Our Charleston business attorneys regularly form limited liability companies in South Carolina for new business owners, entrepreneurs, real estate investors, and professionals. The following discussion on forming a limited liability company in South Carolina points out a few key areas to consider during the South Carolina LLC organizational process.
LLC Formation in South Carolina
Limited Liability Company Name
Generally, an LLC may select any permissible name that is not the same as or deceptively similar to existing South Carolina corporations, partnerships, limited partnerships, or other LLC’s. Our law firm recommends every LLC have a trademark search and clearance conducted before using any business name. Note, just because a business name might be available to register in South Carolina, this does not mean that another individual or entity has the same or similar name trademarked in South Carolina, in another state, or on the federal level. The last thing a new business will want to do is use a business name that will expose the LLC to a cease and desist order or trademark infringement lawsuit soon after the LLC is formed.
Fictitious LLC Names
Unlike other states, South Carolina does not have a fictitious or DBA name registry for domestic LLC’s. In other words, the statute requires that the business operate under the exact name in which it is registered. It would be violation of the LLC Act if a business owner registers the LLC under XYZ, LLC and decided to operate the business under ABC.
LLC Duration
The South Carolina LLC Act requires that the articles of organization describe a period of duration which can be perpetual or the last date on which the LLC is dissolved. The latter is considered to be an LLC term company. The LLC Act default rule states that if no period is stated in the articles of organization, the LLC by default will elect a perpetual duration. Generally, our LLC formation lawyers will in most situations elect a specific period of time in which the LLC will exist in order for the LLC to receive maximum creditor, asset protections.
Types of LLC Members
Generally, any person can be a member of an LLC. The South Carolina statute defines person broadly to include natural individuals, corporations, partnerships, limited partnerships, trusts, estates, LLCs, and other associations. Member-managers of an LLC can be natural persons or business entities. If children or other minors are to be members, a manager managed LLC structure would be most desirable. In a manager-manager LLC structure, all decision making power may be given to the adults by making them managing members. The children would be give the same rights as a passive member.
LLC Purpose
The South Carolina statute allows LLCs to be formed for any lawful purpose or purposes. However, our LLC attorneys, in most situations, will specify a particular purpose in which the LLC may operate.
Registered Agent
An LLC is required to have and maintain a registered agent and a registered office. A registered agent must be an individual residing in South Carolina, or a business entity domesticated and authorized to do business in South Carolina. The registered office is usually the business office of the registered agent. The registered office does not need to be the same office as the LLC’s business office or designated office. Our law firm offers registered agent and office services for those LLCs that are out of state, have increased exposure to liability and litigation, or those individuals or business entities looking for additional privacy.
South Carolina LLC Act
A South Carolina limited liability company is a separate legal entity that is governed by the South Carolina LLC Act. Title 33, Chapter 44 of the Uniform Limited Liability Company Act of 1996 governs those LLC’s that are formed in South Carolina. This statute sets out basic procedures and elements that are required to establish the LLC.
Mandatory vs Default Statutory LLC Provisions
While an LLC is very flexible in nature and has broad contractual freedom in its structure, operation, management, as well as other areas, South Carolina has certain mandatory provisions and default provisions. Mandatory provisions are those statutory rules that must be complied with by the LLC and its members. Default statutory provisions are rules that take effect if the LLC’s articles of organization or the South Carolina LLC operating agreement do not address a specific issue.
Nearly all of the statutory provisions governing the interrelationships among its members (and between members and the LLC as an entity) may be modified by the limited liability company agreement (aka operating agreement). The operating agreement is the essential contract that governs the affairs of a limited liability company and should be carefully addressed during the LLC formation process.
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.
This 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.
Note, the South Carolina LLC statute does not cover every conceivable circumstance in which an LLC may face during its existence. Thus, our Charleston LLC formation attorneys take care in forming the LLC so adverse applications of the LLC Act default rules do not occur.
Contact Our Charleston LLC Formation Lawyers
Our Charleston business lawyers provide counsel and advice to those entrepreneurs, professionals and businesses who seeking to start a new company in South Carolina. We assist clients in everything from business entity selection during the formation process to the purchase of a business or sale of a business. For LLC formations in South Carolina, our law firm not only offer reasonable hourly fee arrangements, but also provide flat-fee or fixed-fee services for the majority of all newly formed LLCs.