An Overview Of Steps To Form An LLC In South Carolina

Fundamentals Of Forming an LLC in South Carolina

Forming a Limited Liability Company (LLC) in South Carolina is a strategic decision that offers flexibility, protection, and opportunities for entrepreneurs and business owners. This quick guide delves into the more important aspects of LLC formation in South Carolina.

Choosing the Right Name for Your LLC

First, you must create a name for the LLC. This name needs to be distinctive and not deceptively similar to existing entities within the state.  Additionally, the LLCs name should not be identical or confusingly similar to any state or federal trademark. The importance of this step lies not only in complying with state regulations but also in establishing a unique identity in the market. Our law firm recommends conducting a thorough trademark search to ensure that your chosen name does not infringe on existing trademarks at any level – state, federal, or even in other states. This careful approach prevents potential legal issues, such as trademark infringement lawsuits or cease and desist orders, which could disrupt your business shortly after its inception.

Understanding Fictitious Names and Operational Limitations

South Carolina sets itself apart from other states by not offering a registry for fictitious or ‘Doing Business As’ (DBA) names for domestic LLCs. This means an LLC must operate under its registered name, strictly adhering to this requirement. Operating under a different name than the one registered can result in violations of the LLC Act. This unique stipulation has significant implications for your branding and operational strategies.

Determining the Duration of Your LLC

The South Carolina LLC Act mandates specifying the duration of your LLC in the articles of organization. You can choose a perpetual duration or a specific termination date. Our attorneys often recommend electing a specified period for enhanced creditor and asset protection. This decision should align with your long-term business strategy and succession planning.

Types of LLC Members and Their Roles

In South Carolina, subject to certain tax regulations, virtually anyone or any entity can be a member of an LLC, including individuals, corporations, and other entities. This inclusive definition allows for diverse and flexible member structures. In scenarios involving minors as members, a manager-managed LLC is often advisable. This manager-managed structure ensures effective decision-making and clearly delineates active and passive roles within the company.

Specifying Your LLC’s Purpose

While South Carolina permits LLCs to be formed for any lawful purpose, specifying a particular purpose can provide clarity and focus to your business operations. Our attorneys often advise defining a specific operational purpose in the formation documents to align the LLC’s activities with its strategic goals.

The Role of a Registered Agent

An LLC in South Carolina must maintain a registered agent and a registered office. The agent can be an individual or an entity authorized to do business in the state. The registered office, which may differ from the LLC’s primary business location, serves as the official address for legal correspondence. Our law firm offers registered agent services, particularly beneficial for out-of-state LLCs or those seeking additional privacy and protection.

Navigating the South Carolina LLC Act

The South Carolina LLC Act, specifically Title 33, Chapter 44 of the Uniform Limited Liability Company Act of 1996, governs LLCs in the state. This legislation outlines essential procedures and requirements for establishing and operating an LLC. Understanding these guidelines is pivotal for compliance and effective business management.

Understanding Mandatory and Default Statutory Provisions

The LLC Act delineates between mandatory and default statutory provisions. Mandatory provisions are non-negotiable rules that LLCs must adhere to, while default provisions apply in the absence of specific stipulations in the LLC’s articles of organization or operating agreement. The operating agreement, a critical document in LLC formation, governs the internal affairs and member relations within the LLC. This agreement can modify most default rules but must comply with the nonwaivable provisions outlined in Section 33-44-103.

Nonwaivable Provisions in the Operating Agreement

Certain elements in the operating agreement are nonwaivable to ensure fairness and transparency. These include maintaining rights to information and records, upholding certain fiduciary duties, and procedures for expelling members or winding up the LLC under specific circumstances. These provisions safeguard the integrity of the LLC and its members.

Section 33-44-103 of the SC limited liability company statute lists a number code sections which specifically cannot be changed by the operating agreement. The statute is reproduced below:

SECTION 33-44-103. Effect of operating agreement; nonwaivable provisions.

  • (a) Except as otherwise provided in subsection (b), all members of a limited liability company may enter into an operating agreement, which need not be in writing, to regulate the affairs of the company and the conduct of its business, and to govern relations among the members, managers, and company. To the extent the operating agreement does not otherwise provide, this chapter governs relations among the members, managers, and company.
  • (b) The operating agreement may not:
  • (1) unreasonably restrict a right to information or access to records under Section 33-44-408;
  • (2) eliminate the duty of loyalty under Section 33-44-409(b) or 33-44-603(b)(3), but the agreement may:
  • (i) identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; and
  • (ii) specify the number or percentage of members or disinterested managers 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;
  • (3) unreasonably reduce the duty of care under Section 33-44-409(c) or 33-44-603(b)(3);
  • (4) eliminate the obligation of good faith and fair dealing under Section 33-44-409(d), but the operating agreement may determine the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
  • (5) vary the right to expel a member in an event specified in Section 33-44-601(6);
  • (6) vary the requirement to wind up the limited liability company’s business in a case specified in Section 33-44-801(3) or (4); or
  • (7) restrict rights of a person, other than a manager, member, and transferee of a member’s distributional interest, under this chapter.

his section makes clear that the operating agreement may not: (1) limit a member’s right to inspect records, (2) eliminate certain fiduciary duties of the members, (3) vary the right to expel members, or (4) vary the duty to wind up the LLC in certain situations. Accordingly, an operating agreement may modify or alter most every other default rule except for those listed above.

Preparing for Unforeseen Circumstances

While the South Carolina LLC statute is comprehensive, it doesn’t cover every conceivable scenario an LLC might encounter. Our attorneys take meticulous care in forming LLCs to prevent adverse applications of default rules. This proactive approach ensures your LLC is prepared for a range of business situations, providing stability and security for your enterprise.

Contact Our Charleston Business Attorneys

Forming an LLC in South Carolina involves careful planning, adherence to legal requirements, and strategic decision-making. By considering each aspect of the LLC formation process, from naming and operational structure to statutory compliance and preparing for unforeseen circumstances, you lay a solid foundation for your business. Our law firm is committed to guiding entrepreneurs through this process, offering expert legal counsel and comprehensive services tailored to your unique business needs.