You want to start your company. The best business structure that you can use is the Limited Liability Company, or you can say LLC. So. If you wish to form an LLC in South Carolina, you have to file some paperwork. After registering with the state, the government will recognize your company. But, before that, you have to follow some steps. In this article, we will take a glance at all the steps necessary to form an LLC. We will also look at some of the vital steps after the LLC is formed.
What is an LLC?
LLC is also known as a limited liability company. It is a mixture of a corporation with a partnership. So, you get the best of both worlds. Now, you want to start your business in South Carolina; this is a perfect choice. Let us look at all the benefits of forming a company in South Carolina.
- The start-up cost is low in the state. Anyone who is starting their business will be happy to know this. South Carolina does not ask for hefty fees.
- There is no franchise or corporate tax. Yes, the LLC does not have to pay for them.
- The property tax is relatively low in the state; it is one of the lowest taxes in the United States. It is good news for the new entrepreneurs.
Now, we know what LLC is and why it is beneficial to form one. It’s time to look at all the steps required to create one. Follow the article till the end. And you will be ready to start your journey.
Step 1: Select a name for your LLC
The first step that you have to do is to select a name for your company. You have to mention the name in the formation documents. So, before finalizing it, make sure that your desired name is unique and distinct. Your company will be associated with the name. So, it should be something that will represent your business. People should get an idea of what you deal with by looking at your name. While choosing the name, keep in mind that there are guidelines that you have to follow.
- The name of the company must have the word limited liability or its abbreviations.
- Also, make sure that the title you have selected is not giving any wrong message.
- The name should not have any vulgar words
- some words are restricted to use, such as a bank, university, insurance, lottery.
Also, the essential point is that the name should not be similar to any other companies out there. If you find the similarity in the terms, you have to make some changes to your keywords to make them distinct. You can also check for the trademarked name. Also, remember to check the availability of the URL. At some point, you will create a website for your business, so it is better to register the domain name now.
Now, you have decided on a name. After putting in so many efforts, you have come up with a perfect name for your company. But due to some reasons, you cannot launch your LLC right away. A thought comes to your mind that what if someone uses the name before you. Fear not, as the state has a perfect solution to your problems. You can reserve/lock the name if you want. For that, you have to go to the Business entities online page and submit the form. Or you can also hand-deliver the application to the following address:
Secretary of State
Attn: Corporate Filings
1205 Pendleton Street Suite 525
Columbia, SC 29201
But if you are going to start your business soon, then there is no requirement to reserve the name. You have to pay a fee of $25. You can lock the title for 120 days.
Step 2: Decide upon the structure
Before moving forward, you have to decide your management structure. The owners of the LLC are known as members. You can also hire managers if you want. There are two management structures that you can opt for: member-managed and manager-managed. In the member-managed management, the members take the decision related to the company. In the manager-managed, this responsibility goes to the manager of the company. The owners appoint a manager that takes care of the activity of the LLC.
There can be any number of members, as there is no limit on the member’s counts.
Step 3: Appoint a Registered Agent
You have to appoint a registered agent for your LLC; the registered can be a person or a business entity. It works as a point of contact between the state and the company. All the legal correspondence, notices, reminders go through the registered agent. It is made mandatory by the state to assign a registered agent. Working without one is illegal and can lead to circumstances that are not good for the company. There are some requirements on who can be the agents. If it is a person, then they should be 18 years of age or above. Also, that person should have an address in the state.
Similarly, they should have an address and the authorization to conduct business in South Carolina for the business entity. You can also be your registered agent. But this notion comes with some drawbacks, such as your information will be mentioned in the public records. Also, another point is that the agent receives all sorts of correspondence, whether it’s a notice, lawsuits, etc. Suppose you are the agent of your company. There is a possibility that you could be served in front of the customers/clients. That will not be good for the business. You have to be present during office hours to receive the mails; that is not feasible all the time. Apart from the individual or the entity, you can also hire services for the registered agent. They will also help you in the formation of your company. There are various services available; you can select whatever suits you best.
