLC record books, membership interest subscription agreements, operating agreements, membership interest certificates, annual and special meeting notices and minutes, and a host of related documents. I can also assist in the sale or purchase of a member’s membership rights in the company.
If you are in need of a South Carolina LLC lawyer or attorney, I provide a low-cost initial one-hour telephone consultation to prospective clients for only $45.00. To request a consultation, click here.
Why consult with a South Carolina limited liability company lawyer?
The Limited Liability Company (LLC) is a popular business entity that offers the flexibility of a partnership with the liability protection of a corporation. In South Carolina, LLCs are governed by the South Carolina Limited Liability Company Act, which is codified under S.C. Code Ann. § 33-44-101 et seq. This brief guide outlines the process for forming an LLC in South Carolina, as well as the relevant federal and state laws, regulations, and taxation considerations that business owners must address when establishing an LLC.
1. Overview of Limited Liability Companies (LLCs)
An LLC is a hybrid business entity that combines features of both partnerships and corporations. LLCs provide limited liability protection for their owners (members), meaning members are typically not personally liable for the debts and obligations of the LLC. Additionally, LLCs offer flexibility in management, taxation, and operational structure, making them an attractive choice for small businesses, startups, and large companies alike.
Advantages of Forming an LLC
- Limited Liability Protection: Members are shielded from personal liability for the LLC’s debts and legal obligations
- Pass-Through Taxation: By default, LLCs are taxed as pass-through entities, meaning profits and losses are reported on the individual members’ tax returns
- Management Flexibility: LLCs can be managed by their members (member-managed) or by appointed managers (manager-managed)
- Operational Flexibility: LLCs are less regulated than corporations and have fewer formalities (e.g., no board of directors or annual meetings)
2. Formation of a South Carolina LLC: Legal and Statutory Requirements
The formation of LLCs in South Carolina is primarily governed by the South Carolina Limited Liability Company Act, which provides the legal framework for the establishment, operation, and dissolution of LLCs. The relevant provisions are codified in S.C. Code Ann. § 33-44-101 et seq.
Key Steps in Forming an LLC in South Carolina
a. Choose a Name for the LLC
Name Requirements: The name must include “Limited Liability Company,” “L.L.C.,” or “LLC” at the end of the name (S.C. Code Ann. § 33-44-106). The name must also be distinguishable from other registered entities in South Carolina.
Availability Check: Before filing, the LLC name must be available. You can check name availability using the South Carolina Secretary of State’s online database.
b. File Articles of Organization with the South Carolina Secretary of State (S.C. Code Ann. § 33-44-201). This can be done in person, online, or via mail through the Secretary of State’s office. Contents of the Articles of Organization include:
Whether the LLC will be managed by members or managers
Whether the members shall remain so at-will or for a specified term.
Appointment of a registered agent with a physical address in South Carolina. The registered agent is responsible for receiving legal and official documents on behalf of the LLC (S.C. Code Ann. § 33-44-107). A registered agent can be a South Carolina resident or a business entity authorized to conduct business in the state.
c. Create an Operating Agreement
Optional but Recommended: Although not required by law, it is highly recommended that LLCs have an Operating Agreement (S.C. Code Ann. § 33-44-103). This document outlines the management structure, rights, and responsibilities of members and managers, and the distribution of profits and losses.
Content: The Operating Agreement typically covers governance, voting procedures, member contributions, profit distribution, and dissolution procedures. It provides legal protection for members by preventing disputes and ensuring clarity on how the LLC will operate.
Obtain an Employer Identification Number (EIN)
IRS Requirement: An EIN is required for tax purposes, including opening a business bank account and filing taxes. The IRS issues EINs, which are available online at no charge.
Filing Form: The IRS Form SS-4 can be used to apply for an EIN.
File Biennial Reports
Biennial Report Requirement: LLCs in South Carolina are required to file a biennial report (Form LLC-50.1) with the Secretary of State every two years. This report confirms or updates the LLC’s information and keeps the company in good standing.
Filing Deadline: Biennial reports are due by the end of the anniversary month of the LLC’s formation. The filing fee is $25.
3. Federal Law Considerations for LLCs
While the formation of an LLC is governed primarily by state law, federal tax law also applies to LLCs, particularly regarding their tax classification.
Tax Classification of LLCs
Default Classification (Pass-Through Taxation): By default, an LLC is classified as a pass-through entity for federal income tax purposes. This means that the LLC does not pay federal income taxes directly. Instead, the income or losses “pass through” to the LLC’s members, who report them on their individual tax returns.
Single-Member LLCs (SMLLC): Treated as a disregarded entity for federal tax purposes. The LLC’s income is reported on the member’s personal tax return (Form 1040, Schedule C).
Multi-Member LLCs: Generally taxed as a partnership and must file Form 1065 (U.S. Return of Partnership Income). Members report their share of the LLC’s profits or losses on their individual returns (Form 1040, Schedule E).
Election to Be Taxed as a Corporation: LLCs can elect to be taxed as a corporation by filing Form 8832 with the IRS. This election is typically made for tax planning purposes, such as when the owners want to benefit from corporate tax rates or retain earnings within the company.
S-Corporation Election: An LLC may also elect to be taxed as an S-Corporation by filing Form 2553 with the IRS. This election allows the LLC to retain pass-through taxation while avoiding self-employment taxes on a portion of its income.
Self-Employment Taxes: Members of an LLC that is taxed as a partnership or S-Corporation may be subject to self-employment taxes on their share of the LLC’s profits. However, members of LLCs taxed as S-Corporations can reduce their self-employment tax liability by paying themselves a reasonable salary and taking additional distributions.
4. Taxation of South Carolina LLCs
South Carolina State Taxes
Income Taxes: South Carolina taxes LLCs based on their income, but, like federal law, LLCs that are taxed as pass-through entities do not pay state income taxes directly. Instead, LLC members report their share of the LLC’s income on their individual income tax returns (Form SC1040).
Corporate Income Tax Rate: LLCs taxed as corporations are subject to South Carolina’s corporate income tax rate of 5% as of 2026.
Sales and Use Tax: If the LLC sells tangible personal property or provides taxable services, it may be required to collect and remit South Carolina sales tax. Registration with the
South Carolina Department of Revenue is required to collect sales tax.
Franchise Tax: South Carolina does not impose a franchise tax on LLCs.
LLCs that are taxed as corporations may also be subject to the corporate annual report fee.
South Carolina Withholding Tax: LLCs with employees must register for South Carolina Withholding Tax and deduct state income taxes from employees’ wages. This requires the LLC to file periodic withholding tax returns (Form SC 2).
5. Case Law and Legal Precedents
While there is limited case law specifically governing the formation of LLCs in South Carolina, some key cases have addressed issues related to LLC governance, fiduciary duties, and member disputes.
South Carolina Case Law
Dutton v. Horne, 397 S.C. 379 (2012): The South Carolina Supreme Court affirmed the enforceability of LLC Operating Agreements in disputes between members, establishing the principle that courts will enforce the terms of an Operating Agreement unless they are in conflict with public policy.
South Carolina Limited Liability Company Act (S.C. Code Ann. § 33-44-101 et seq.): In Dunn v. Barbour, the court held that LLC members in South Carolina have a fiduciary duty of care and loyalty, which can be altered by the LLC’s operating agreement but cannot be completely eliminated.
6. Conclusion
Forming an LLC in South Carolina is a relatively straightforward process, provided that business owners follow the statutory requirements outlined in the South Carolina Limited Liability Company Act.