How to Incorporate in South Carolina vs.
How to Start a South Carolina LLC
A Guide to Choosing the Best Business Entity in South Carolina
Are you interested in starting a business in South Carolina, but not sure if you should form an LLC or start a corporation? Active Filings has the guide for you! We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in South Carolina. Throughout this South Carolina-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in South Carolina, and learn the disadvantages and advantages of each business type.
Once you’ve decided which business structure best meets your needs, you can hire Active Filings and have our professionals streamline your incorporation process. Sure you can sign up with a more expensive company managed by hedge fund billionaires where you’ll just be a number, or you can choose Active Filings, a small company like yours. Our professional staff will ease you through the business formation process, and pretty soon you’ll see why Active Filings is America’s most reliable business incorporation service.
LLCs vs. Corporations
People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.
- Ease of maintenance
Forming your LLC legally establishes your business, limits your personal liability, and gives you and your business some tax flexibility. Beyond that, maintaining an LLC requires less maintenance than a corporation. When you incorporate you are required to meet certain obligations. You need to file annual reports on time and you need to pay renewal fees for your corporate charter. You also need to have regular shareholder meetings and keep minutes of those shareholder meetings.
- Desired tax structure
LLCs offer flexible taxation. Essentially, every tax year the LLC can choose how it wishes to be taxed. It may want to be taxed as a corporation, for example, and pay corporate income tax on net income. Or it may choose instead to have income “flow through” the corporate form to the member-shareholders, who then pay personal income tax just as in a partnership. Sophisticated tax planning becomes possible with LLCs because tax treatment can vary by year. The biggest disadvantage of a C corporation is that it is not a pass-through entity. As such, as noted above, it is subject to double-taxation, which means that corporate profits are taxed twice, and any losses do not pass through to its shareholders.
Investors prefer corporations because of their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is typically your best bet.
Don’t sleep on the idea of prestige either. While “Susie’s Sledgehammer Sales, LLC” is a fine upstanding company, it just doesn’t slap as hard as Nike, Inc. When you hear the word corporation, many people think of Amazon, Apple, and Walmart. While the LLC is perfect for the small to medium-sized business, it doesn’t carry the same cache as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.
SC LLCs vs. SC Corporations
We looked at a few general factors that make LLCs and corporations unique, but now we’re going to do a little digging on what makes LLCs and corporations unique in South Carolina.
- No Annual Report
Corporations and LLCs in South Carolina do not have annual report requirements with the SC Secretary of State. Your South Carolina Annual Report is basically your tax return. You don’t have to do anything special, just keep up to date on your taxes and you’re good. This not only saves you time and paperwork, but also money, as most states require not only an Annual Report, but also a filing fee.
- Flat Corporate Tax
South Carolina’s corporate income tax is not only a flat 5%, but it’s also the 3rd lowest in the US. Flat taxes have benefits in that they simplify paperwork, encourage economic growth, encourages more compliance with tax laws, and it can eliminates supplemental taxes. All of this is to say that a flat tax is often considered, by some economists, to be great for businesses and the economy in general.
- Fewer Taxes
South Carolina levies no state property tax (only local governments may levy property taxes), no local income tax, no inventory tax, no sales tax on manufacturing machinery, industrial power or materials for finished products, no wholesale tax, and no unitary tax on worldwide profits.
- Attorney Signature for Articles of Incorporation
Domestic corporations (profit, non-profit, and benefit corps) are required to have a South Carolina licensed attorney sign their Articles of Incorporation. This is but one more, and possibly expensive wrinkle, in forming your corporation. South Carolina LLCs can skip this part, which makes their formation a bit more affordable.
South Carolina LLC or South Carolina Corporation? Our Final Answer.
The South Carolina LLC takes the cake by giving you everything you need in terms of keeping you and your property safe from lawsuits, but legally defined enough by the state to run as an income producing entity. If you want to take your company public and attract investors, you’ll want to incorporate, but the LLC is perfect for it’s flexibility, and the way in which it allows small businesses superior protection without all the tedious paperwork.
How to Incorporate in South Carolina
To start a corporation in South Carolina, you must file Articles of Incorporation and an Initial Report with the Secretary of State. Together these documents cost $135, plus a $15 fee for processing of your paperwork. South Carolina also requires that all domestic corporations have a licensed attorney sign their Articles.
Your South Carolina Articles of Incorporation must include the following details:
Your name must include “Corporation,” “Incorporated,” “Company,” “Limited” or an abbreviation for one of these words. Example: Walmart, Inc.
You’ll need a formal mailing South Carolina street address where legal notifications will be sent. Like all the info in your Articles, this address will become part of the permanent public record of your corporation. Hire Active Filings as your registered agent and use our office address.
List either an individual South Carolina resident (like yourself) or a business (like Active Filings). Your agent will also need to sign your Articles to indicate their consent to serve.
For each class of shares, list how many shares you’re creating. If you have multiple classes of shares, you’ll also list the rights and limitations of each class.
Skip this section if you plan to start your business right away. Otherwise enter a date anywhere up to 90 days in the future if you’d like to delay the legal formation of your corporation. Most corporations skip this section because they plan to begin operation immediately.
Your incorporator is the person you authorize to submit your Articles of Incorporation. Incorporators must include their names, addresses and signatures. You must have at least one incorporator, and when you hire Active Filings, we’ll serve as your incorporator.