Step 4: Submit the Articles of Organization
This document is the most important one. Without Articles of Organization, you won’t be able to start your LLC. You know the name of your LLC, its address, the management structure, and the registered agent. Now, it is time to make it official. The Articles of Organization makes your business legal with the government. So, carefully file the Articles of Organization with the Secretary of State.
There is some information that must be included in the Articles of Organization
- the LLC’s name and address
- the registered agent’s name and address
- the management structure.
- The formation date of the LLC
Also, remember that the information you add to this document makes it official. So before entering the name of the registered agent, members take their consent.
There are ways through which you can submit the Articles of Organization: Online, Postal mail, or hand-delivery. You can choose any option that is suitable for you. You have to pay $110 for any method you select.
The fastest way to submit the Articles of the organization is through the internet. You can apply online on the online business filing system. In 24 hours, your request will get processed.
Postal mail submission
if you want to send the application via mail, you have to download the form from the website. After taking a printout of the paper, fill in the details, mail the form, and pay the address mentioned below. Within 2-3 days, your application will be processed.
South Carolina Secretary of State’s Office
Attn: Corporate Filings
1205 Pendleton Street, Suite 525
Columbia, SC 29201
The third option is to deliver the application personally. You can go to the address mentioned above and submit your application.
Step 4: Draft an Operating Agreement
An operating agreement is not legally mandated; another part of your South Carolina LLC’s foundation is the LLC Operating Agreement. This document is vital for your business. It is a document that binds the members of the company into a legal agreement. It defines the roles and responsibilities of each member. Why is it so important? One thing you have to remember is that without an operating agreement, the state decides for you. Let us say there is a dispute regarding the splitting of the profit. Verbally you agreed that the gain should be divided based on the contribution made by the members. Now, one of the members is demanding an equal share. If you have an agreement, then that can be used as a piece of evidence. But if you do not have one, then the decision goes to the state. State rules are the same for all the companies, so mostly they do not work in your favor. Like most of the states have the policy of equal share of profit. This is only one example. Situations can arrive where you will need an operating agreement. This agreement will help you in managing the company in a better way.
If you have sole-proprietorship, then also the operating agreement is a must. You can set rules for your company; it will run on the rules set by the state. Also, it will help you to maintain that your expenses are different from the business. Some investors and partners would also love to work with the company with an operating agreement. They will be assured that the rules are set out, this company will work well and it is an excellent choice to work with you. And the most crucial part is that it will help you to manage internal disputes. Now, you know the importance of it, do form one. There are two ways for that. You can assign a lawyer/attorney to write down the operating agreement for your LLC. As a professional, the lawyer will add all the essential and tiny details too. You can also write it; there is no need for any special training for that. Several templates are available online, which you can use to draft the agreement.
What should be in the operating agreement?
As the operating agreement is flexible, you can add any details you want. Some of the essential points that should be present there are:
- The responsibilities of each member
- how the profit is to be divided
- the voting rights
- how any new member will be added or what if members resign
- the management structure
- what will happen in the event of a death of a member
These are just some points. You can write as many as you want and try to be as inclusive as you can.
Step 5: Obtain an EIN
You are almost finished with the legal requirements with this step. You have registered your company with the Secretary of State now; you have to do the same with the IRS. IRS is short for Internal revenue services. You will obtain an Employer identification number ( EIN). It is used to pay taxes. It works the same as a social security number. With the help of EIN, you can pay the taxes, open a bank account, hire employees, apply for a loan, etc. Getting an EIN is essential because you have to use your Social security number; this idea might not be good. As if you use your SSN everywhere for business purposes, there is a possibility of a security/privacy breach. You don’t have to pay anything to the IRS. There are three ways you can apply:
This method is the fastest; you will get the employer identification number instantly. You can apply online from Monday to Friday from 7 am and 10 pm. So, if you don’t like to wait and want this process to be faster, this method is for you.
