How to Form an LLC in South Carolina!

South Carolina LLC names must contain an LLC designator. The options for this are “limited liability company” or “limited company,” with “limited” abbreviated “ltd.” or “company” abbreviated “co.,” or “LLC,” “L.L.C.,” “L.C.,” or “LC.” This name must also be distinguishable on the State records from the names of all other business entities registered in South Carolina.

Any person may file an LLC’s articles of organization with the Secretary of State, along with a $110 filing fee, to form an LLC. The articles of organization must include the name of the LLC, the name and address of the LLC’s registered agent, the address of the designated office, the name and address of the organizers, whether the LLC will have a set time of existence, if the company will have managers and if so, their names and addresses, and if a member will be personally liable for the liabilities of the LLC.

South Carolina gives LLCs the option, but not the requirement, to enter into a written or verbal operating agreement to regulate the LLC’s affairs. We recommend that the operating agreement be in writing and executed by all members.

EIN: Any South Carolina LLC with employees or multiple members must obtain an EIN from the I.R.S. for taxes. This can be done directly or by hiring an incorporation service to do it for you.

Annual Report: Unlike many other states, South Carolina does not require any annual filings with the Secretary of State.

The South Carolina LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties, protects both majority and minority members’ membership interests, and allows members to protect their control of an LLC.

South Carolina Has a Growing Economy

Each year, South Carolina forms over 23,000 new LLCs.  According to the U.S. Chamber of Commerce, South Carolina ranks second for export intensity and fifth for small business survival rate.

The South Carolina LLC Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses.  Section 33-44-103 states that with specific limited exceptions, an LLC agreement governs the relations among members.  This gives members contractual flexibility to adapt their income streams and risks of loss to further their broader asset management plans.

Formation

The Act does not require filing of members’ names.  A “person” may form an LLC by filing its articles of organization, and the definition of “person” includes almost any kind of business or legal entity.  An LLC’s members may therefore have an entity or person who is not a member file the LLC’s articles of organization with the South Carolina Secretary of State.

Duration

The Act provides for an LLC’s unlimited life.  It distinguishes between “term” and “at-will” LLCs.  A term LLC has the time period of its duration listed in the Articles of Organization.  An at-will LLC does not have a time period listed, and the LLC’s existence can be perpetual.  An LLC’s existence can therefore outlive its members’ lifetimes.

Dealing with Business Partners

The South Carolina LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties.  The Act establishes limited duties of loyalty and care for members of member-managed LLCs.  Section 33-44-103 allows members to narrow the scope of the duty of loyalty, but prohibits them from completely eliminating it.  For example, an LLC agreement may (1) “identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable”; and (2) “specify the number or percentage of members … that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.”  This second element is a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers.  In addition, Section 33-44-103 allows members to narrow, but not unreasonably reduce, the duty of care.

The result is the Act protects both majority and minority members.  It protects minority members because an LLC agreement may not completely eliminate fiduciary duties, even though it may identify activities that do not violate them and prescribe standards for measuring them.  These provisions make minority interests safer investments and therefore more valuable.

The Act protects majority members because it provides a “safe harbor” to facilitate contracts and transactions between an LLC and one or more of its managers or members, or an entity in which they own an interest, if the contracts or transactions meet minimum disclosure, approval, or fairness requirements.  These rules give majority members and the LLC certainty in business planning and the ability to take advantage of mutually beneficial opportunities.

Preventing Unwanted Business Partners

The South Carolina LLC Act allows members to protect their control of an LLC.  An LLC agreement may prohibit members from transferring their membership interests.  But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC, entitle the transferee to inspect the LLC’s records, or make the transferee a member.  Instead, under sections 33-44-502 and 33-44-503, the transferee may receive only the distributions to which the transferor would have been entitled, and all the other members must consent to the transferee becoming a member.

In addition, the Act states that a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a bankruptcy petition, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief.  These events are considered “events of dissociation.”

Creditors Only Get Passive Rights, Not Control Rights

If a judgment creditor of a member obtains a charging order against the member’s membership interest, it is a lien on the member’s interest in distributions.  If the judgment creditor forecloses on the lien, a purchaser at the foreclosure sale has only the rights of a transferee.  This sequence is a judgment creditor’s exclusive remedy.

A South Carolina LLC must continuously maintain an agent for service of process in the state.  A commercial registered agent service may act as a South Carolina registered agent.

Because of the advantages of forming an LLC in South Carolina, over 23,000 new LLCs are formed in the state each year.
Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in South Carolina.  What are the advantages of a Delaware LLC?  (Delaware LLC Advantages).  We can then help you file an application for registration to do business in South Carolina with your Delaware LLC (Form Delaware LLC).