An attorney licensed to practice in South Carolina must sign to certify that the Articles comply with the South Carolina Code of Laws (§33-2). Active Filings can set you up with one when you hire us to from your South Carolina corporation.
How to Start a South Carolina LLC
To start an LLC in South Carolina, you must file Articles of Organization with the South Carolina Secretary of State. You can file the document online or by mail at a cost of $110 for paper filing, and $125 if you file online. Hire Active Filings and we’ll form your LLC for you.
Your name must include “Limited Liability Company,” “Limited Company,” or an abbreviation. Most businesses keep it short and sweet with “LLC.”
This is the official street address of your South Carolina LLC. Hire Active Filings and you can use our South Carolina address as your initial office.
You can go it alone, hire a scrub, or hire a professional agent like Active Filings. We do it all and we make it easy for you to form your LLC and receive all important and legal mailings from the state.
Your agent’s address goes here, and if you act as your own agent, you’ll find your mailbox crammed full of junk mail. Hire Active Filings and save yourself the trouble.
Your organizer is the person you authorize to form and file your Articles of Organization. It doesn’t have to be anyone in the LLC, but the organizer does have to list their name and address. Active Filings will be your organizer, which means our name and address goes here.
Feel like adding an expiration date to your LLC? Most people skip this section because they want their LLC to continue indefinitely.
LLCs can be managed by members or managers. Most LLCs are managed by members, but if you don’t plan to run the day-to-day operations of your business, you can turn decision-making powers over to one or more managers. If you choose to have managers, you must list the name and address of each manager.
This section is optional, but if you want to list a member or members who will be liable for certain LLC debts, you can add their information here. Most LLCs skip this section.
Starting your LLC now? Skip this section. Feel like waiting a few weeks (up to 90 days), fill in your delayed start date here.
SC Annual Report Requirements
South Carolina does things a bit differently. Most states require an annual report, but South Carolina combines their annual report with a company’s tax return.
Form CL-1, the Initial Annual Report of Corporations, must be submitted by both domestic and foreign corporations to the Secretary of State. LLC’s filing as a corporation must submit Form CL-1 to the South Carolina Department of Revenue within 60 days of conducting business in this state.
South Carolina Business Taxes
Let’s be honest, taxes are like Lima beans. Not everyone enjoys them. They are, however, an integral part of successfully doing business in America. While we’re not tax professionals, we definitely will do our best to try and explain what kind of taxes your business will be expected to pay.
Corporations: The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This is what we mean when we say corporations face “double taxation.” If you are forming a corporation, you’ll want to pay attention to not only the state’s corporate tax, but also it’s income tax rate, as you will be on the hook for both. By filing IRS Form 2553 (Election by a Small Business Corporation), a corporation with 100 or fewer shareholders can elect to be taxed as an S Corp. Of course, if a corporation chooses S Corp status, they’ll have to jump through a few extra hoops and meet certain requirements required by the IRS.
LLCs: For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity. One of the most significant benefits of an LLC is that of pass-through taxes. LLC owners don’t have to file a corporate tax return. An owner simply reports their share of profit and loss on their individual tax return. This prevents the double taxation, your business paying taxes and you paying taxes, that corporations often face. It should be noted that an LLC can elect to be taxed as a corporation under Subchapter C, by filing IRS Form 8832 (Entity Classification Election), or as a corporation under Subchapter S by filing IRS Form 2553 (Election by a Small Business Corporation).
What if my LLC has more than one member?
As with a single member LLC, the IRS will view your multi-member LLC as a partnership. The LLC will retain it’s pass-through tax status, with a few wrinkles with regards to paperwork. Instead of one member filing a 1040, instead each member will have to file a Return of Partnership Income form (IRS Form 1065). This document lets the IRS check and make sure each owner is reporting their income properly. Beyond that, each LLC owner will attach a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to their Form 1040. This form shows the IRS each member’s share of the LLC’s profits and losses.
Just a tip: If your LLC is going to have more than one member, it would be a good idea to draw up a simple operating agreement. Most states don’t require an LLC to have one, but with so many cooks in the kitchen, you’ll want clear documentation with regards to ownership percentage, voting rights, distribution of profits and losses, as well as rules for buying out a member. You won’t be require to file the agreement, but it should be signed by each member and kept with the LLC’s important documents.
Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest
What’s the South Carolina corporate tax rate?
South Carolina has a flat corporate income tax rate of 5%.
It should be noted that South Carolina levies a Corporate License Tax fee of $1 for each $1,000 of capital stock and paid-in or capital surplus, plus a $15 annual fee.
What does South Carolina’s income tax look like?
$0 – 2,670 0%
$2,670 – 5,340 3%
$5,340 – 8,010 4%
$8,010 – 10,680 5%
$10,680 – 13,350 6%
What tax forms do I need to file?
Corporations file Form SC1120
Partnerships file Form SC1065
LLCs file Form SC1040
When are my tax returns due?
Corporation tax returns are due by March 15th or the 3rd month following the end of the taxable year (for fiscal year filers). LLC’s would pay taxes on April 15th.
What if I need an extension?
South Carolina offers a 6-month extension for both income and corporate returns. To request a South Carolina extension, file Form SC4868 by the original due date of your return. Make sure to attach a copy of your extension to your South Carolina tax return when you file.