- Via Fax
The second way to get an EIN is through Fax. For that, you have to go to the official website and get Form SS-4. After filling, fax the form to the office at (855) 641-6935. It will take four working days to get your employer identification number.
- Via Postal Mail
The third method is to send the form via postal mail. But remember that is the most delayed method. It can take up to four weeks to get your number. For this method, also you have to download Form SS-4. After that, fill the form and send the form to the following address:
Internal Revenue Service Operation
Attn: EIN Operation
Cincinnati, OH 45999
Step 6: Business taxes and business Licensing
One of the perks of an LLC is that you don’t have to pay double taxes. The taxes are paid through owners’ tax returns. But that doesn’t mean there are any other taxes to be paid. Also, remember to file the taxes on time, as if you failed to do so, it can result in tax penalties. Also, it will affect your position with the state.
- Federal income taxes
LLC is known as passed-through business entities. It means that the LLC owners do not pay the income taxes straight away to the Federal government. They mentioned the losses and gains on their tax returns. Also, LLC has a flexible tax structure. If you want, you can also pay your taxes as a corporation. For that, there is a separate corporate income tax that you have to file.
- State and local taxes
The good news is that state taxes are not different from federal taxes. In-state also, the owner passes the business gains and loss through their returns. There is no provision for the privilege or franchise tax here in South Carolina.
There are local taxes too. Each city, county, and municipality have their provisions for taxes. It depends on the location. So, you have to talk to the local bodies to get more details about the local taxes before moving forward.
We have talked above that you can opt to pay the tax like a corporation. If you do so, there are two taxes that you will have to pay: Corporate Income Tax and Corporate license fee.
- Other taxes
Under some specific conditions, you might pay some additional taxes. That depends on what kind of your business is. If you deal in sales of goods, you will have to pay Sales and Use tax at 6%. If your LLC has personnel/employees, you will have to file the unemployment taxes and withhold tax. You can register for these taxes on Business tax registration, state’s online portal. Also, there are medicare taxes and social security taxes that you will have to pay.
- Business Licenses/Permits
Licenses and permits depend on various parameters: Location, type of business industry, kind of business. If you want to run your business without any glitches or issues, you must obtain the required licenses. If you’re going to open a bar, you have to get a liquor license; for the restaurant, you will need a food and safety license, health permit, etc. So for the different industries, there is another license requirement. Working without a license/permit is illegal. If you do so, it will affect your good standing with the government. You can get all the information regarding the licenses and access from the website of the Department of labor, licensing, and regulation. Also, don’t forget to check on with the local government as some local city, county, and municipality will have their licenses.
Steps to take after the formation of LLC
Your work is not done here yet. There are some steps that you have to keep in mind before you open your business.
Opening a business is one thing, and maintaining it is another. It is always better to be informed about the steps that you should take after your company is open for business.
Annual report: Most states need a yearly report submitted by the LLC to keep a record. But this is not the case in South Carolina. They do not demand annual reports.
Bank account: This is the first thing you should do: open a bank account for your business. Managing finance is one of the essential aspects of the company. If you have a bank account dedicated to only your business, it will be easy to manage. You can track all your expenses and also be able to get loans for your business. It also helps to separate the business and personal expenses.
Chartered accountant: When we talk of finances, it is equally important to hire an accountant. An accountant will ensure that all your taxes are paid, keep you updated, and save you from overpaying anything.
A lawyer: It is nothing alarming. Since you are running a business, some notices, lawsuits, and other sorts of things are possible. So, it is better to have a go-to lawyer who will advise you on all the legal matters and help you make the right decision.
Business website: it is the perfect place for a customer to find more details about your business. Online presence in today’s time is essential for growing the business. The aim of any business eventually is to develop. So, create a website that is attractive so that it intrigues the customers. It will help you to increase your customer base. They will get to know how to contact you or place orders, and so on.
With that, we have come to the end of our article. You decided to start your business, with this article you will get all the information required. Take the first step, and everything will fall in place. It might seem lengthy or tedious, but it is not. It is easy to form an LLC. You will not regret it. So, it is time to start your business and grow.